On September 20, the Australian Taxation Office (ATO) has cautioned multinationals against international profit shifting by multinational companies. In two alerts, ATO addressed 'Cross-Border Round Robin Financing Arrangements' and 'Restructures in response to the Multinational Anti Avoidance Law (MAAL) involving foreign partnerships'.
In a statement, Deputy Commissioner Jeremy Hirschhorn said that ATO is being clear about the ways taxpayers may be tempted to use to avoid tax, as ATO prefers a ‘prevention before correction’ approach.
“Where we identify a scheme, our first priority is to stop the scheme spreading. We then seek to identify the creators and promoters of the scheme, and any taxpayers that they have advised to adopt the scheme,” Hirschhorn said.
Taxpayer Alert 2016/11, warns against a new scheme that attempts to avoid the Multinational Anti-Avoidance Law (MAAL). The scheme involves interposing an entity described as a partnership between the foreign entity originally making supplies to Australian customers and the Australian customers.
"The partnership has one resident corporate partner with a minority interest in the partnership, therefore purporting to characterize the partnership as an 'Australian entity' for the purposes of the MAAL. Agreements entered into purport to make the partnership the distributor of the products or services and the foreign entity its agent. The arrangements have little, if any, commercial basis and no changes are made to the underlying functions," ATO explained.
Taxpayer alert, TA 2016/10, cautions multinational companies who engage in cross-border round-robin financing arrangements, in which an Australian entity funds an overseas related entity, but subsequently receives the funds back in a manner which purportedly generates Australian tax deductions without corresponding Australian assessable income.
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