Tax office revokes six deals with multinationals engaged in ‘aggressive tax planning’
The tax commissioner has rejected six agreements with multinationals in the past six months after deciding they had misled the Tax Office and engaged in “aggressive tax planning”.
Multinationals can enter deals with the Tax Office to lock in the basis for pricing cross-border transactions, under so-called “advanced pricing agreements”, or APAs.
In an exclusive interview with Fairfax Media, Tax Office deputy commissioner Mark Konza said there were 179 of these agreements in operation and another 59 were “under negotiation”.
Mr Konza said six agreements were abandoned recently due to “aggressive tax planning”.
“We don’t take them away unless we are convinced that we’ve been misled, in which case there’s no valid agreement,” Mr Konza said on Thursday.
The Australian Financial Review revealed on Thursday how more than 340 multinationals used advanced pricing agreements with Luxembourg to reduce their taxes, based on thousands of leaked documents.
In response, tax commissioner Chris Jordan said staff were instructed “to make sure that APAs are not issued on high risk tax planning arrangements”.
“We can also withdraw from an APA if we have been misled or the taxpayer has not adhered to the arrangement,” his statement said.
Multinationals cross the line
Mr Konza said that while governments were working to ensure that any tax changes proposed at next week’s G20 summit did not “kill growth”, some multinationals had crossed the line.
“If countries are able to [offer an] attractive tax rate, that’s fair tax competition,” Mr Konza said.
“If they parasitically attract paper income away from those places where economic activity is taking place that’s unfair tax competition, and the G20 and most countries concede that’s not acceptable.”
Mr Konza said the office had not yet looked at the leaked documents, but that arrangements with Luxembourg authorities had been entered into years ago and were not likely to be possible under the Organisation for Economic Co-operation and Development and G20 plan against tax evasion.
Australia is already working hard to recoup revenue, including new powers that give the commissioner the ability to reconstruct company transactions.
Mr Konza’s unit is also reviewing 80 high-risk multinationals with operations in Australia. The Tax Office said 10 of these companies were going under audit. The rest will be reviewed in the coming months and could also end up in audit if tax evasion is suspected.
Tax experts have warned the G20 against going too far in its bid to ensure digital companies pay tax where profits are earned, saying one country’s gain could be another country’s loss.
“A key aspect of the process is to create a stronger system whereby tax authorities resolve differences between themselves,” Clayton Utz tax partner Niv Tadmore said. “This is central to avoiding double-taxation and to the success of the process.”
Tax Institute senior tax counsel Rob Jeremenko said governments would have to ensure no more tax havens were in operation through greater information sharing.
“Luxembourg is one of the last bastions of tax havens,” he said. “It is one of a handful of countries that does not have a tax information exchange agreement with Australia.”
