Country Update: Australia

www.pwc.com Country update: Australia

Anthony Klein Partner, PwC Australia Liam Collins Partner, PwC Singapore Agenda

1. Economic and social challenges 2. Tax and politics 3. Recent developments 4. 2015 Federal Budget – key announcements 5. Regulatory environment – changes at the ATO 6. Q&A

Global Tax Symposium – Asia 2015 PwC 2 Economic and social challenges

Global Tax Symposium – Asia 2015 PwC 3 Economic outlook

Australia’s net debt levels, A$ billion

14,000

12,000

10,000 Current year 8,000

6,000 billion

4,000

2,000

‐2,000 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ 2036 2037 2038 2039 2040 2041 2042 2043 2044 2045 2046 2047 2048 2049 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035

Commonwealth States and territories Federation

Global Tax Symposium – Asia 2015 PwC 4 Impact of iron ore prices and AUD

1980 to 2015

200.00 1.5000

180.00 1.3000 160.00

140.00 1.1000

120.00 0.9000 Iron Ore Price 100.00 AUD:USD 0.7000 80.00

60.00 0.5000

40.00 0.3000 20.00

0.00 0.1000

Global Tax Symposium – Asia 2015 PwC 5 Domestic challenges

Domestic economy • Declining per capita income • Government spending previously underpinned by resources boom – now less affordable • As a consequence, deficits ‘as far as the eye can see’ • A Government short on political capital

Demographic challenges • Ageing population • Declining ratio of working age individuals to retirees

Global Tax Symposium – Asia 2015 PwC 6 What might tax reform look like

What’s on the table • Everything, in theory • Lower corporate tax rate? • Broader base and higher rate for GST?

Challenges to reform • A wide range of powerful interest groups • Dysfunctional Senate • Federation • A misunderstanding that BEPS process will fix everything

Global Tax Symposium – Asia 2015 PwC 7 Composition of the Senate

Global Tax Symposium – Asia 2015 PwC 8 But it’s not all bad news (1/2)

Stable, mature market • Relatively low sovereign risk • Strong rule of law • Strong financial sector • Well regulated markets • Highly educated and skilled workforce • Good quality of life

Global Tax Symposium – Asia 2015 PwC 9 But it’s not all bad news (2/2)

Opportunities for investment • Continued infrastructure privatisation • Real property sector strong • Agriculture – clean, safe and plentiful • Growing tech sector

Global Tax Symposium – Asia 2015 PwC 10 Tax and politics

Global Tax Symposium – Asia 2015 PwC 11 Tax and political events

110 January April 2015 2017 1 JanuaryLate 2015 2017

130 January March 20152017 “NetflixAnti hybrid Tax” GreenAnti hybridPaper to 26 September 1 12January May 2015 2017 14 May 2013 rulesannounced operative rulesbe released operative 1 January 2017 1 January2014 2017 AntiTax hybridWhite AntiAustralian hybrid Tax Justice Paperrules operative released Anti hybrid 12 JanuaryOctober 20172014 Federalrules operative Budget 25-90Anti hybrid repeal Report rules operative 8-10,1 January 22 April 2017 2015 rulesannounced operative released SenateAnti hybrid Inquiry rulesannounced operative AntiSenate hybrid 1 JanuaryLate 2015 2017 November2013 rulesHearings operative 1 January 2017 ATO mandatory Anti hybrid reporting of rules operative Anti25-90 hybrid taxpayer rulesretained operative information Domestic

1 19January April 2013 2017

“Tax 15 JanuaryOctober 20172014 Anti hybrid Transparency 31 December January 2017 2014 118 January March 20152017 rules operative 18 JanuaryOctober 20172015 and BEPS” Anti hybrid 7 Deliverables UK announces rules operative AntiUK Googlehybrid rules Tax Anti hybrid anti hybrid AntiFinal hybrid 15 announcedoperative rules operative rules rulesDeliverables operative 1 January 2017 1 19January July 2013 2017

UKAnti anti hybrid hybrid BEPsAnti hybrid Action rulesrules operativeoperative rules Planoperative 1 January7 May 2015 2017 1 1January April 2015 2017 121 JanuaryFebruary 2017 2013 51 November January 2017 2014 International Anti hybrid UK election UKAnti Google hybrid Tax rules operative Anti hybrid rules Anti hybrid rules BEPS “Lux Leaks” rulesoperative operative operative operative

Global Tax Symposium – Asia 2015 PwC 12 Tax on the front page

Big business ‘shirks’ fair share of tax load Senate inquiry demands answers from low-tax Sydney Morning Herald companies

Sydney Morning Herald “Ultimately, sustainable, well-run businesses should pay a fair level of tax, and avoid the reputational, legal and financial risks posed by overly aggressive tax planning. Doing so is in ATO needs to ‘man up’ their interests, the interests of their on tax dodges shareholder and the interests of the long-term health of the global Michael West economy.” Sydney Morning Herald Fiona Reynolds Managing Director, UN PRI Tax Justice Network’s report on business is a hatchet job

Sydney Morning Herald

Global Tax Symposium – Asia 2015 PwC 13 Tax on the front page

“When 29 per cent of Australia’s largest listed companies are Tax minimisation practices of a paying an effective tax rate of 10 minority of very large companies per cent or less, it’s clear that the have a significant and system is broken” disproportionate impact on Australia’s corporate tax revenue David O’Byrne base National Security, United Voice Who Pays For Our Common Wealth?

ASX 200 company tax avoidance …there should be a cohesive and clear bleeds Commonwealth coffers of legal framework that enables all billions a year, report finds taxpayers, large and small, to be confident that they are complying with Heath Aston & Georgia Wilkins their legal obligations. Sydney Morning Herald

Frank Drenth Corporate Tax Association

Global Tax Symposium – Asia 2015 PwC 14 Recent developments

Global Tax Symposium – Asia 2015 PwC 15 Australia’s international tax landscape

Corporate tax rate 30% Withholding taxes But, dividend imputation, conduit foreign - Dividends 30% income and lower for treaty residents - Royalties 30% But, lower for treaty residents But, maybe lower for certain treaty - Interest 10% residents (e.g. banks) But limited to: Taxation for foreign investors Yes - Australian sourced income; and - CGT on Taxable Australian Property Integrity measures - Thin cap regime Yes Generally 1.5:1 safe harbour Existing GAAR and proposed multi- - Anti avoidance measures Yes national anti avoidance rule (PE) - BEPs agenda Yes Australia leading the charge – CbC, CRS, - CFC regime Yes

Global Tax Symposium – Asia 2015 PwC 16 FIRB: Pre approval for agricultural land

Foreign Threshold at investor which FIRB review required reduced from AUD252m AUD252m to FIRB AUD15m AUD15m Agricultural land

Global Tax Symposium – Asia 2015 PwC 17 Proposed fees for foreign investment applications

Minimum Foreign AUD5,000 investor application fee AUD5,000 for FIRB review of real estate investments FIRB

Rural land

Global Tax Symposium – Asia 2015 PwC 18 Proposed increase in Victorian stamp duty for foreign purchasers Additional 3% Foreign stamp duty investor upon purchases 5.5% of Victorian 8.5% residential land $$ Vic SRO

Global Tax Symposium – Asia 2015 PwC 19 Investment Manager Regime

Provides certainty to Foreign foreign investor investors on taxation of Australian managed investments Management services Australian Australian PE? manager investments

Global Tax Symposium – Asia 2015 PwC 20 Premium Investor Visas

Proposed new Significant Investor Visa (SIV) programme was introduced to compete effectively for high net work visa individuals seeking investment migration programme to Proposed to extend programme to include Premium attract Investor Visa (PIV) with effect from 1 July 2015. entrepreneurial PIV has: skill and talent • higher investment threshold (AUD15m) to Australia • a more focused eligible investment class, including:  Private equity/start up funding; and  LICs and emerging ASX listed companies. • shorter time frames (12 months)

Global Tax Symposium – Asia 2015 PwC 21 2015 Federal Budget – key announcements

Global Tax Symposium – Asia 2015 PwC 22 Snapshot of budget changes

Measure Application Progress

Income years from 1 July Double penalties for large companies 2015 Multinational anti-avoidance law 1 January 2016 Transfer pricing documentation 1 January 2016 (country by country reporting) GST on digital B2C 1 July 2017

Targeting treaty abuse Apply to future treaties

Anti-hybrid measures Board of Tax consultation

Tax transparency code Board of Tax consultation

Global Tax Symposium – Asia 2015 PwC 23 Multinational anti-avoidance

Principal purpose MNC Reducing any taxes Directly or indirectly related to supply Low or No Tax Foreign supplier No Substantial Activity

Connection Supply

Australian PE Activities Customer

Global Tax Symposium – Asia 2015 PwC 24 Goods and services tax (1/2) GST on digital products and services – the ‘Netflix Tax’

From 1 July 2017, GST will be payable on qualifying supplies of anything other than goods or real property to a non-registered ‘Australian consumer’, including: • supplies of digital products such as streaming or downloading of movies, music, apps, games, e-books; and • other services such as consultancy and professional services.

Global Tax Symposium – Asia 2015 PwC 25 Goods and services tax (2/2) GST on digital products and services – the ‘Netflix Tax’

Supplies made through an online intermediary (such as websites, gateways, stores or market places). • GST collected through a reverse charge mechanism. • Intermediary to remit the GST. Projected annual revenue of AUD150m – AUD200m

Global Tax Symposium – Asia 2015 PwC 26 Regulatory environment – changes at the ATO

Global Tax Symposium – Asia 2015 PwC 27 Changes at the ATO and what this means for you

• New Commissioner appointed (Jan 2013), first external to ATO

• Driving a massive cultural change agenda, including redundancy programme and external hires at senior levels

• Alternative dispute resolution focus

• New ATO processes enable disputes to be resolved sooner (e.g. independent review, settlements)

• Opportunities and challenges for taxpayers

Global Tax Symposium – Asia 2015 PwC 28 Tax transparency

• Australia to implement the OECD’s new transfer pricing documentation package, including requirement to file with ATO:  country by country reporting;  a master file; and  a local file that provides detailed information about the local taxpayer’s intercompany transactions. • Many companies proactively considering their tax transparency strategy

Global Tax Symposium – Asia 2015 PwC 29 Schedule 5 – tax secrecy and transparency

Assume three corporate tax entities (A1 Ltd, B1 Ltd and C1 Ltd) have total income of $100m or more in the 2013-14 income year, and a fourth company (Z Ltd) has a total income of $80m in the same income year. The Commissioner will make the following information T5 publicly available in relation to that income year.

Name ABN Total Income Taxable Income Income Tax

A1 Ltd 10 234 567 890 $500,000,000 $200,000,000 $60,000,000 B1 Ltd 97 876 543 210 $300,000,000 $150,000,000 $40,000,000 C1 Ltd 10 293 847 756 $120,000,000 - -

7T 6S Global Tax Symposium – Asia 2015 PwC 30 Schedule 5 – transparency creating confusion

Total Taxable Income % Margin Income Income Tax ACo1 Retail 1,000 10 3 0.3% 1% BCo2 Mining 1,000 150 45 4.5% 15% CCo3 Technology 1,000 300 90 9% 30% DCo4 Banking 1,000 250 75 7.5% 25%

Global Tax Symposium – Asia 2015 PwC 31 Q&A

Global Tax Symposium – Asia 2015 PwC 32 Thank you.

The information contained in this presentation is of a general nature only. It is not meant to be comprehensive and does not constitute the rendering of legal, tax or other professional advice or service by PricewaterhouseCoopers Ltd. ("PwC"). PwC has no obligation to update the information as law and practices change. The application and impact of laws can vary widely based on the specific facts involved. Before taking any action, please ensure that you obtain advice specific to your circumstances from your usual PwC client service team or your other advisers.

The materials contained in this presentation were assembled in May 2015 and were based on the law enforceable and information available at that time.