We all know from our resident expert, Sinclair, that the issue of base erosion and tax shifting is very complicated one. It is absolutely clear that Australia is not going to sort this out on its own and, in any case, the US is unlikely to go along for the ride.
But there was this amazing ‘investigative’ piece in The Age and SMH today which tells us a lot about the mentality of some persons in the ATO. Read it and weep.
And on the issue of ‘ if it looks wrong, it is wrong’, the figure of nearly $9 billion of profit arising from Apple’s operations in Australia looks out by a very large factor. And given that it is Neil Chenoweth who concocted this figure, I would say it is almost certainly wrong.
I have highlighted the most egregious parts:
The investigation into corporate tax erosion by large foreign companies was already progressing well, Mr Konza (of the ATO)said. ”We do have several digital economy companies under audit at the moment and we are getting a much better understanding of how they operate and what the potential tax implications are.
”We are finding that there are elaborate structures being put in place and we are finding that we believe there is some profit shifting that is occurring out of Australia.”
The Tax Office is not allowed to name individual taxpayers but Mr Konza said all were based overseas with substantial presence in Australia.
Google Australia’s most recent accounts show its tax bill increased from $74,000 in 2011 to $4.2 million in 2012, an effective tax rate of 15.8 per cent, rather than the headline tax rate of 30 per cent.
Last month, Fairfax Media revealed that Apple had shifted an estimated $8.9 billion in untaxed profits from its Australian operations to a tax haven structure in Ireland in the past decade.
Google and Apple representatives declined to comment.
Mr Konza stressed that the Tax Office was scrutinising companies over illegitimate profit shifting, not routine payments to parent companies.
”There will always be a lot of profit going back to the parent of these companies legitimately, but we are seeing that there is a margin of profit shifting that concerns us as well.”
He said the three companies would be receiving position papers from the Tax Office in the next few months, allowing them to dispute the claims.
The audits are part of multilateral efforts to uncover lost tax revenue through information exchanges with other jurisdictions, which begun when the taskforce was launched last July.
They come as the OECD warns that it is ”on track” with its plan to overhaul global tax rules to tackle corporate profit shifting.
The new operation into large-scale local tax avoiders will bring together three major Tax Office anti-evasion units: Serious Non-Compliance, Aggressive Tax Planning, and Private Groups and High-wealth Individuals – the outfit behind the Wickenby operation against actor Paul Hogan and other high-flyers.
Mr Williams, the Tax Office’s Serious-Non-Compliance head, said he now wanted his troops carrying out investigations “that people will pick up in the media, that from an industry point of view will touch a chord with people, that will have multiple agency tentacles so you can get a whole-of-Commonwealth approach”.
“It’s not rocket science. The more you work closely with other people on things that are joint, the opportunities just present themselves like you would never have seen them before,” he said.
Mr Williams said cases would not be high priority unless they were going to change behaviour in broad industry sectors or among wealthy individuals.
“It’s a whole raft of strategies, from marketing and communication, through to working with partner agencies [and] criminal investigations,” he said.