FLAWED DIVERTED PROFITS TAX IS BAD LAW
The decision by the Senate Economics Committee to today endorse the Government’s legislation to introduce the flawed Diverted Profits Tax (DPT) represents a failure of Parliament to properly scrutinise proposed legislation.
The Committee has effectively endorsed Australia ‘going it alone’ on a unilateral measure outside the OECD’s Base Erosion and Profit Shifting (BEPS) project.
There is wide agreement amongst Australia’s most respected and knowledgeable tax experts that the legislation, as drafted, is badly flawed. The legislation will impose heavy compliance burdens and uncertainty on businesses investing in Australia and risks damage to Australia’s reputation as a place to invest.
Most disappointing is that the Australian tax community supported the original intent of the DPT which was to target instances of uncooperative behaviour by multinationals to delay resolution of transfer pricing disputes. Instead the proposed legislation represents a textbook case of regulatory overreach by Government.
The legislation is poorly targeted cutting across Australia’s transfer pricing and anti-avoidance rules. It introduces new and undefined concepts into the tax law with uncertain application with implications for legitimate commercial transactions.
It represents an assault on procedural fairness by handing extraordinary new powers to the ATO without adequate oversight or protections for taxpayers doing the right thing. The DPT as drafted takes a coercive approach rather than one that will promote taxpayer co-operation. The DPT will confer unilateral powers on the ATO to raise tax assessments that are supported by minimal evidence of arm’s length pricing and where genuine differences of view exist.
The measure undermines the multilateral effort led by the OECD’s Base Erosion and Profit Shifting initiative (BEPS) project to bring anti-avoidance rules and standards and rules up to date. The OECD itself has explicitly warned countries against unilateral measures like the DPT.