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 $ billion 10,000 12,000 14,000 ‐ 2,000 4,000 6,000 8,000 2,000 PwC Tax – Symposium Global 2015 Asia Economic outlook 0 Australia’s net debt levels, A$ billion net debt levels, Australia’s 2002‐03 2003‐04 2004‐05 2005‐06 2006‐07 2007‐08 2008‐09 2009‐10 2010‐11 2011‐12 2012‐13 2013‐14 2014‐15 2015‐16 Commonwealth 2016‐17 2017‐18 2018‐19 2019‐20 Current year 2020‐21 2021‐22 2022‐23 States 2023‐24 2024‐25 and 2025‐26 territories 2026‐27 2027‐28 2028‐29 2029‐30 2030‐31 Federation 2031‐32 2032‐33 2033‐34 2034‐35 2035‐36 2036‐37 2037‐38 2038‐39 2039‐40 2040‐41 2041‐42 2042‐43 2043‐44 2044‐45 2045‐46 2046‐47 2047‐48 2048‐49 2049‐50 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