ATO issues warning letters to 136 multinationals under new Multinational Anti-Avoidance Law

The Australian Taxation Office has more than doubled the number of multinational companies being targeted for tax avoidance, vowing to hit offending corporations with big tax bills and hefty fines.

The Tax Office told Fairfax Media that they had identified 175 companies that potentially fall within scope of the federal government's Multinational Anti-Avoidance Law – which aims to address the problem of multinational companies using loopholes to minimise tax paid in Australia.

Last year tax commissioner Chris Jordan told Senate estimates that the ATO had written to 60 companies stating that they should consider whether the new laws applied to their circumstances.

Mr Jordan vowed that the ATO was prepared to take more companies "all the way to court if necessary".

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

Of the 175 companies, which are believed to include household names in the technology, mining and energy sectors, the ATO has now sent warning letters to 136 multinationals which may be subject to tough penalties as a result.

Of the first 25 that have been reviewed or audited there is a "medium-to-high probability" that at least five will be hit with tax bills.

The ATO has invited suspect companies to come forward to discuss their offshore financing arrangements and many have responded by restructuring their tax arrangements in response to the new laws.

"While there are cases under audit for the MAAL, our primary focus at the moment is working through the population potentially subject to the MAAL," deputy commissioner Mark Konza said.

The ATO also this week issued a warning on offshore sales hubs.Credit: Louie Douvis

"[The ATO is] examining in detail whether their arrangements could be subject to the MAAL, examining what arrangements they might have put in place to deal with the MAAL, and then determining if audit action is required."

Of the 175 companies that could be impacted:

Treasurer Scott Morrison says the fact that companies are restructuring proves the laws are working.

• 14 were already under reviews or audits when MAAL came into effect.

• 122 were identified as being potentially in scope of the MAAL and were contacted by the ATO on or before the end of March. The ATO did not make clear whether these 122 were under review or audit.

• A further 39 taxpayers accepted Mr Jordan's invitation to work with the ATO.

An ATO spokesman said: "Twenty five taxpayers have now progressed through the early engagement and risk phase... and have received either a low, medium or high-risk rating letter."

"The ATO was able to confirm that the MAAL would not apply to 20 of these taxpayers, but there is a medium-to-high probability that it could apply in the other five cases."

Technology giants such as Apple, Google and Microsoft told last year's federal inquiry they were then being audited by the ATO.Credit: Mike Segar

We're fighting tax avoidance with a wooden sword and a blindfold.

Labor MP and shadow assistant treasurer Andrew Leigh

Technology giants Apple, Google, Microsoft, and miners BHP Billiton and Rio Tinto had told last year's federal inquiry into corporate tax avoidance that they were then being audited by the ATO.

The ATO this week issued a taxpayer alert over certain arrangements it deems "may not be found to be acceptable".

Illustration: Ron Tandberg

Some of the areas under close watch relate to companies that are claiming their IP in low-tax nations without any economic basis and in order to avoid paying tax in Australia, and others that are claiming debt deductions that far exceed commercial levels.

The agency was "continuing to investigate these arrangements to determine whether they are legal", the spokesman said.

"The legislation prescribes that the penalties are doubled where the taxpayer does not have a reasonably arguable position."

The ATO also this week issued a warning on offshore sales hubs – where companies send profits to lower tax nations such as Singapore and Ireland – and has identified 30 large mining and energy companies that use hubs.

The ATO now lists the factors it will use to place taxpayers into risk categories, ranging from a "low-risk green zone" to a "very high-risk red zone" and the consequences of such placement.

The ATO spokesman said about a third of the 30 largest miners and energy companies with marketing hubs fall into green and blue ratings, which required minimal reporting and involved less than $5 million in potential tax. These companies were likely to face lighter penalties for complying.

But "the rest are likely to be in the yellow, orange and red zones", meaning they are non-compliant and could face tougher penalties.

Treasurer Scott Morrison says the fact that companies are restructuring proves the laws are working.

But Labor MP and shadow assistant treasurer Andrew Leigh said recent job cuts at the ATO and the federal government's "unwillingness to close certain loopholes" have made it harder to fight multinationals. "We're fighting tax avoidance with a wooden sword and a blindfold," he said.