Global Backlash Brewing Against Australia’s Latest Tax Plan

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Australian lawmakers are facing international criticism over the country’s latest tax plan, which opponents claim could damage global economies and disrupt the flow of capital across borders.

The Treasury has shared an exposure draft law and draft explanatory materials (known as the “proposed new law”) on March 31 2023, for public review. This is in response to the Federal Government’s October 2022 proposal to eliminate tax deductions for payments linked with intangible assets associated with low corporate tax jurisdictions (especially those with a 15% tax rate). From July 1, 2023, the revised regulations will be effective on payments within the scope that are made, credited, or incurred liabilities.

The new suggested law says that Australia’s deduction denial will kick in if a Significant Global Entity (SGE) pays an associate to use intangible assets, leading to the recipient or another associate making money in a country with low corporate taxes.

The proposed new law is separate from the current general anti-avoidance regulations. It also does not need to fulfil any anti-avoidance purposes to be effective, and there are no exceptions based on the substance being considered.

Furthermore, the new law clarifies that a country’s headline tax rate should be used when calculating the corporate tax rate. However, it still needs to be determined whether a country has a low corporate tax regime in every situation.

“The proposed new law is a worrying development for international business,” said Sydney-based tax expert Andrew Beaumont. “It could lead to double taxation and disruption of the movement of capital around the world, which would be bad for global companies and economies.”

The Australian government has already received criticism from overseas experts who believe this new proposal may be unfair and lead to unintended consequences.

“The proposed new law looks like a political move, as it appears to be targeting countries with low corporate tax rates,” said Beaumont. “It is hard to see how this would benefit the Australian economy.”

With these new proposals, businesses around the world are watching with trepidation. It looks like a global backlash is brewing against Australia’s latest tax plan.

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