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Australia Provides Update On International Tax Enforcement

by Mary Swire,, Hong Kong

04 April 2018

In comments to the TPMinds International Conference in late March, Deputy Commissioner Mark Konza outlined the Australia Taxation Office's priorities in the area of international tax enforcement, with an especial focus to be placed on the energy and resources sector and pharmaceutical industry.

His comments, published by the ATO on March 29, focused on the work of the new Tax Avoidance Taskforce, established in 2016, to tackle multinational tax avoidance and avoidance by wealthy individual taxpayers.

On the energy and resources sector, he said the ATO will be looking specifically at exploration expenditure, hubs (particularly marketing hubs), and related-party financing such as debt funding, the use of derivatives to avoid interest withholding tax, and cross currency interest rate swaps.

"With Australia set to become the world's biggest exporter of liquefied petroleum gas by 2022, the oil and gas industry is a particular focus for us. With big developments and long term contracts being a feature of the LPG industry, it is important we get the pricing right from the start or it could all end in tax tears," he said.

"The fragmentation of business structures in order to re-characterize income from trading income earned by a company to passive income earned by an associated trust is also a concern," he continued. "These fragmented arrangements are then sold as highly tax effective stapled securities. Recent arrangements have been pushing the envelope of what can be put on the trust side. The Government is also examining this issue from a policy perspective."

Next he discussed the transfer of intellectual property offshore, describing it as a growing concern for the ATO: "We are investigating arrangements that result in the migration or artificial allocation of intangible assets, and rights in those assets, to offshore related parties by multinationals. Valuation issues also arise in these matters."

Konza said the ATO will also focus efforts on tackling the manipulation of thin capitalization calculations. He said: "We are reviewing the thin capitalization arrangements of 27 taxpayers and are looking to provide assurance on about two-thirds of total revaluations for 2015-16 (approximately AUD78bn (USD60bn) in revaluations). This issue goes to how much debt can be carried in the Australian entity."

Finally, he told attendees that the ATO is preparing to introduce hybrid mismatch legislation next year, with the agency currently looking at how companies are being advised to respond in this area.

TAGS: tax | business | tax avoidance | mining | interest | energy | intellectual property | Australia | oil and gas | enforcement | offshore | multinationals | legislation | transfer pricing | withholding tax | currency | Tax | BEPS

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