Harmful Tax Practices – 2017 Peer Review Reports on the Exchange of Information on Tax Rulings

Australia

Australia has met all aspects of the terms of reference (ToR) for the calendar year 2017 (year in review) and no recommendations are made.

Australia can legally issue four types of rulings within the scope of the transparency framework.

In practice, Australia has issued 208 past rulings. For the period 1 April 2016 ‑ 31 December 2016, Australia issued nine future rulings. For the year in review, Australia issued 22 future rulings within the scope of the transparency framework.

Peer input was received from two jurisdictions in respect of the exchanges of information on rulings received from Australia. It was positive, noting that information was complete in the correct format and indicating that co-operation with Australia had been positive.

Introduction

57.  This peer review covers Australia’s implementation of the BEPS Action 5 transparency framework for the year 2017. The report has four parts, each relating to a key part of the ToR. Each part is discussed in turn. A summary of recommendations is included at the end of this report.

A. The information gathering process

58.  Australia can legally issue the four following types of rulings within the scope of the transparency framework: (i) rulings related to preferential regimes;1 (ii) cross-border unilateral advance pricing arrangements (APAs) and any other cross-border unilateral tax rulings (such as an advance tax ruling) covering transfer pricing or the application of transfer pricing principles; (iii) permanent establishment rulings; and (iv) related party conduit rulings. Rulings are issued by different interpretative areas of the Australian Taxation Office (ATO). Australia publishes edited anonymised versions of written binding advice in the Register of Private Binding Rulings (PBRs) for all categories (excluding the unilateral APA’s which are not published due to privacy reasons).2

Past rulings (ToR I.4.1.1, I.4.1.2, I.4.2.1, I.4.2.2)

59.  For Australia, past rulings are any tax rulings within scope that are issued either: (i) on or after 1 January 2014 but before 1 April 2016; or (ii) on or after 1 January 2010 but before 1 January 2014, provided they were still in effect as at 1 January 2014.

60.  In the prior year peer review report, it was determined that the ATO’s undertakings to identify past rulings and all potential exchange jurisdictions were sufficient to meet the minimum standard. The ATO’s implementation in this regard remains unchanged, and therefore continues to meet the minimum standard.

Future rulings (ToR I.4.1.1, I.4.1.2, I.4.2.1)

61.  For Australia, future rulings are any tax rulings within scope that are issued on or after 1 April 2016.

62.  In the prior year peer review report, it was determined that the ATO’s undertakings to identify future rulings and all potential exchange jurisdictions were sufficient to meet the minimum standard. The ATO’s implementation in this regard remains unchanged, and therefore continues to meet the minimum standard.

Review and supervision mechanism (ToR I.4.3)

63.  In the prior year peer review report, it was determined that the ATO’s review and supervision mechanism was sufficient to meet the minimum standard. The ATO’s implementation in this regard remains unchanged, and therefore continues to meet the minimum standard.

Conclusion on section A

64.  Australia has met all of the ToR for the information gathering process and no recommendations are made.

B. The exchange of information

Legal basis for spontaneous exchange of information (ToR II.5.1, II.5.2)

65.  Australia has the necessary domestic legal basis to exchange information spontaneously. Australia notes that there are no legal or practical impediments that prevent the spontaneous exchange of information on rulings as contemplated in the Action 5 minimum standard.

66.  Australia is a party to international agreements permitting spontaneous exchange of information, including (i) the Multilateral Convention on Mutual Administrative Assistance in Tax Matters: Amended by the 2010 Protocol (OECD/Council of Europe, 2011) (“the Convention”) and (ii) double tax agreements in force with 43 jurisdictions.3

Completion and exchange of templates (ToR II.5.3, II.5.4, II.5.5, II.5.6, II.5.7)

67.  In the prior year peer review report, it was determined that the ATO’s completion and exchange of templates were sufficient to meet the minimum standard. The ATO’s implementation in this regard remains unchanged, and therefore continues to meet the minimum standard.

68.  Australia has guidance material in place to assist tax officers to complete the template in Annex C of the 2015 Action 5 Report (OECD, 2015). This guidance includes instructions on how to complete the summary section (section 7) of the template. Whilst Australia’s current guidance on the summary section do not specifically refer to the internal FHTP’s suggested guidance, it is based on and contains key elements of the suggested guidance in order to ensure that the summaries contain sufficient detail to allow the receiving tax administration to risk-assess the potential BEPS risks.

69.  For the year in review, the timeliness of exchanges is as follows:

 

Past rulings in the scope of the transparency framework	Number of exchanges transmitted by 31 December 2017	Delayed exchanges
		Number of exchanges not transmitted by 31 December 2017	Reasons for the delays	Any other comments
	12	50	See below	See below
Future rulings in the scope of the transparency framework	Number of exchanges transmitted within three months of the information becoming available to the competent authority or immediately after legal impediments have been lifted	Delayed exchanges
		Number of exchanges transmitted later than three months of the information on rulings becoming available to the competent authority	Reasons for the delays	Any other comments
	16	0	N/A
Total	28	50

 

Follow up requests received for exchange of the ruling	Number	Average time to provide response	Number of requests not answered
	0	N/A	N/A

70.  Australia provides the following explanations for the transmission delay:

• Australia indicates that it has reached out to some partner jurisdictions which Australia knew did not yet have their system in place to receive the XML Schemas in the agreed format and from whom they had not received any rulings to ensure both the confidentiality of the information and that the countries received the rulings in a format that they could use. Upon receipt of a response, the ATO exchanged the rulings and in several cases sent them in a different format to the XML Schema. Thus, some exchanges were delayed due to receipt of the response occurring after 31 December 2017. These were exchanged during 2018 except where the recipient jurisdiction does not yet have the legal frameworks in place or the ATO could not confirm the format to be sent.

• Australia indicates it also experienced delays due to the movement of personnel handling the exchanges. Of the 50 past ruling exchanges not transmitted by 31 December 2017, 31 exchanges were sent on 27 February 2018. This is within a relatively short period of the due date. The balance of 19 exchanges pertain to those jurisdictions which the ATO has not yet confirmed whether they have legal frameworks in place or to confirm the appropriate format of exchange.

• There are a further 40 exchanges on past rulings which were not required to take place during the year of review, which are in respect of jurisdictions with which Australia did not have an agreement in force permitting spontaneous exchange of information, or developing countries which requested a deferral under the Action 5 transparency framework and it was agreed that Australia is not required to exchange with until 31 December 2018.

Conclusion on section B

71.  Australia has the necessary legal basis for spontaneous exchange of information and a process for completing the templates in a timely way. Australia explained that the delay in exchanging past rulings is mostly on account of seeking to ensure effective co-operation rather than from any difficulty with the process itself, although some delays could also be attributed to movement of personnel in 2017 and these delays were remedied within three months of the deadline. In addition, some of the exchanges which are considered as delayed are with developing countries with which Australia is not required to exchange before 31 December 2018 and these are not considered to be a deficiency in Australia’s implementation of the transparency framework. Australia has met all of the ToR for the exchange of information process and no recommendations are made.

C. Statistics (ToR IV)

72.  The statistics for the year in review are as follows:

 

Category of ruling	Number of exchanges	Jurisdictions exchanged with
Rulings related to preferential regimes	0	N/A
Cross-border unilateral advance pricing agreements (APAs) and any other cross-border unilateral tax rulings (such as an advance tax ruling) covering transfer pricing or the application of transfer pricing principles	19	Belgium, Canada, Ireland, Italy, Japan, Netherlands, New Zealand, Sweden, United Kingdom, Unites States
Cross-border rulings providing for a unilateral downward adjustment to the taxpayer’s taxable profits that is not directly reflected in the taxpayer’s financial / commercial accounts	N/A	N/A
Permanent establishment rulings	9	Ireland, Luxembourg, Netherlands, New Zealand, South Africa, United Kingdom, Unites States
Related party conduit rulings	0	N/A
De minimis rule	N/A	N/A
IP regimes: total exchanges on taxpayers benefitting from the third category of IP assets, new entrants benefitting from grandfathered IP regimes; and taxpayers making use of the option to treat the nexus ratio as a rebuttable presumption	N/A	N/A
Total	28

D. Matters related to intellectual property regimes (ToR I.4.1.3)

73.  Australia does not offer an intellectual property regime for which transparency requirements under the Action 5 Report (OECD, 2015) were imposed.

Summary of recommendations on implementation of the transparency framework

 

Aspect of implementation of the transparency framework that should be improved	Recommendation for improvement
	No recommendations are made.

References

OECD (2017), BEPS Action 5 on Harmful Tax Practices – Terms of Reference and Methodology for the Conduct of the Peer Reviews of the Action 5 Transparency Framework, OECD/G20 Base Erosion and Profit Shifting Project, OECD, Paris. www.oecd.org/tax/beps/beps-action-5-harmful-tax-practices-peer-review-transparencyframework.pdf.

OECD (2015), Countering Harmful Tax Practices More Effectively, Taking into Account Transparency and Substance, Action 5 - 2015 Final Report, OECD/G20 Base Erosion and Profit Shifting Project, OECD Publishing, Paris. https://doi.org/10.1787/9789264241190-en.

OECD/Council of Europe (2011), The Multilateral Convention on Mutual Administrative Assistance in Tax Matters: Amended by the 2010 Protocol, OECD Publishing, Paris. http://dx.doi.org/10.1787/9789264115606-en.

Notes

← 1.  With respect to the following preferential regimes: 1) Offshore banking unit regime and 2) Conduit foreign income regime.

← 2.  Available at: www.ato.gov.au/law/#Law (accessed 20 November 2018).

← 3.  Parties to the Convention are available here: www.oecd.org/tax/exchange-of-tax-information/convention-on-mutual-administrative-assistance-in-tax-matters.htm. Australia also has bilateral agreements with Argentina, Austria, Belgium, Canada, Chile, China (People’s Republic of), Czech Republic, Denmark, Fiji, Finland, France, Germany, Hungary, India, Indonesia, Ireland, Italy, Japan, Kiribati, Korea, Malaysia, Malta, Mexico, Netherlands, New Zealand, Norway, Papua New Guinea, Philippines, Poland, Romania, Russia, Singapore, Slovak Republic, South Africa, Spain, Sri Lanka, Sweden, Switzerland, Chinese Taipei, Thailand, Turkey, United Kingdom, United States and Viet Nam.