Tax Office claims it’s on track to recoup $1b revenue from multinationals
Amid widespread condemnation of multinational profit shifting, Tax Commissioner Chris Jordan says the Australian Taxation Office is on track to recoup $1 billion in revenue from companies.
The political pressure on the Tax Office and Treasury to stop companies such as Apple, Google and Microsoft from shifting profits to low-tax or no-tax jurisdictions has increased, with the head of Treasury’s revenue group Rob Heferen confirming that Australia could move ahead of the OECD’s work, as tasked by G20 governments, to stop tax evasion.
In evidence to a Senate estimates hearing on Thursday, Mr Heferen said Treasurer Joe Hockey had asked him to look at what Australia could do to ensure that digital companies earning revenue in Australia were paying the appropriate level of tax domestically.
“Australia’s interests need to be protected,” Mr Heferen said. “The Treasurer has made it clear that the integrity of tax system is an important issue … we can’t wait until [the] end of G20 process; we may have to do something sooner.”
Since Australia largely depended on exports, and had a higher company tax rate than some of its Asian neighbours and closest trading partners, Mr Heferen said the challenge for Australia was to protect its tax base, but at the same time weigh this against going too far and losing out on business to countries with more competitive tax rates and incentives.
Tax Commissioner Chris Jordan has also been under political pressure, and revealed at estimates that the Tax Office recently hit 13 companies up for $250 million in extra tax.
Overall there were 41 audits, which indicates that given only one-third of them have been finished, more revenue could follow. These 41 audits had been identified from more than 150 reviews of large companies since 2013.
The former Labor government gave the Tax Office about $225 million in funding over four years to increase surveillance and stamp out corporate tax avoidance. Under this funding, which ends in 2016-17, the target was to recoup $1 billion in revenue.
“We’re fairly confident on the billion-dollar figure over the life of the program, and we’re a quarter of the way there,” Mr Jordan said.
He had no indication yet whether companies in question would be disputing that $250 million through legal action, but was hopeful the matter could be dealt with “as soon as possible”.
Mr Jordan also defended the Tax Office’s classification of only one company as having a “higher risk”, it’s top category, even though there were 28 audits still to be completed.
The ATO uses a risk rating system, with four categories from high to low, to determine where it focuses its energy. As Fairfax Media reported earlier this month, 13 companies have dropped off the top rating of “higher risk”, and into the second rating of “key taxpayer”.
Mr Jordan said the ratings were determined around August to September each year and communicated through letters to company chief executives before the end of the year.
He said it was good news that companies had moved off the top rating and into lower ratings, as it meant they had been more “transparent” with the Tax Office about their affairs.
But shadow assistant treasurer Andrew Leigh said “it’s deeply worrying that the Tax Office has identified significant tax avoidance from such a small number of companies, yet it currently only rates one company as being in its ‘higher risk’ category.”
This had happened at the same time as the Tax Office got rid of 3000 staff under Abbott government budget cuts, of which over a quarter have come from the audit section. “Joe Hockey needs to explain why risk ratings are going down when it seems tax dodging is going up,” Mr Leigh said.
He said if the ATO can identify a quarter of a billion dollars in new revenue just by auditing a handful of firms, much more may still be going offshore. “Australia must be missing out,” he said.
Greens senator Christine Milne said she was concerned the Tax Office was failing to expose companies and individuals who have been in breach of the law or are high risk.
“It seems as if there’s been systemic tax evasion from a number of people who have gotten off scot-free under the recent ATO amnesty,” she said. “And in spite of the fact that $250 million is outstanding, only one person is deemed to be higher risk.”
The Tax Office ran an amnesty between March and December last year to allow people with hidden wealth and income a final chance to come clean.
The amnesty, which to date has resulted in $4 billion of assets and $600 million in income being declared, has has largely come from highly wealthy people.
Of the 5600 disclosures made, there were 800 taxpayers identified as “wealthy” Australians, and 140 as “highly wealthy”.
The agency is also bringing ex big four accountants to help conduct multinational audits.
Its submission to the Senate inquiry into corporate tax avoidance states that last year the agency recruited 80 specialists from the private sector to help with audits and tax law.
Mr Jordan told Senate estimates ex big four accountants with specialist expertise had been “worthwhile” in helping “identify and zero in on issues”.
He said if they continued raising money from the program targeting multinationals, known as “international structuring and profit-shifting” there was “a very strong case” for further funding.
Many companies including Toll, Asciano, Mirvac, Lend Lease, Macquarie Bank, IBM Australia and a host of others have made submissions to the Senate inquiry into corporate tax avoidance, identifying their ratings, and they fact that they have a “good working relationship” with the ATO.
The Tax Office also revealed in its recent annual report that its settled cases worth hundreds of millions of dollars with large companies.
