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ICA raises concerns on OECD tax treaty

The Insurance Council of Australia (ICA) is concerned about an “increased compliance burden” should Canberra implement articles 12-14 of an OECD treaty designed to address tax avoidance by multinationals.

The articles relate to artificial avoidance of permanent establishment (PE) status through commissionaire arrangements and similar strategies, and through specific activity exemptions, plus splitting up of contracts.

PE, a defined term in all tax treaties, is a taxable presence threshold for determining whether a country can tax local business profits derived by a foreign resident.

“The proposed lowering of Australia’s treaty PE threshold, through adopting multilateral instrument articles 12-14, would result in increased compliance burden and taxation uncertainty around potential deemed profits,” CEO Rob Whelan says in a submission to Treasury.

“A PE threshold would generally be triggered where a non-resident of a country had intermediaries (e.g. employees or agents) in the source country who would habitually exercise their authority to conclude contracts on behalf of the non-resident.

“Adopting multilateral instrument articles 12-14 would significantly change this.”

The multilateral instrument refers to the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting.

It is designed to close tax treaty-based opportunities for multinational tax avoidance.

Australia’s “initial approach” is to adopt articles 12-14, according to a Treasury consultation paper.

“The Government is strongly committed to ensuring that multinationals pay the right amount of tax,” the paper says.

“Although the Australian Government is yet to make a final decision on adopting the [multilateral instrument], signing and adopting it to the widest possible extent would be consistent with Australia’s strong track record on tackling multinational tax avoidance.”

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