Tax Commissioner Chris Jordan says tougher laws forcing multinationals to play ball

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Tax Commissioner Chris Jordan says multinationals are already approaching the Australian Taxation Office to negotiate before the Turnbull government's tougher anti-avoidance laws take effect in January, and he expects the office to reap $1.1 billion from them.

In his opening remarks to the Senate inquiry into corporate tax avoidance, Mr Jordan also took issue with evidence given by companies in the oil and gas sector and tech giants Uber and Airbnb, which appeared before the hearing in Sydney on Wednesday.

He said some multinationals may still not be complying with the law by attributing profits offshore in lower-tax or no-tax nations where there is not significant economic activity. "We have to vigorously test their assertions – because they are not open with us, or we receive contradictory views on their tax strategies," he said.

"For example, one thing I find odd is when firms are marketing goods and services here in Australia we're told that it's a 'low value add' activity. But when Australian goods and services are marketed to foreign countries through marketing hubs it is suddenly a highly valuable activity. It just doesn't add up."

Victoria is one of the last states to legalise Uber.Credit: Getty Images

Mr Jordan said tougher anti-avoidance laws had resulted in companies "already indicating their desire to change aggressive tax structures".

But ATO deputy commissioner, public groups, Jeremy Hirshhorn, said multinational oil and gas companies were a particularly high-risk category and that the use of so-called marketing hubs, which allow sales and profits of Australian resources to be booked in low tax countries like Singapore, were an "emerging concern" for the ATO.

He said fossil fuels companies had found ways to push the envelope on the high interest they charge from overseas loans and the use of marketing hubs, as well as "shipping and procurement hubs".

"In some cases, we say they have pushed the envelope too far," he said.

Chris Jordan says the ATO is prepared to take more companies to court.Credit: Dallas Kilponen

In his final act as federal treasurer, Joe Hockey introduced new legislation to Parliament that boosts anti-avoidance tax laws. The multinational anti-avoidance law (MAAL), which will apply from January, will affect 1000 companies with over $1 billion revenue.

"These laws will make it easier for the ATO to call to account companies that are diverting profits from Australia to low or no-tax jurisdictions," Mr Jordan said. "About 1000 companies will need to consider if the new legislation applies to their arrangements, and around 80 will need to look at restructuring.

"In terms of effectiveness I can tell you that already we have had approaches from companies and their advisers on how they can work with us to reorganise their tax arrangements. This is a positive sign that we are going to see a change in the way these entities design their tax strategies."

The law will also give the ATO the ability to re-examine tax structuring and real economic relationships to understand where profits occur, and where tax should be paid.

We at the ATO acknowledge Australia needs investment by foreign companies in infrastructure and industries, but that investment should not be premised on no or very little tax being paid

Tax Commissioner Chris Jordan

Mr Jordan said the ATO had completed about 50 audits and 350 reviews of large businesses in 2014/15, which raised $2.5 billion in liabilities and delivered $1.6 billion in cash.

It had over 70 audits and 220 reviews of large businesses on hand.

The main program it is using was introduced under the former Labor government and is known within the ATO as the International Structuring and Profit Shifting (ISAPS) program. It has involved over 200 risk reviews since it began in July 2013.

Under this, there are 43 audits in progress, 12 of which are technology companies and three are in the pharmaceutical industry.

"We have raised over $400 million in tax liabilities since the start of the ISAPS program, and we expect to raise $1.1 billion over the life of the program," Mr Jordan said. Funding for the program ends in the 2016-17 financial year.

Mr Jordan cited the landmark profit-shifting case against multinational oil giant Chevron, which could result in a multimillion-dollar tax bill. Chevron said on Wednesday it would appeal the ATO's win in the Federal Court.

If the decision stands on appeal, it gives it greater confidence to challenge other multinationals about their tax affairs. "As has been reported, this decision has the potential for wide-reaching effects, most immediately for groups which have charged their Australian operations an excessive rate of interest," Mr Jordan said.

"We at the ATO acknowledge Australia needs investment by foreign companies in infrastructure and industries, but that investment should not be premised on no or very little tax being paid on significant profits generated by such investments in Australia."

Mr Jordan said the ATO would "continue to test the more aggressive arrangements in the courts to show that we are resolute about ensuring companies are not unreasonably playing on the edge. If they do, they can expect to be challenged."

Next month the Tax Office will also release the list of tax paid by the nation's largest public companies. Public companies will no longer have to report because of changes made by the Coalition.

Mr Jordan said "while the community may have the opportunity to see this data for the first time, there is no change in the transparency and engagement that the ATO has with these companies".

He said the ATO was also working within the OECD plan to fight profit shifting, known as Base Erosion and Profit Shifting, or BEPS.

"These new global rules, implemented consistently around the world, combined with the unprecedented co-operation of tax authorities, are the game changer to combat tax avoidance by multinational companies who operate across tax jurisdictions," he said.

-with Heath Aston