Background
In August 2019 the Treasurer wrote to the Board of Taxation asking the Board to conduct a review of the operation of Australia’s corporate tax residency rules. The purpose of the review is to ensure that the rules are operating appropriately in light of modern, international and commercial board practices and international tax integrity rules.
Terms of Reference
The terms of reference set out by the Treasurer are for the Board to consider whether the existing rules:
- minimise commercial uncertainty and ambiguity;
- are consistent with and aligned with modern day corporate board practices;
- protect the tax system against multinational profit shifting; and
- otherwise support Australia’s tax integrity rules as they apply to multinational corporations.
Working Group
The Board has appointed Board member Neville Mitchell to lead the work on this review. Mr Mitchell is assisted by fellow Board members Dr Julianne Jaques and Mrs Ann-Maree Wolff. Representatives from academia, industry and the tax profession will also be assisting in the review.
Initial Consultation
On 6 September 2019 the Board of Taxation published a Consultation Guide on its corporate residency review project, in which it presented six consultation questions for stakeholder comment. The Board received 13 written submissions (with two being confidential) and also conducted roundtable discussions in Sydney, Melbourne and Perth.
| Submitter | Download |
|---|---|
| Powerco | 273KB |
| KPMG | 133KB |
| Pitcher Partners | 415KB |
| Deloitte | 100KB |
|
Business Council of Australia & Corporate Tax Association APPEA letter of support Minerals council of Australia |
|
| EY | 631KB |
| Corporate Taxpayers Group | 240KB |
| Financial Services Council | 465KB |
| Greenwoods | 253KB |
| Chartered Accountants Australia and New Zealand | 289KB |
| Law Council of Australia | 284KB |
| Joint submission on Draft Taxation Ruling TR 2017/D2 | 104KB |
| Joint submission on Practical Compliance Guideline PCG 2018/D3 | 676KB |
Further consultations
The Board published a second consultation paper for stakeholder review and input on 6 December 2019. The paper set out a number of proposed reform options and included additional consultation questions for stakeholder consideration.
The Board received another 13 submissions, including four confidential submissions.
| Submitter | Download |
|---|---|
| Business Council of Australia and Corporate Tax Association | 2.21MB |
| Corporate Taxpayers Group | 185KB |
| EY submission on Incorporation | 747KB |
| EY submission to modify CMAC | 725KB |
| Financial Services Council | 148KB |
| KPMG | 82KB |
| Law Council | 567KB |
| PowerCo | 397KB |
| The Tax Institute | 96KB |
| Pitcher Partners | 293KB |
Board Report
The Board completed its report in July 2020.
Government Response
On 6 October 2020, the Government released the Board’s report and, in the 2020-21 Budget, adopted the Board’s key recommendation.
The Government will amend the law to provide that a company that is incorporated offshore will be treated as an Australian tax resident if it has a ‘significant economic connection to Australia’. This test will be satisfied where both the company’s core commercial activities are undertaken in Australia and its central management and control is in Australia.
This change will mean the treatment of foreign incorporated companies will reflect the corporate residency position prior to the 2016 High Court decision in Bywater Investments Ltd v Federal Commissioner of Taxation.
It will have effect from the first income year after the date of Royal Assent of the enabling legislation, but taxpayers will have the option of applying the new law from 15 March 2017 (the date on which the ATO withdrew its ruling TR 2004/15).
Further Information
Please contact the Board of Taxation Secretariat at taxboard@treasury.gov.au or +61 2 6263 4366 for more information.
