The media in Australia clamours about reports that Google pays a very small tax bill on their income of several hundreds of millions of dollars. The perceived 'failure' of Australia's tax laws to capture income/gains that it was believed should have been taxed in Australia, has been much criticised. This article discusses the problems, which include inadequate domestic residence and source 'rules'; cross border domestic residence and source 'rules' mis-matches; and domestic courts' encountering in the omestic transfer pricing legislation.
Historically, the Courts have not enforced the revenue laws of foreign governments. However, there have been developments internationally through the OECD to reverse that historic limitation on the collection of foreign country taxes. As a result of these changes Australia has adopted, in its bi-lateral tax treaties (DTAs) since 2005, a mutual assistance in tax debt collections article. These DTA changes have been reinforced with changes to Australia's domestic law. This article explores the extent to which the historical position has been altered.
The central management and control test for determining residency of a company has been problematic. The uncertainties in the test were addressed by Taxation Ruling TR 2004/15. The author believes the Ruling has done little to clarify the operation of the test. Legislative reform is recommended to ensure that the central management and control test does operate more effectively
The article examines the issue of whether the "the conduit theory", which enables trustees of discretionary trusts to stream income, has been overridden by the Income Tax Assessment Act 1936. As the author discovers that there are a number strong arguments that indicate income streaming is not possible under the Act, it is argued that, in order to ensure certainty, the Commissioner of Taxation's administrative practice of permitting income streaming should be legitimised by legislative amendment.
The Assistant Treasurer on 24 July 2013, in releasing the Australian Treasury's Scoping Paper on Risks to the Sustainability of Australia's Corporate Tax Base ('Scoping Paper') and the Government's response to the Scoping Paper's recommendations, noted that '[t]he release of the paper follows the significant efforts of the Government to strengthen Australia's corporate tax system. This includes modernising Australia's transfer pricing rules' .Modernisation of transfer pricing rules was identified as a domestic pressure point requiring unilateral action by States in the February 2013 OECD's Addressing Base Erosion and Profit Shifting discussion paper ('OECD BEPS Report').This paper seeks to explore in detail the operation of Australia's new transfer pricing rules before determining whether the 'modernisation' provides a solution to BEPS or whether the solution to BEPS lies in international cooperation.
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