An Australian Taxation Office (ATO) official, on May 22, confirmed that Australia and five other nations are collaborating to investigate the global tax planning of multinationals operating in the e-commerce industry.
Mark Konza, ATO Deputy Commissioner, International, said that Australia was “currently involved in a cooperative compliance approach” with five other nations. The collaboration led to the production of an aggregate risk report to better understand business structures and potential base erosion and profit shifting (BEPS) risks of e-commerce businesses, he said.
According to Konza, “this intelligence was then used by the group to identify the arrangements of a small number of multinational enterprises where it is highly likely BEPS risks could be present [and] is now being used by audit teams to develop an informed global view of these particular [multinational] enterprises and test how they sit with the existing law.”
Information gained from the alliance allowed the ATO to provide “tax structuring examples to the OECD digital task force and the hybrids focus group,” said Konza, who spoke at a Tax Institute conference in Sydney. The text of Konza’s speech was posted on the ATO website.
Though Konza did not disclose the names of the other countries involved in the alliance, The Wall Street Journal, in a May 9 article, quoted unnamed sources as saying that China, Japan, and the UK have joined Australia in the investigation, and that the U.S. was ready to join. The identity of the sixth nation is unknown.
Konza also said that Australia’s tax authorities have identified BEPS risks from the digital economy in a wide range of business. In addition to large technology multinationals, the ATO is concerned about small internet business, and “even brick and mortar businesses locating automated activities offshore. . . . We have also seen the development of parallel business models where local businesses are developing an internet based business offshore, sometimes as an option for the customers of their existing business, sometimes as an online competitor in their existing industry,” he said.
Konza said that the first meeting of the focus group on action item 3 of the BEPS project, dealing with controlled foreign corporation (CFC) rules, was held in March. “A number of countries were particularly interested in Australia’s current CFC rules, in particular our approach of exhaustively defining passive income and our de facto control test,” he said.
Australia does not have any anti-hybrid mismatch rules, so Australia is interested in OECD work in this area, Konza said. The “ATO has a number of current audit cases involving potential hybrid instrument and entity issues and hybrid mismatch arrangements have been identified as a risk to our corporate tax base,” he said.
He said that work on BEPS action item 5, concerning countering harmful tax practices, has focused on issues arising from countries that providing secretive preferential tax treatment through rulings. “The likely deliverable appears to be a process for the compulsory exchange on taxpayer specific rulings and reviewing the integrity and transparency of country rulings regimes,” he said.
The likely deliverable for BEPS action item 12, on disclosing aggressive tax planning arrangements, appears to be “domestic mandatory disclosure rules for aggressive or abusive transactions, arrangements or structures, with a focus on international tax schemes,” he reported.
Work on action item 7, on the artificial avoidance of PE status, may lead to “changes to the wording of Article 5.5 and/or 6 of the OECD Model Tax Convention to address commissionaire arrangements and business models where warehousing and computer centers are an essential part of the business,” he said.
Konza also said that the ATO is reviewing 86 cases to see if there is inappropriate shifting of profits outside of Australia pursuant to its International Structuring and Profit Shifting (ISAP) program. The ATO is also conducting two joint audits, including one of strategic importance because of BEPS concerns, and is heavily involved information exchange initiatives, he reported.
