Gray said measures announced in the budget earlier this month are aimed at protecting the corporate tax base from erosion and loopholes to ensure a fair, competitive and sustainable tax system.
“These measures are not directed at one type of activity or at one industry – they are a response to design flaws, vulnerabilities and unexpected interactions that have emerged as changes to the corporate tax system made by previous governments have come to maturity,” he told the conference.
The two proposals papers are open to submissions until July 12.
“During pre-announcement consultations with stakeholders, the government received valuable feedback on the practical implications that the measures we propose will have on large and smaller companies in the resources sector,” Gray said.
In the proposal paper covering the deduction for mining rights and information first used for exploration, the government said there have been concerns that the immediate deduction allowed for the cost of depreciating assets that are first used in exploration is being misused.
“This integrity concern arises where the immediate deduction is claimed for the cost of acquiring mining rights and information, where the price paid reflects the value of resources that have already been discovered,” it said.
“The growing numbers of claims being made are presenting base erosion concerns, and are undermining the sustainability of this tax concession.”
To address the concern, the tax concession will be tightened so that mining rights and information that are first used for exploration will be depreciated over their effective life or 15 years – whichever is shorter.
Immediate deductions for certain circumstances will remain in place, including farm-in or farm-out arrangements and the costs of acquiring a mining right from a relevant government issuing authority.
The costs from attaining mining information from a government authority as well as those incurred by a taxpayer themselves in generating new information or improving existing information will also remain immediately deductable.
The government said profit shifting and international tax avoidance is a threat to Australia’s sovereignty if left unchecked and that it is committed to doing what it can within current international tax rules to protect the corporate tax base.
In the new proposal, the government outlines how it intends to address profit shifting opportunities that arise when multinational entities have the ability to artificially load excessive amounts of debt in their Australian operations.
“When some taxpayers avoid or minimise their tax in a sustained way the tax burden eventually falls more heavily on other taxpayers,” it said.
“Further, when some businesses avoid tax this leads to an unfair competitive advantage over businesses that do the right thing and don’t seek to avoid tax.”
The proposal seeks to tighten safe harbour settings in the thin capitalisation rules, implement the 2009-10 budget announcement to reform the exemption for foreign non-portfolio dividends and repeal the special rule that allows tax deductibility for interest expenses incurred in deriving exempt foreign income.
Gray said he hopes the resources and energy sectors will participate in discussions about the proposed changes.
“The government recognises the importance of continuing consultations to ensure that each measure is appropriately designed and implemented, and I encourage companies within my portfolio to engage in that process,” he said.
