3 February 2021
To reduce the tax gap - the difference between the amount of tax the Australian Tax Office (ATO) would have collected if every taxpayer had paid their proper amount of taxes and the amount of tax the ATO actually collected - the ATO follows a strategy of active prevention. They do this by:
- Identifying potential tax risk areas.
- Releasing public guidance on matters of concern.
- Targeting corporate groups through early engagement before they lodge their tax return.
The main international risk areas the ATO will examine when a multinational sets up a business in Australia or does business in Australia includes:
Transfer pricing risks
Companies that are attempting to shift the taxation of profits to the country with the lowest tax rate and supply chain management to ensure appropriate profit is being recognised in Australia.
Related party debt risks
Companies with excessive debt in Australia to attempt to obtain the maximum deduction in Australia.
Offshore service hubs risks
Companies that have set up a centralised operating model to operate from a low tax jurisdiction to undertake most commercial transactions of the multinational business in Australia.
Companies that have re-characterised the sale of land-rich assets as the sale of non-land rich assets by a non-resident to avoid having to pay any taxes in Australia.
Other domestic risk areas identified by the ATO for corporates operating in Australia include:
Income tax risks
Companies that attempt to re-characterise the income derived from active trading as income from passive activities to gain a tax advantage (e.g. CGT discount).
R&D incentive risks
Companies that incorrectly claim the research and development (R&D) incentive for companies carrying out innovative activities in Australia.
Furthermore, the ATO takes a keen interest in businesses engaged in the property and construction industries and if there have been significant merger and acquisition transactions.