ATO blitz on multinationals reaps $5 billion

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By Leith van Onselen

Last year, the Australian Taxation Office (ATO) announced that it would target multinational tax avoidance, which was believed to be costing Australian taxpayers billions in lost tax revenue.

In May, the ATO issued new guidelines governing loans made by multinationals to their local units in the wake of the Chevron tax case. The 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 was instigating legal action against at least five companies over alleged breaches of thin capitalisation laws.

And earlier this month, after some 13.4 million records from Bermudan law firm Appleby were leaked to the international press (dubbed the “Paradise Papers”), the ATO undertook to take action against another 19 multinational corporations implicated for tax avoidance.

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Already, the ATO’s action on multinational tax avoidance is bearing fruit, with $5 billion in unpaid taxes already recovered in just 16 months, with billions more still to come. From The Australian:

In extensive interviews with The Australian, Mr Jordan reveals his blitz on multinationals has already reaped a $5 billion windfall in unpaid taxes for the Australian Taxation Office in just 16 months. He believes many more billions of dollars will come, and warns global giants to pay a proper amount of tax in Australia or face the consequences.

Mr Jordan’s crackdown on multinationals targets those who have used what he dubs “intellectual might” to attempt to intimidate the ATO into giving them lower tax assessments…

He said of his new plan to launch co-ordinated investi­gations with authorities in Europe and around the world: “It’s a whole new way of doing things. There will be more real-time, multi-country projects and joint audits.

“You must pay the right amount of tax on the profits you earn here”…

Global ­giants including Microsoft and Chevron have agreed to massive settlements with the ATO. However, others are continuing to dispute huge tax bills, including Google and Facebook, both of which have seemingly paid low levels of tax in Australia ­previously. For example, Facebook’s latest annual accounts lodged with ASIC for the 2015 and 2016 calendar years declared tax of just $814,000 and $3.3 million respectively.

Google paid just $2.9m in income tax in Australia in 2015 and $16.6m in 2016.

At the heart of most of the ATO’s disputes with multinationals is where the companies earned their revenues and profits…

Excellent work ATO. Keep fighting the good fight.

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About the author
Leith van Onselen is Chief Economist at the MB Fund and MB Super. He is also a co-founder of MacroBusiness. Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.