In its current form, the legislation will apply to multinational corporations that have global income of more than $1 billion and Australian income of more than $25 million.
Under the Bill's provisions, if the diverted profit tax applies to such an arrangement, the Australian Commissioner of Taxation may issue a diverted profit tax assessment to the relevant company, and the Diverted Profits Tax Act 2017 will impose tax on the amount of the diverted profit at a penalty tax rate of 40 per cent.
Where the Commissioner makes a diverted profit tax assessment, the company in question will have 21 days to pay the amount set out in the diverted profit tax assessment.
Following the issue of a notice of a diverted profit tax assessment, the company will be allowed to provide the Commissioner with further information disclosing reasons why the tax assessment should be reduced during a period of review.
If, at the end of that period of review, the company in question is dissatisfied with the tax assessment, or the amended assessment, the organisation will have 60 days to challenge the assessment by making an appeal to the Federal Court.
"The DPT [diverted profit tax] will impose a penalty rate of tax and require that tax to be paid irrespective of whether the assessment is the subject of an unresolved dispute," the Bill's explanatory memorandum stated. "This will place the onus on taxpayers to provide relevant information on related party transactions to the Australian Taxation Office (ATO), making it easier for the ATO to apply current transfer pricing and anti-avoidance rules."
According to the government, the proposed changes to the transfer pricing regime are estimated to affect approximately 4,400 businesses that have potential cross border dealings with related parties.
Additionally, there are approximately 1600 companies that are likely meet the significant global entity definition outlined in the legislation, and have Australian turnover of more than $25 million. These companies could need to consider if their practices would be within the scope of the new tax, according to the government.
Of these 1600 companies, it is estimated that approximately 130 organisations may need to engage with the ATO to either obtain certainty on the application of the diverted profit tax including amending their tax return or settling their tax liability.
Meanwhile, a small proportion of the higher risk companies - around 8 per cent - are assumed to require a restructure and would need to take steps to implement a new business model in accordance with the preferred restructure option.
For these higher risk companies, the total external costs of the proposed scheme are estimated to be approximately $1,000,000 per entity, and the total internal costs are estimated to be around $75,000 per entity - inclusive of the costs of the initial advice and assessment activities, as well as the evaluation, planning and documentation activities.
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