Australia: Consultation paper on BEPS 2.0

Treasury released a consultation paper on Australia’s participation in the OECD’s BEPS 2.0 project

Treasury released a consultation paper on Australia’s participation in the OECD’s BEPS 2.0

Treasury released a consultation paper on Australia’s participation in the OECD’s BEPS 2.0 project—the global agreement to implement a two-pillar solution to address the tax challenges arising from the digitalisation of the economy.

The consultation paper is focused on the global anti-base erosion (GloBE) rules under Pillar Two—including implementation of a domestic minimum 15% tax—and contains 40 questions for consultation, including:

  • How the two-pillar solution might affect investment decisions and behavioral changes
  • Areas of uncertainty in relation to implementation, and how these can be addressed
  • What challenges are foreseen in relation to the OECD timelines, which have Pillar Two coming into effect in 2023 and Pillar One in 2024
  • Compliance cost aspects, including what changes to processes and systems are anticipated for businesses in order to comply with Pillar Two
  • How Australia should implement the GloBE rules into domestic law, including interaction considerations
  • The scope, design and conditions of access to a GloBE safe harbor
  • Whether Australia should adopt a domestic minimum tax, in addition to the Pillar Two rules

The consultation period is open to 1 November 2022.

KPMG observation

This consultation represents an important step in Australia's engagement with the BEPS 2.0 project, and in particular the implementation of the GloBE rules in Australia. A productive consultation process is essential to ensuring Australian legislation operates effectively and as intended, and provides Treasury with feedback to support Australia's ongoing negotiations on various parts of the rules that are yet to be formulated.

Given the government has already publicly committed to implementing BEPS 2.0 as part of its pre-election plan, the consultation paper does not cover whether or not Australia should adopt these rules. Instead, the focus is primarily two-fold: firstly, in relation to the regulatory impacts and specifics associated with an Australian implementation; and secondly, on canvassing the appropriateness of including a domestic minimum tax in Australian law.

In relation to Pillar One, Treasury estimates that no Australian headquartered multinationals currently fall within the scope of Amount A of Pillar One due to the financial services and extractives exclusions in those rules (however, this may change in future years). In addition, Treasury considers it too early to formalize a revenue impact estimate for Australia. Similarly, there is no revenue impact estimate for Australia for Pillar Two, although Treasury considers that the implementation of Pillar Two will help strengthen Australia's corporate tax base.

An important aspect of the consultation is whether Australia should adopt a domestic minimum 15% tax, and whether it should be designed as a qualifying or non-qualifying top up tax. This would allow Australia to impose a top up tax on Australian parent companies, subsidiaries and branches taxed below 15%, rather than allowing other jurisdictions to collect the revenue. The paper also seeks feedback on whether such a domestic minimum tax should apply only to those multinational groups that are within the scope of Pillar Two, or whether it should apply also to groups that are wholly domestic.

One key aspect of the implementation is the date from which it the rules should become effective, which is left as an open question in the paper. We expect Treasury will receive strong feedback requesting a delay to at least 2024, and this mirrors the approach taken by other governments around the world including the United Kingdom, EU and Switzerland.

Treasury is also seeking feedback on the estimated compliance costs of implementation. The rules are complicated, and it is expected a number of groups will require systems changes to capture the information needed to comply. In this regard, the design of safe harbor rules to simplify the compliance process, which is still under negotiation by Inclusive Framework members, will be important.

Read an October 2022 report prepared by the KPMG member firm in Australia


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