Australian government asks multinationals about ATO reporting procedures

The Australian government is calling for multinational companies in Australia that have been affected by the recently introduced requirement to provide their general purpose financial statements to the Australian Taxation Office (ATO) to participate in the consultation process on areas they think are unclear or difficult to understand that would prevent from complying.

Under the multinational anti-avoidance law, which came into effect last year, multinational 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 from the 1 July, 2016, if they are not already doing so with the Australian Securities and Investments Commission.

Specific issues that will be consulted on include what is a general purpose financial statement; how an affected entity can give their general purpose financial statements to the ATO; and practical guidance to assist affected entities to comply.

According to the Minister for Revenue and Financial Services Kelly O'Dwyer the consultation process is part of the federal government's commitment to ensure greater transparency by large multinational companies in Australia moves forward.

"The consultation process will ensure the ATO can better understand and address any difficulties or complexities that may arise in meeting these obligations," she said.

The implementation of the new laws by the Australian government was part of recommendations that were made by the Organisation for Economic Cooperation and Development (OECD) from its G20-commissioned base erosion and profit-shifting (BEPS) project. Under BEPS, the OECD expects governments to be able to retrieve as much as $240 billion in lost revenue each year through dodgy tax practices across the globe, which it claims represents up to 10 percent of global corporate income tax revenues.

The Australian government has been working on cracking down on multinational companies operating in Australia that are avoiding paying tax.

The ATO has defended its approach to how it is cracking down on multinationals operating in Australia that may be avoiding paying tax, saying that due to certain policy choices, it often looks at the reason behind why a company's cash tax does not align with the accounting profit.

During a Senate Committee hearing on corporate tax avoidance, Jeremy Hirschhorn, deputy commissioner of public groups at the ATO, outlined that under the existing international framework model Australia does not have the right to tax the entire profit of an international organisation from its sales in Australia, which he said at the same time protects Australian companies from being slogged with high tax rates by other countries on profits they earn from offshore operations.

"We can only apply the transfer pricing rules that we have, which says Australia doesn't get to tax the entire supply chain, we only get to tax the bits that are due to function, assets, and risks in Australia," he said.

The ATO comments were provided in response to a report released by GetUp that detailed how foreign multinational technology companies and large private Australian technology companies were getting away with paying an effective corporate tax rate of 7.6 percent.

The report, written by University of Technology Sydney academics Ross McClure, Roman Lanis, and Brett Govendir, stated that in 2013 and 2014, Australia lost AU$5.36 billion in corporate tax revenue from just 76 multinational corporations.

From the industry categories examined, technology companies were the second-worst offenders, paying an effective tax rate of 7.6 percent, following pharmaceutical firms that paid only 5.7 percent.

Last August, it was revealed that AU$31 billion was funnelled from Australia to Singapore in a year by 10 multinational companies.