The Federal Budget 2023: International Tax
10 May 2023
Considering the release of the Federal Budget 2023, we’ll explore what this means for international tax and outline any key updates that could impact you. Let’s dive in.
Global and Domestic Minimum Tax
The Government has announced it will make further progress towards the implementation of key aspects of the OECD’s Base Erosion and Profit Shifting (BEPS) Project.
In accordance with these objectives, the Government will be introducing a 15% global minimum tax for large multinational enterprises through the introduction of two key measures:
The Income Inclusion Rule. Effective for income years starting on or after 1 January 2024. Broadly, this rule will allow Australia to claim top-up tax on undertaxed profits of an Australian entity’s foreign subsidiaries, where they are in tax jurisdictions with no domestic minimum tax implemented.
The Undertaxed Profits Rule. Effective for income years starting on or after 1 January 2025. Broadly, this rule will allow Australia to claim a proportion of any top-up tax on profits of a foreign headquartered multinational if it has income in a jurisdiction, which is taxed below the global minimum rate of 15% and where the Income Inclusion Rule does not apply. The share is based on the proportion of the large multinational group’s employees and the value of tangible assets in Australia, relative to other countries.
In addition to the above, the Government will be introducing a 15% domestic minimum tax for income years starting on or after 1 January 2024. The domestic minimum tax will operate by providing Australia the first claim on a top-up tax for any domestic income that is low-taxed, for example if the effective Australian tax rate falls below 15%.
These rules will apply to entities with annual global revenue of EUR750 million or more (approx. A$1.2 billion).
Expansion of General Anti-Avoidance Rules
The Government has announced it will expand the scope of the general anti-avoidance rules for income tax within Part IVA of the ITAA 1936, so that it will apply to schemes that:
• Reduce tax paid in Australia by accessing a lower withholding tax rate on income paid to foreign residents; and
• Schemes that achieve an Australian income tax benefit, even where the dominant purpose was to reduce foreign income tax.
The measure will apply to income years commencing on or after 1 July 2024, regardless of whether the scheme was entered into before that date.
Amended Start Date of Franked Distribution Measure
The Government has amended the start date of the previously announced 2016-17 MYEFO measure ‘Tax Integrity’ – franked distributions funded by capital raisings.
Broadly, this measure was introduced to prevent a company from attaching franking credits to distributions where the distribution was funded directly or indirectly by capital raising activities that result in the issue of new equity interests.
The measure, which was previously announced to apply retroactively from 19 December 2016, will instead apply from 15 September 2022.
Check out the full coverage from the Federal Budget 2023 here.
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