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The Australian Government is concerned about multinational companies using tax minimisation strategies to reduce the effective rate of corporate tax they pay in Australia.

To address this concern, research will be conducted on the risks posed by such multinationals as well as potential solutions there may be to this problem. A specialist tax reference group made up of representatives from the business, tax professional, academic and community sectors has also been established to assist with this enquiry.

Why is Australia concerned about multinationals?

The government is concerned that because multinationals are taxed at lower rates, Australian businesses and families may be forced to pay tax at a higher rate to make up for any shortfall in tax revenue collected.

Also, many of the key rules of international taxation (for example source, permanent establishment and residency) may need to be updated to keep up with the changing business models and tax planning arrangements used by multinationals.

What are some of the other areas of reform that may affect international transactions?

Australia has embarked on a journey to reform its transfer pricing rules to make it more effective and relevant to the modern environment in which multinationals operate. Furthermore, Australia is also in the process of updating its general anti-avoidance rules to prevent schemes that are entered into for the sole or dominant purpose to avoid tax.

Next Steps

This examination of how multinationals may erode the corporate tax base is still in its infancy and the Australian Government will only present their research for public consultation in mid-2013. It is imperative that multinationals operating in Australia stay up to date with the developments in this area.

Should you wish to know more about how these proposed changes please contact Murray Howlett of our Taxation Services Division on (07) 3023 1300.