ATO warns multinationals over use of Singapore, Swiss and other offshore hubs
The Australian Taxation Office has warned companies it will be focusing on money attributed to offshore marketing hubs and will use its stronger transfer pricing powers to go after them, reports the Sydney Morning Herald.
Australian companies sent more than AU$100 billion to related parties in the low-tax nation of Singapore and another AU$15.6 billion to “hubs” in Switzerland in 2013, where they pay little or no tax.
In a note to large business taxpayers released on Wednesday, the ATO said in some cases “the amount charged by the marketing hub to the Australian company is not what arm’s length – or independent – parties would pay”.
“In particular, we are concerned that the economic substance of these arrangements may be materially different to the associated legal form,” it said.
Multinationals including miners BHP Billiton and Rio Tinto and tech giant Google use hubs in Singapore for the marketing and sales functions, but have come under fire at the recent Senate inquiry into corporate tax avoidance for the billions of dollars in profits they channel through such hubs.
“Marketing hub arrangements can give rise to significant profit-shifting issues for the Australian entities involved,” the ATO said.
It would be looking at “pricing for the functions performed, assets used and risks assumed in a marketing hub”, concentrating on those that “do not reflect conditions that would operate between independent entities dealing wholly independently with one another in comparable circumstances”.
“Where that is the case, the transfer pricing provisions will apply to substitute arm’s length conditions,” the ATO said.
Transfer pricing laws were boosted under the former Labor government.
In the May budget, Treasurer Joe Hockey strengthened anti-avoidance measures that can be used to collect greater tax from multinationals suspected of profit shifting.
These general anti-avoidance provisions, as well as other domestic tax laws governing capital gains tax and controlled foreign companies, may be used.
The ATO said it would consult “interested parties” from this month and then develop a “practical guide” so multinationals were aware what “risk flags” would spark the ATO’s attention and possibly lead to a review or audit.
The Organisation for Economic Co-operation and Development’s head of tax, Pascal Saint-Amans, who has been tasked by G20 governments to come up with a global plan to fight profit shifting, has said that amounts being channelled via Singapore hubs will be significantly reduced under its plan.
