Australian Tax Office Warns Firms Over "Contrived" Tax Avoidance Ploys

Tom Burroughes

11 August 2016

Australia’s tax authority has fired a warning shot at companies seeking to avoid tax payments via “contrived” offshore structures, highlighting continued moves by governments worldwide against forms of tax avoidance.

The Australian Taxation Office said its warnings concerned arrangements that relate to “offshore permanent establishments, GST and the operation of the Multinational Anti-Avoidance Law, and incorrectly calculating debt capital for thin capitalisation purposes”.

The organisation said it is reviewing structures developed by companies in response to the MAAL which are designed to reduce the amount of GST payable.

The dividing line between tax avoidance and evasion has grown more fuzzy in recent years, as governments have sought to stamp out forms of “artificial” avoidance schemes, such as those where there is no underlying economic activity but purely a desire to create liabilities to set against tax. In the UK, for example, revenue authorities have successfully gone after avoidance schemes linked, purportedly, to making films. The ATO has been running a campaign against a number of practices it deems to be questionable, such as here.

“Through these arrangements groups may be understating their true Australian income and claiming deductions incorrectly. The end result is double non-taxation, and in some cases, groups are even claiming further tax relief they’re not entitled to, ATO deputy commissioner Jeremy Hirschhorn said.

“Taxpayers need to ensure the taxable income returned properly reflects the economic substance and significance of operations carried on, consistent with the arm’s length principle,” he said.

The ATO is already investigating cases using these contrived arrangements, some of which may attract the application of Part IVA of the Income Tax Assessment Act 1936 (ITAA 1936), known more snappily as the general anti-avoidance rule.

The tax authority has also cautioned firms about deliberately miscalculating debt capital to reduce potential tax payments.