The Australian Taxation office (ATO) has today released four alerts, warning multinationals that specified transactions will be heavily scrutinized for tax avoidance.
“Taxpayer alerts set out our concerns on emerging practices. They are an effective tool to stop the marketing, sale and implementation of schemes, support voluntary disclosures from those who may be involved in these schemes, and enhance community confidence in the integrity of our tax system,” said Deputy Commissioner, Public Groups, Jeremy Hirschhorn.
Taxpayer alert TA 2016/1 deals with companies that inappropriately recognize internally generated intangible items as assets or that overvalue internally generated intangible assets for the purposes of increasing an entity’s maximum allowable debt limit under the thin capitalization rules. The ATO is particularity concerned about instances where the intangible asset is not disclosed or valued in financial statements.
The ATO said it has commenced compliance activities in relation to a number of these cases.
Taxpayer alert TA 2016/2 describes the ATO’s concerns about interim arrangements used by taxpayers to avoid Australia’s Multinational Anti-Avoidance Law (MAAL). The ATO is concerned about cases where foreign and Australian group members swap roles via contract, making the Australian entity a distributor of products or services and the foreign entity an agent of the Australian entity.
In such instances, the MNE claims the MAAL does not apply because no supply was made by a foreign entity and no income was derived by the entity from the supply, the ATO said. The foreign entity can also argue it is a permanent establishment of the Australian entity and thus income from Australian sales can continue to be booked in the foreign jurisdictions.
“We will initiate compliance review activities if necessary to address such arrangements and this may result in substantial penalties of up to 120% of the tax avoided being imposed,” the ATO warned.
Taxpayer alert TA 2016/3 deals with related-party arrangements designed to increase the cost of corporate borrowings in Australia to shift profits out of the country or avoid withholding taxes on interest. The ATO is challenging arrangements, including related-party cross-currency interest rate swap agreements, that result in an Australian company becoming liable to further payments to an offshore related party.
Taxpayer alert TA 2016/4 addresses cross-border leasing arrangements involving mobile assets, such as vessels. The ATO is concerned about tax treaty and transfer pricing abuse in some cases where a legal entity is interposed to lease an asset from a foreign owner to an Australian operator. The said it is investigating the issue, and intends to develop guidance on transfer pricing and profit attribution issues associated with common cross-border leasing arrangements.
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