Government introduces Bill on proposed changes to Part IVA

AppId is over the quota
AppId is over the quota
Important changes to the operation of the general anti-avoidance rule under Part IVA of the Income Tax Assessment Act 1936 ("Part IVA") were introduced into Federal Parliament yesterday. Those changes, if legislated in their current form, will in some cases have a significant impact on how taxpayers and the Australian Taxation Office ("ATO") approach the potential application of Part IVA going forward.

The amendments are the culmination of significant debate concerning the ongoing effectiveness of Part IVA as a bulwark against tax avoidance and propose to alter the analysis for determining whether a taxpayer has obtained a tax benefit; one of the three key criteria which needs to be satisfied in the application of the general anti-avoidance rule under Part IVA.

Read our full Alert on the paper.

The Assistant Treasurer, David Bradbury, has today announced the release of exposure draft legislation and explanatory memorandum in relation to the previously announced amendments to the general anti-avoidance provisions in Part IVA of the Income Tax Assessment Act 1936. The proposed amendments are stated as addressing "technical deficiencies in the way in which Part IVA determines whether or not a tax advantage has been obtained in connection with an arrangement". The amendments are not intended to disturb the operation of Part IVA in any other respect.

The start date of the proposed amendments has been revised, and the measures will now apply to schemes entered into or commenced to be carried out on or after today, i.e. 16 November 2012.

Broadly, the amendments apply to: allow Part IVA to operate as an integrated wholeensure that when a conclusion that a tax benefit has been obtained depends upon a hypothetical reconstruction of what would have happened absent the scheme (as distinct from a straight forward application of the statutory postulate that the scheme, in its entirety, did not happen), the hypothesis focuses on other ways in which the taxpayer might reasonably be expected to have achieved the same non-tax effects as it achieved from, and in connection with, the scheme; andensure that, in considering alternatives to the scheme, no consideration is given to the taxation implications of those alternatives.Submissions on the draft legislation can be made until Wednesday 19 December 2012.On 19 July 2012, the Australian Taxation Office (ATO) released its Compliance Program for 2012-13 which outlines the compliance activities it will be taking over the coming year.

It also describes the market segments and compliance issues that the ATO will focus on for each segment, including individuals, micro enterprises, small-to-medium enterprises and large businesses. This information is essential for taxpayers as it enables them to adopt a more strategic approach to manage tax risk by assessing their exposure to the focus areas identified in the Compliance Program.

This year's Compliance Program sees a continuation of a number of themes that have emerged in recent years. Some of the recurring themes include a focus on: international cooperation with other countries to tackle cross-border tax avoidance and evasion.profit-shifting through the use of related party transactionsensuring companies have good corporate governance and tax risk management, and a continued commitment to Project Wickenby Read our full Alert on the paper. Register to our upcoming events on this topic.More and more countries, such as the UK and India, are considering the enactment of a General Anti-Avoidance Rule (GAAR). This Alert summarises the main features for the GAARs of 17 countries, illustrating the diversity of anti-avoidance regimes currently existing around the world (see table at the end.)

This Alert summarises the main features for the GAARs of 17 countries, illustrating the diversity of anti-avoidance regimes currently existing around the world (see table at the end.) It also describes some broad design elements that move toward a balanced approach, the potential negative impacts if a po oor design is implemented, as well as competing policy interests. This Alert does not, however, advocate the introduction of a GAAR. Whether a GAAR should be enacted must be determined with reference to the individual circumstances of each country.

Read our full Alert on the paper.

In late March 2012, the ATO commenced issuing letters to taxpayers advising it had commenced an intelligence gathering project to investigate the level of exempt foreign income being declared by Australian companies under section 23AJ of the Income Tax Assessment Act 1936. The letter advises that no action is required of the taxpayer at this time.

However, taxpayers ought to be aware that the ATO has indicated that it has already commenced the process of obtaining information from those countries listed below under the relevant article of the double tax agreement or tax information exchange agreement.

The project is part of the ATO's broader Tax Haven strategy which, until now, had not focused closely on the large business sector.

Companies targeted under the project include Australian headquartered companies and some Australian subsidiaries of US headquartered companies with operations in any of the jurisdictions listed below. We understand the ATO has already sought information from the following countries. Countries with Double Tax Agreements (DTAs)Countries with Tax Information Exchange Agreements (TIEAs)* Australia does not currently have a TIEA with Panama.

The ATO objectives of the project include: testing the effectiveness of their TIEAs, many of which have only recently come into effectunderstanding the reasons for the decline in amounts of attributable income with a particular focus on assessing the actual operations of the offshore businessreviewing the large increase in section 23AJ non-assessable non-exempt income and determining whether these dividends satisfy the requirements of the provision.Taxpayers may wish to review their tax affairs to determine whether this project is likely to raise risks which require strategic management both domestically and internationally. This may include obtaining an understanding of the ATO's exchange of information procedures and developing appropriate strategies to manage their global tax risk. This process may include reviewing your tax position in order to determine the extent of any risks that might arise.

Should you require any further information, including a sanitised copy of the letters issued to taxpayers, please contact your usual PwC advisor or one of the tax controversy specialists listed on the right.

Read our full Alert on the paper.