Australia tax office takes aim at foreign companies on tax avoidance

 Australia's tax-collector plans to target foreign companies in a renewed crackdown on tax avoidance, with special focus on firms that shift profits offshore to minimise local tax. 

The Australian Tax Office, one of the world's most aggressive tax agencies, outlined profit-shifting and multinational borrowing among its targets for the year ahead in its annual compliance programme unveiled last week. 

Below is an article on the 2011-12 compliance programme written by Thomson Reuters Professional's senior tax writer, Terry Hayes: 

The Australian Commissioner of Taxation has released the Australian Tax Office (ATO) Compliance Program 2011-12 (covers the Australian financial year July 1, 2011 to June 30, 2012). It highlights the compliance issues attracting ATO attention and what it is doing to address them. Some of the key focus areas from the Program include: 

The ATO plans to enhance its tax fraud detection and management. 

The ATO will examine large business corporate governance processes for managing income and indirect tax risks. The ATO plans to review related party arrangements to ensure profits are not shifted out of Australia and to review multinational borrowing arrangements. 

The ATO will continue to deal with the abusive use of tax secrecy havens (including through its continued participation in the Project Wickenby taskforce). Project Wickenby is a multi-agency taskforce. Its role is to protect the integrity of Australia's financial and regulatory systems by preventing promotion of and participation in abusive secrecy haven schemes. 

In a more international context, the ATO says that to obtain more complete information about offshore income and assets, it has increased its use of exchange-of-information provisions in Australia's existing double tax agreements and in newly-signed tax information exchange agreements. Australia continues to sign more of these information exchange agreements, the latest being with Liechtenstein. There are now 28 jurisdictions that have signed such Agreements with Australia. 

The ATO says increasing globalisation raises a number of compliance issues, ranging from transfer pricing to simple errors. 

The ATO matches data received under tax treaties, through automated exchange-of-information requests, and from AUSTRAC (the Australian Transaction Reports and Analysis Centre). 

The ATO says international profit shifting remains an area of concern. While the ATO says it will continue to promote its program of transfer-pricing Advance Pricing Arrangements, it will also undertake 25 reviews and 10 audits where it identifies a significant risk of profit-shifting, particularly for companies with a history of profit performance consistently below industry averages. 

During 2011-12, the ATO plans to contact over 600 taxpayers focusing on: 
Foreign source income derived by Australian residents. 
International shipping companies operating in Australian waters. 
Non-resident withholding tax, with respect to payments of interest, dividends and royalties - with a specific focus on franchising and governance controls 
Thin capitalisation, with respect to non-lodgment of thin capitalisation schedules and reviewing calculations of safe-harbour limits. 
The use of preferential tax regimes to evade income tax obligations. 

In relation to the Project Wickenby taskforce, the ATO says concealment is its main concern. A taxpayer may seek to conceal assets and income by setting up a bank account in a secrecy haven where Australia does not have an agreement to exchange information. The ATO is also concerned that taxpayers may also use an international promoter to set up and manage offshore trusts or companies that seek to conceal the taxpayer's beneficial ownership of assets. (ET)