ATO running out of 'big' tax avoidance cases after clawing back AU$1 billion

The Australian Taxation Office (ATO) has had the tax practices of multinationals operating in Australia in its sight for a number of years, with ATO client engagement group second commissioner Jeremy Hirschhorn claiming a number of wins where funds have been clawed back.

The ATO's Tax Avoidance Taskforce has been in operation since July 2016. In the recent federal Budget, it received funding to continue the taskforce until at least 2022-23.

Appearing before Senate Estimates on Wednesday, Hirschhorn said the taskforce has reported AU$6.3 billion of liabilities raised, AU$3.5 billion of cash collections, and around AU$1.1 billion of what he referred to as "wider revenue effects" in those considered "public groups".

In the private groups element of the taskforce, he said there has been AU$5.5 billion in liabilities, AU$3.1 billion dollars in cash collections, and wider revenue effects of around AU$250 million.

He said the challenge in being able to sustain the figures, however, would come down to simply running out of cases to pursue.

"Australia is a relatively small place, there are relatively few companies -- because our strategy has been not just to collect tax, but to change future behaviour and lock in future compliance, we've sort of run out of big cases," he said.

"And we are at the stage where the outperformance, really we have, in a sense, become victims of our own success."

Under the Multinational Anti-Avoidance Law (MAAL), companies operating with an annual global income of more than AU$1 billion in Australia are required to lodge their general purpose financial statements to the ATO if they are not already doing so with the Australian Securities and Investments Commission.

Essentially, multinational companies found to be avoiding tax have to pay back the tax owed, plus a 100% penalty.

"Like all anti-avoidance rules, they work," Hirschhorn said of the MAAL. "It's not their application, it's the behavioural change tool.

"Multinational companies are booking about AU$8 billion a year extra through their Australian subsidiaries, which they previously booked to sales from places like Singapore and Ireland … our estimate for the model is that we're collecting over AU$100 million extra income tax per year from the MAAL."

Meanwhile, the Diverted Profits Tax (DPT), he said, has acted more as a deterrent.

The DPT -- colloquially known as the Google Tax -- came into effect on 1 July 2017. It aims to ensure that the tax paid by significant global entities properly reflects the economic substance of their activities in Australia.

"It's harder to quantify," he said. "Most companies, when we came with the MAAL and the Diverted Profits Tax fundamentally changed how they booked their income.

"We [have issued] our first Diverted Profits Tax assessments on a couple of companies that did not change their behaviour."

With the taskforce focusing a lot on ecommerce companies, Hirschhorn said the ATO has issued and collected "well over" AU$1 billion dollars in back payments from multinationals.

Microsoft, Apple, Facebook, and Google have all publicly stated that they have settled tax affairs with the ATO.

The taskforce was also charged with the Digital Services Tax before it was binned in 2019 to focus more on the global effort in this space, led by the Organisation for Economic Cooperation (OECD).

The group is looking at a "two-pillar" approach to curb global tax avoidance, one based on nexus and profit allocation and another of ensuring a minimum level of taxation.

The group was meant to report to the G20 at the end of last year, but due to COVID-19, Treasury deputy secretary, revenue group, Maryanne Mrakovcic said this is more likely to occur mid-2021.

She also said one of the big "game changers" in progressing the work of the group has been the change in the US administration which has been coupled with President Joe Biden's plans around corporate tax reform.

Senator Roberts considers FATCA 'blackmail' by the United States

The Foreign Account Tax Compliance Act (FATCA) requires financial institutions and certain other non-financial entities that are foreign to the United States to report on assets held by their US account holders or be subject to withholding on withholdable payments.

Essentially, it's a US law requiring banks around the world to report accounts held by US citizens, who are residents in other countries, including dual citizens.

One Nation Senator Malcolm Roberts called FATCA "horrendous", saying it has significant and capricious impacts.

"It boils down ultimately to the US blackmailing," he said. "While account holders are notified by their banks that their data will be sent to the ATO pursuant to the FATCA agreement, neither the bank nor the ATO is required to notify the account holder of the actual data sent to the Internal Revenue Service in America under the FATCA agreement."

Roberts asked the ATO representatives if it would be possible to integrate this information into the government's myGov portal in the same way that interest and dividend income is reported to recipients.

"The information that we provide to the US is a standard set of information that's around account information -- often there will be an overlap with the information which we already have in people's prefill," Hirschhorn said.

"Generally, it'll be things like bank interest, which we already prefilled for people, I would say we have not considered whether there is some sort of separate reporting to individuals … we'd have to think about."

Roberts continued, concerned about the inaccuracy of data reported to the IRS, sharing complaints made by individuals subject to FATCA.

"They're not accusing the ATO of any malfeasance, but they're very concerned because it impacts them … a hell of a lot of money in accounting fees, legal fees, because the IRS is just unaccountable, they're just a law unto itself," he said. "And that puts our citizens in the middle of that firing line."

Further questions on FATCA, including whether privacy impact assessments are continuously being conducted with regard to FATCA reporting, were taken on notice.

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