Canada, Australia - Measures addressing tax fairness, base erosion, tax transparency; OECD action plan expected this week 

July 15:  The emerging global tax environment continues to demand that executives of multinational entities understand the tax reputational and perception risks associated with the ongoing global focus on tax transparency initiatives.
  • On Friday, July 12, Canada’s Department of Finance released a package of draft legislative proposals that, according to a Finance release, would “improve the fairness and certainty of the tax system.”
  • In late June 2013, Australia enacted legislation that requires the tax authorities to disclose certain information from the tax return for companies with a “reported total income” of greater than AUS $100 million (and those with a petroleum resource rent tax (PRRT) or mineral resource rent tax (MRRT) liability). The taxpayer information will be posted online and will be based on the information disclosed in the tax return—including the entity’s name and identifying tax number, and the amounts of reported total income, taxable income, and tax payable.

Both actions come just prior to an OECD presentation (scheduled for this week) of an action plan to assist governments in addressing concerns arising from tax base erosion and profit shifting. The OECD’s action plan is scheduled to be presented before the G20 Finance Ministers, at their meeting in Moscow.

Canada’s proposals

Canada’s legislative proposals would affect the taxation of Canadian corporations with foreign affiliates, including:

  • Changes for various rules to be applied appropriately to structures that include partnerships
  • Changes to certain base-erosion rules
  • New rules to provide for an appropriate income inclusion with respect to “stub-year foreign accrual property income” on dispositions of foreign affiliate shares
  • Measures to apply the “exempt surplus” rules to certain trusts resident in Australia in which a controlled foreign affiliate of a Canadian corporation has a beneficial interest
  • Provisions clarifying the circumstances under which government officials could alert law enforcement organizations of evidence of the commission of a serious crime based on taxpayer information (such as money laundering or terrorism financing)
  • Rules for determining the residence of international shipping corporations

Comments on the draft legislation are due by Friday September 13, 2013.

Australia’s legislation

Legislation enacted in Australia—Tax Laws Amendment (2013 Measures No. 2) Bill 2013—was passed by Parliament in June 2013, and received Royal Assent.

The legislation requires public disclosure of certain companies’ tax payment information. The new law has not made the headlines quite so much as the initial proposal—but companies around the world have been watching developments closely as the global debate on tax morality and the transparency of taxpayers continues to gather pace, including whether to specifically legislate for increased tax transparency, potentially on a country-by-country basis.

The emerging global tax environment demands an understanding of the tax reputational and perception risks associated with the presence or absence of tax disclosures—in particular with new aggregate information to be published separately by the Australian tax authorities. This new data is likely to become a first “port of call” for the media, pressure groups and the public alike—all keen to make determinations as to whether companies and the brands attached to them are paying their “fair share.”

KPMG observation

With the Australian legislation, it is open to question whether the common divergence between reporting of economic outcomes for book and tax, and the appropriateness of that, will be lost on users of this new lens through which to view companies’ tax payments.

Companies subject to the new disclosure rules need to understand the effect of the public posting of their tax information, and consider how a user of this information could interpret the relationship between gross income and tax payments and how to be prepared and, if appropriate, to publish additional data to proactively fill that information gap with the facts if others come to a different conclusion. This is already occurring on a voluntary basis in the extractive industries globally, thus begging the question whether companies will want to move forward now to address potential misinterpretation and/or misuse of the information to be published by the tax authorities—whether such reporting is required or not.

Read a July 2013 report prepared by the KPMG member firm in Australia: Why isn't your income taxable?

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