Protecting Australia's tax base

Legislative and resourcing initiatives during 2015–16 have further strengthened the ATO's capability and capacity to tackle cross-border tax avoidance that threatens Australia's tax base.

We have also continued to test the operation of the transfer pricing and thin capitalisation provisions where arrangements appear to contain features that would not be seen in financing between parties dealing with each other at arm's length. The Federal Court decision in Chevron Australia Holdings Pty Ltd v Commissioner of Taxation (No 4) [2015] FCA 1092 demonstrated the effectiveness of the Commissioner's powers under the transfer pricing provisions, to deal with profit shifting using cross-border related-party financing to reduce tax payable in Australia.

Multinational Anti-Avoidance Law

The Multinational Anti-Avoidance Law (MAAL), which took effect from 1 January 2016, tackles artificial and contrived arrangements that attempt to avoid attributing profits to a permanent establishment in Australia.

The implementation of the MAAL is a key program for the ATO and we have undertaken a significant engagement and communication strategy, including the publication of a law companion guideline to ensure taxpayers are provided with a high level of certainty about the MAAL's application. We also provided a client experience roadmap to assist taxpayers who intend to voluntarily comply with the provisions.

Our approach has been well received and we have had a high uptake, with 175 taxpayers currently progressing through our compliance process. Of these:

  • 14 entities were already under compliance activity when the MAAL came into effect
  • 39 entities accepted the Commissioner's invitation to work with us
  • 122 entities did not come in under the Commissioner's general invitation and have received letters advising them to engage with us or face compliance actions.

At this stage, close to all have responded to our approach and we are continuing to work with these taxpayers. Further taxpayers that may be within scope of MAAL are being identified through casework and ongoing risk identification processes. We are also aware of several taxpayers restructuring in response to the MAAL.

The ATO has issued taxpayer alerts (TA 2016/2 Interim arrangements in response to the Multinational Anti-Avoidance Law and TA 2016/8 GST implications of arrangements entered into in response to the Multinational Anti-Avoidance Law) to ensure that any restructuring arrangements do not seek to avoid the application of the MAAL in an artificial and contrived manner.