ATO Warns about Specific Tax Avoidance Arrangements

On August 10, the Australian Taxation Office (ATO) issued 3 Taxpayer Alerts cautioning large companies and multinationals seeking to avoid tax. The Taxpayer Alerts regard the arrangements involving offshore permanent establishments, GST implications in response to the Multinational Anti-Avoidance Law (MAAL) and Thin capitalization.


ATO is currently reviewing arrangements involving Australian income tax consolidated groups (the consolidated group) with subsidiaries using offshore permanent establishments (PE) that have entered into intra-group transactions. "We are concerned that, under these arrangements, the right amount of taxable income is not being returned by the consolidated group in Australia," ATO informed.

ATO is concerned that consolidated groups may be understating their assessable income and/or incorrectly claiming deductions for expenses incurred in deriving non-assessable non-exempt income for Australian income tax purposes.

GST Implications

Under 'GST Implication of arrangements entered into in response to the Multinational Anti-Avoidance Law (MAAL)' alert, ATO informed that it has encountered arrangements which involve foreign and Australian entities swapping their roles via contracts.

"These contracts purport to make the Australian entity the distributor of the intangible products or services and the foreign entity an agent of the Australian entity, collecting the sales revenue from customers on its behalf," ATO informed.

Thin Capitalization

Thin Capitalization refers to the incorrect calculation of the value of 'debt capital' treated wholly or partly as equity for accounting purposes. ATO informed that it reviews arrangements where taxpayers have taken the view that their 'debt capital' for the purposes of the thin capitalization rules does not include the value of a 'debt interest' that has been treated wholly or partly as equity for accounting purposes.

Thin capitalization "has the effect of reducing what would otherwise have been the taxpayer's 'adjusted average debt' and may consequently reduce the amount of debt deductions disallowed under the thin capitalization regime," ATO informed.

Source: ATO - Permanent Establishments Alert, ATO - GST Implications Alert, ATO - Thin Capitalization Alert

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