ATO puts big business on notice after companies found using “artificial and contrived” arrangements to avoid tax

The Australian Taxation Office has warned multinational companies it will come down hard on them if they do not pay their fair share of tax in Australia.

The ATO yesterday handed down a number of taxpayer alerts in order to warn businesses against trying to tax avoidance measures.

The warnings come as ATO indicated it has detected instances of companies using “artificial and contrived” arrangements in order to sidestep former treasurer Joe Hockey’s crackdown on multinational tax avoidance, according to The Australian.

The alerts relate to inappropriately valuing intangible assets for thin capitalisation purposes and using cross-border leasing arrangements for mobile assets.

The warnings are the latest weapon the ATO is employing in its attempts to boost the public’s confidence in the tax system, after large corporates such as Apple and Google were grilled at a Senate inquiry into multinational tax avoidance last year.

ATO deputy commissioner Jeremy Hirschorn said in a statement the alerts were issued because businesses and their advisers need to be aware of behaviour that flouts domestic and international laws.

“While the majority of large corporates pay the right amount of tax in Australia and are open and transparent in their dealings with us, we are concerned some arrangements may not meet the laws as intended,” Hirschorn said.

“Today, we have released four taxpayer alerts on particular areas of concern.”

The tax office also reiterated its stance that the tax a company pays should reflect the “commercial reality” of operating in Australia.

Businesses ignoring the ATO’s warning could face penalties of up to 120% of outstanding tax bills, according to The Australian.

In contrast, individual taxpayers usually face penalties of between 25% and 75% of the original tax owed.

Lisa Greig, business services manager at Taxpayers Australia, told SmartCompany it’s good to see the ATO putting companies that “massage” and “manipulate” their numbers on notice.

“They [the federal government] have had a number of committees about going after the big guys, and that includes Australian companies as well as the much-loved Googles and Apples of the world,” Greig says.

“This is putting the various multinationals on notice. This is a good thing.

“We want to streamline red tape to help small business manage [their dealings with] the ATO. But where the big gap in revenue is holding these big guys accountable. It’s a global issue.”