Following a raft of allegations about tax avoidance by multinational companies, the Australian Taxation Office (ATO) in May issued new guidelines governing loans made by multinationals to their local units in the wake of the Chevron tax case.
These guidelines set out what the ATO expects is reasonable in terms of the interest rate foreign companies charge their subsidiaries, which in turn decides the level of tax deductions that are then claimed. ATO Deputy Commissioner, Jeremy Hirschhorn, at the time said it was confident of raising a significant amount of extra tax in the wake of the new guidelines.
Then in July, The AFR reported that the ATO had instigated legal action against at least five companies over alleged breaches of thin capitalisation laws, which prevent businesses loading up their Australian operations with debt to obtain a tax advantage.
Today, The Australian reports that the ATO estimates that the corporate “tax gap” – i.e. the amount of tax the big end of town should pay and the amount it actually contributes – averaged 5.8% per cent between 2008-09 and 2014-15, and that the ATO is hoping to reduce corporate tax underpayments to about $2.5 billion:
The Australian Taxation Office is confident it can squeeze more out of corporate Australia, narrowing a gap of about 6 per cent — or $2.5 billion — between the amount of tax the big end of town should pay and the amount it actually contributes.
In a study of the corporate tax gap released today, the ATO estimates underpayments between the 2008-09 financial year and the 2014-15 financial year total $17.8bn, for an average of 5.8 per cent…
Jeremy Hirschhorn, deputy commissioner in charge of corporate tax, told The Australian… “We are not satisfied with 6 per cent. We know what’s driving it — the single biggest driver is transfer pricing, and since 14-15 there have been many developments to drive it down further”…
He said that since 2014-15 the government had added five key weapons to the ATO’s anti-avoidance arsenal. These were the Multinational Anti-Avoidance Law, “which has already brought significant companies to the table to resolve not only their future tax position but also their past position”, the “Google tax” or Diverted Profits Tax, “which is just kicking in, and is already encouraging companies to proactively come to us”, the sharing of country-by-country tax information, a full Federal Court win against Chevron over the funding of the Gorgon gasfield and extra resources through the Tax Avoidance Taskforce.
He said the gap estimate was “based on hard, granular data”.
“The 1400 large corporate groups pay about two thirds of the corporate tax in Australia.”
It’s good to see the ATO taking action, and having some success, against blatant multinational tax avoidance, which has become a growing concern globally.
