If, at the end of that period of review, the company in question is dissatisfied with the tax assessment, or the amended assessment, the organisation will have 60 days to challenge the assessment by making an appeal to the Federal Court.
“The DPT [diverted profit tax] will impose a penalty rate of tax and require that tax to be paid irrespective of whether the assessment is the subject of an unresolved dispute,” the Bill’s explanatory memorandum stated. “This will place the onus on taxpayers to provide relevant information on related party transactions to the Australian Taxation Office (ATO), making it easier for the ATO to apply current transfer pricing and anti-avoidance rules.”
According to the government, the proposed changes to the transfer pricing regime are estimated to affect approximately 4,400 businesses that have potential cross border dealings with related parties.
Additionally, there are approximately 1600 companies that are likely meet the significant global entity definition outlined in the legislation, and have Australian turnover of more than $25 million. These companies could need to consider if their practices would be within the scope of the new tax, according to the government.
Of these 1600 companies, it is estimated that approximately 130 organisations may need to engage with the ATO to either obtain certainty on the application of the diverted profit tax including amending their tax return or settling their tax liability.
Meanwhile, a small proportion of the higher risk companies - around 8 per cent - are assumed to require a restructure and would need to take steps to implement a new business model in accordance with the preferred restructure option.
For these higher risk companies, the total external costs of the proposed scheme are estimated to be approximately $1,000,000 per entity, and the total internal costs are estimated to be around $75,000 per entity – inclusive of the costs of the initial advice and assessment activities, as well as the evaluation, planning and documentation activities.
It is expected that the legislation, if passed, will result in at least $100 million in revenue during the 2018-19 and 2019-20 financial years, according to the explanatory memorandum. The new measures have a compliance cost impact of $16.4 million per year for 10 years.
Meanwhile, the Combating Multinational Tax Avoidance Bill 2017 includes further measures to ensure that multinationals pay the "right" amount of Australian tax in Australia.
The new legislation increases the maximum penalty for large multinationals by a factor of 100 in cases where they fail to lodge tax documents on time. The government is also doubling the penalties for large multinationals when they make false or misleading statements to the ATO.
The failure to lodge penalty for a significant global entity is $90,000, which would apply where a document is lodged up to 4 weeks late. The maximum penalty, where a document is late by more than 16 weeks, is $450,000.
For large entities, this means that failure to lodge penalties increase by a factor of 100, compared to the original maximum penalty of $4,500
Under the new legislation, the maximum administrative penalty for significant global entities that fail to comply with their tax reporting obligations will increase to $525,000.
The legislation also amends Australia’s transfer pricing law, giving effect to the 2015 OECD transfer pricing recommendations.
"These recommendations provide greater clarity on how intellectual property and other intangibles should be priced, and ensure the transfer pricing analysis reflects the economic substance of the transaction rather than just the contractual form," Morrison said in a statement.
"Adopting these changes will keep our transfer pricing rules in line with international best practice and help ensure that profits made in Australia are taxed in Australia," he said.