Multinational Anti-Avoidance Law

Services • Multinational Anti-Avoidance Law

What is Multinational Anti-Avoidance Law (MAAL)?

Picture this. You have a non-Australian company selling products and/or services directly to the Australian market.

To facilitate the sales, you have set up a subsidiary in Australia to provide various auxiliary services to your company.

The proceeds from the sales are retained by the non-Australian company which in turn pays the Australian subsidiary on a cost plus basis for the auxiliary services.

Sounds like you? Lets talk TP and MAAL for Australia.

What is MAAL?

Multinational Anti-Avoidance Law (MAAL) is an anti-avoidance measure introduced in September 2015 through the Tax Law Amendment (Combating Multinational Tax Avoidance) Bill. It was created to combat tax avoidance by multinational using certain transfer pricing arrangements or structures to avoid the attribution of profit to a permanent establishment in Australia.
If caught under the MAAL, taxpayer may have their tax benefit cancelled by the Commissioner.

Does the MAAL apply to you?

MAAL only applies to under the following circumstances:

You are a Significant Global Entity (“SGE”) (i.e. part of a group with annual turnover of over AUD 1 billion), and
You have a foreign entity supplying goods or services to an Australian customer, and
You have an Australian entity, that is an associate of, or is commercially dependent on the foreign entity, undertaking activities directly in connection with the supply, and
Some or all of the income derived by the foreign entity is not attributable to an Australian permanent establishment; and
The principal purpose (of the transfer pricing arrangement/structure), or one of the principal purposes, is to obtain tax benefit in Australia and/or overseas.

Why is the MAAL important?

If your transfer pricing structure has the characteristics that would be caught under the MAAL and you or your overseas entity obtained a tax benefit (either in Australia or overseas), the Commissioner of Taxation has the power to make a determination under the general anti-avoidance rules to treat as if the foreign entity had been making a supply though an Australian permanent establishment. This means that part of the profit earned by the foreign entity will be attributable to the Australian PE and taxable in Australia.

Identifying 'at risk' transfer pricing structure under MAAL

High Risk Structure

A high risk structure usually has the following characteristics:

Complex cost contribution, royalty and sub licensing arrangements involving tax free jurisdiction
Australian subsidiary maintain sizeable team locally and provide multiple high value adding tasks including contract renewal, upselling products, etc.
Proceed from sales retained overseas and not taxable or attributable to Australia.

Low Risk Structure

A low risk scenario usually has the following characteristics:

No royalty arrangements involving tax free jurisdiction
Australian subsidiary perform routine low value adding auxiliary services. It does not involved in any contract negotiation or any related services that is essential to bringing in contracts for the overseas entity.