Increased powers for the ATO will increase tax risk for multinationals operating in Australia

29 November 2016

Mark Molesworth, Tax Partner at BDO commented on Federal Treasurer’s announcement made at 1pm today re increased powers for the ATO to address multinational tax avoidance.

“Today’s announcement by Federal Treasurer regarding increased powers for the ATO to attack perceived multinational tax avoidance is a figurative gun-to-the-head of Australian subsidiaries of multinationals or Australian based significant global entities.   The new ATO powers effectively mean that a company can be forced to participate in a review and they cannot challenge the ATO findings based on new evidence not shared with the ATO.  Companies will be limited to what they disclose during the review period. Therefore affected companies should be prepared for an open books review” said Mr Molesworth.

“This is a wake-up call to all potentially affected companies. They need to have their transfer pricing policies and documentation ready in advance of any ATO contact.” he said.

The threat implicit in the legislation is a tax rate of 40% of the profits allegedly diverted to a ‘low tax jurisdiction’ (as compared to the usual company tax rate of 30% which would apply in other circumstances). Additionally, a low tax jurisdiction is any country with a rate of tax less than 80% of Australia’s. At present, this means that a majority of the OECD countries will be low tax, as will the USA if President-elect Trump succeeds in reducing the corporate rate of tax.

This is another string in the bow for the ATO as it seeks to target both the nature of transactions that multinational companies enter into between Australia and related offshore parties and the pricing of those transactions.

Today’s announcement is an exposure draft for consultation and responses to this consultation are due on 23 December. Therefore any companies with an interest in commenting on the proposed laws should ensure that they don’t go on Christmas holidays early.