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ATO Issues Anti-Avoidance Warnings For Multinationals

by Mary Swire,, Hong Kong

10 August 2016

The Australian Taxation Office (ATO) has issued a series of taxpayer alerts that caution large companies against using contrived arrangements to avoid their tax obligations.

The first alert concerns arrangements where Australian consolidated groups use offshore permanent establishments that have entered into intra-group transactions. Deputy Commissioner Jeremy Hirschhorn explained: "Through these arrangements groups may be understating their true Australian income and claiming deductions incorrectly. The end result is double non-taxation, and in some cases, groups are even claiming further tax relief they're not entitled to."

"Taxpayers need to ensure the taxable income returned properly reflects the economic substance and significance of operations carried on, consistent with the arm's length principle."

The ATO is currently investigating cases using these arrangements, along with structures developed by companies in response to Multinational Anti-Avoidance Law that are designed to reduce the amount of goods and services tax (GST) payable. It is also "looking closely at intermediaries who encouraged these arrangements and may consider them promoters of tax exploitation schemes," Deputy Commissioner Mark Konza added.

The ATO is likewise warning against the intentional miscalculation of debt capital for the purposes of thin capitalization rules.

Konza said: "In some cases, taxpayers are failing to include the value of a debt interest that's been treated as equity for accounting purposes in their debt capital. As a result, the taxpayer's adjusted average debt is understated, allowing them to claim more debt deductions than they're entitled to."

"Taxpayers need to consider the debt capital values used in thin capitalization calculations carefully. If we think a taxpayer has undervalued debt capital then we will pursue compliance action. Taxpayers may be liable to penalties in addition to paying back any tax owed."

TAGS: compliance | tax | tax compliance | tax avoidance | interest | revenue guidance | accounting | goods and services tax (GST) | Australia | tax authority | offshore | transfer pricing | penalties | services | BEPS

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