Many serious reforms have been implemented, and very
strong Federal political will, together with strong state-based
political consensus, will be needed for any further tax reform in
Over the last couple of years, there has been a lot of talk
about tax reform, notably base erosion profit shifting
(BEPS) and the proposed White Paper process. At
this stage I think it's clear that while there may be some
tinkering, there will be little serious reform till after the next
Federal election, which is likely in late 2016.
There have been some serious reforms enacted in the last year,
but these reforms are old news - getting the backlog of announced
but unenacted measures off the books. That job has now largely been
done. As a result, we have the MITS regime, new rules on earn-outs,
the transparency regime and so on. The big question in my mind for
the coming year is "will anything actually happen?".
Sure enough, we've had the multinational anti-avoidance law
(MAAL), which is a largely political measure
pandering to the public perception that something had to be done to
stop multinationals avoiding "paying their fair
There are apparently lots of votes in pedalling that line (new
taxes don't win votes - unless the tax applies to foreign
multinationals). But really, no one in the know actually expects
that the MAAL will raise much revenue at all. It's really a
closet transparency measure designed to encourage multinationals to
transact in Australia through Australian entities and run the
gauntlet of our transfer pricing rules, rather than the current
strategy of seeking to avoid a taxable presence here. The elephant
in the room is how much profit is attributable to Australian
operations, having regard to the functions and risks which are
assumed here. The answer is probably not much.
Fundamentally, in order for foreign multinationals to pay a
greater share of Australian tax, there needs to be core reform,
especially to our source of income rules. The BEPS process left
that issue alone, so I wouldn't expect much change there. Any
unilateral action by us or any other jurisdiction would lead to
serious double tax issues.
The progression to greater transparency and reporting so that
the existing transfer pricing and other integrity rules can be
implemented will continue. There may be some changes affecting
hybrid instruments that straddle the debt/equity divide. Otherwise,
it is probably business as usual. Going forward, international tax
may be as much an area for PR advisers as for tax consultants.
The big issues, and the politics of taxation reform
There are a lot of big issues floating around (not for the first
time), notably around the tax mix and the role of GST,
superannuation and negative gearing. Interesting ideas are
surfacing, for example, that the solution lies in legislating a
minimum effective tax rate, akin to the US alternative minimum tax
There is perhaps little gained by adding my two cents to the
litany of speculation which is in the press on a daily basis.
Although I favour a higher GST rate with compensation for lower
income earners, it's not that straightforward. For example, how
do you compensate self-funded retirees who are largely outside the
tax system (as they receive exempt pension income) and also outside
the transfer system (as they are not receiving welfare payments)?
For an increasingly large part of the population, that's a real
But the real impediment to change is political. Like I said, new
taxes don't win votes. The election before the GST was
introduced in 1996, Prime Minister Howard's Government was
voted in with a 45 seat majority. That was the second largest since
Federation. The Howard Government might be considered fortunate to
have been returned. The ALP made the biggest gain of any opposition
party following an election defect.
The Coalition, notwithstanding the current popularity of its
leader, will be cognisant that its starting point is a narrow
majority; unlike Howard, it can't afford to give up much
ground. There would need to be some very strong Federal political
will, together with strong state-based political consensus, if any
rubber were to hit the road in 2016.
Clayton Utz communications are intended to provide
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The Government plans a white paper on tax reform within two years and will then seek a mandate at the next election.
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