The Australian tax authority has released two tax warnings to advisers about attempts to circumvent its new Multinational Anti-Avoidance Law (MAAL), which is similar to the UK’s diverted profit tax and was introduced earlier this year to address international profit shifting by multinationals
The so-called ‘Google tax’ applies to multinational groups that avoid a taxable presence in Australia by operating in Australia but booking their profits offshore.
The first alert concerns a new scheme whereby an Australian partnership is interposed between the foreign company and the Australian customer.
The promoters assert that because the partnership is technically an ‘Australian entity’ for tax purposes (even though its profits are predominantly allocated to offshore entities for tax purposes), the MAAL does not apply.
The Australian Taxation Office (ATO) says the creation of the partnership is the only change; all other commercial interactions between the multinational and its Australian customers remain unchanged.
Deputy Commissioner Mark Konza said the ATO is concerned the interposed partnership is contrived to prevent the operation of the MAAL through a purported technical loophole rather than by restructuring to acknowledge an Australian taxable presence.
He described the scheme, currently being operated by a ‘handful’ of companies, as ‘another creative attempt to undermine the policy intent of the MAAL.’
A second taxpayer alert cautions multinational companies who engage in cross-border round-robin financing arrangements. The ATO is concerned with arrangements where an Australian entity funds an overseas related entity, but subsequently receives the funds back in a manner which purportedly generates Australian tax deductions without corresponding Australian assessable income.
While the exact mechanism varies, typically an Australian company claims interest deductions on a loan from an overseas related party which is funded by the Australian company ‘investing’ in the overseas related party. The end result is deductions are claimed but income arising from this round-robin investment is subject to little or no tax.
Jeremy Hirschhorn, ATO deputy commissioner, said: ‘Taxpayers should be very cautious about schemes which create interest deductions out of thin air, simply by shuffling funds around a group, or through simply making some book entries.’
Since the MAAL came into effect on 1 January 2016, the Commissioner of Taxation has contacted 175 entities to assist with MAAL compliance and identify high-risk issues. These companies’ affairs are now being reviewed to confirm whether the MAAL applies and/or whether appropriate restructuring has been undertaken.
