Diverted Profits Tax: the future is here – 1 December 2016
On 29 November 2016, the Australian government released an Exposure Draft (ED) Bill and Explanatory Memorandum (EM) for the Diverted Profits Tax (DPT) which was originally announced as part of the May 2016 Federal Budget. In broad terms, the DPT targets the shifting of profits out of Australia, to countries with a tax rate of less than 24%, and allows the Australian Taxation Office (ATO) to impose a penalty rate of tax at 40% of the relevant diverted profit.
The DPT is extremely broad in scope and provides the ATO with substantial technical, administrative and negotiation tools. Multinational groups with related party transactions with Australian taxpayers will need to carefully consider the scope and potential application of the DPT to existing and future arrangements, and reconsider how to best manage future disputes with the ATO.