Profit shifting by multinational businesses has also been included in the ATO’s compliance programme for the next year. Shortly after the office’s “Compliance in focus 2013–14” document was published, G20 finance ministers approved the OECD’s Action Plan against BEPS (base erosion and profit shifting) and the work on the measures described in the action plan will soon become a key priority for tax administrators worldwide.
“We will work with tax authorities across the world to deal with profit shifting and to ensure that international companies pay the right amount of tax in the appropriate country,” the ATO said. “We are also looking closely at the growth of e-commerce businesses and the opportunities these businesses may be using to circumvent existing tax laws governing when profits are taxable in Australia.” E-commerce businesses, such as Amazon and Google, have faced some of the fiercest criticism about how they exploit the differences in international tax rules around the world
Trusts and CGT
As well as profit shifting and e-commerce, the ATO stated that it has concerns about tax compliance by business in relation to the misuse of trusts to avoid tax; and the non-disclosure and under-reporting of CGT.
“With the growth in the use of trusts, we have seen increased attempts to exploit legal boundaries to reduce tax payable. Our new Trusts Taskforce will focus on these and other tax avoidance and evasion schemes.[SA1]
The ATO said one of the issues concerning trusts relates to where trustees artificially reduce trust income to try to direct tax liabilities to certain beneficiaries, who, the ATO said, have little or no capacity to pay the debt, while actually using the income for their own benefit.
And the compliance programme document outlined how breaches of CGT compliance rules cover, for example, where a complex restructuring attempts to disguise asset sales or manipulate asset valuations to artificially reduce CGT liabilities.
“Some businesses attempt to reclassify revenue and capital items so they can inappropriately access concessional tax treatments,” the ATO said. “Others simply fail to disclose capital gains tax events or they claim the small business concessions when they are not eligible.”
The tax authority listed 13 other areas that it will also be paying attention to, including inappropriate consolidation outcomes, offshore banking units, exploration expenditure claims, resource rent taxes, R&D and the use of the reportable tax position schedule.
The ATO added that it would continue to support the work of the Treasury Specialist Reference Group, which was set up last December to look at how multinationals minimise taxes, and the Joint International Tax Shelter Information Centre, through which Australia cooperates with other countries on how to deal with abusive tax planning.
“The big strategic focus is on the misuse of trusts, essentially flow-through vehicles,” says Jock McCormack, head of DLA Piper’s tax practice in Australia. “Following the announcement in the May 14 2013 Australian Budget, the ATO has a new well funded task force to pursue and review trusts, including a focus on promoters, individuals and businesses. It expects to raise significant additional revenue from this focus in the next three or four years.”
“Exploration expenditure claims are more Australia-specific,” Hayden Bentley, a partner of McCullough Robertson, added, “but there is a big backlog of cases where the ATO is disputing some very large claims.”
In the same document, the ATO published what it describes as its pyramid model of compliance:
Source: ATO
“We aim to influence all taxpayers to move to the base of the compliance pyramid, where the cost of compliance is lowest,” the compliance programme document stated. “The pyramid model allows us to focus our efforts on those heading to the top, who engage in risky tax behaviour, including non-compliance.”
