10th April 2018
Recent comments by Australian Taxation Office Deputy Commissioner Mark Konza outlined the ATO’s priorities regarding international tax enforcement, noting that a special focus would be placed on the energy and resources sector as well as the pharmaceutical industry. Regarding energy and resources, the ATO will be paying close attention to “exploration expenditure” among other methods used by international companies to avoid paying taxes.
"With Australia set to become the world's biggest exporter of liquefied petroleum gas by 2022, the oil and gas industry is a particular focus for us,” he said. “With big developments and long-term contracts being a feature of the LPG industry, it is important we get the pricing right from the start or it could all end in tax tears."
One company that is unlikely to shed tax tears is Exxon-Mobil, currently in the middle of an 8-year company tax holiday in Australia due mostly to “investments in off-shore production” – that is, the same type of tax exemption category that the ATO only recently identified as an area of focus for ending the tax breaks enjoyed by international corporations. Exxon-Mobil’s investments in off-shore production totaled $21 billion – but its profit from this investment, by the time its company tax break is complete, could reach up to $50 billion by some estimates.
How serious the ATO will be in filling these loopholes is anyone’s guess, but as many have pointed out, ordinary Australians (and many companies smaller than Exxon-Mobil) still long for the type of preferential tax treatment that certain entities receive.
Not all large companies have it easy, of course; as even some multinationals, such as Chevron, have been denied access to similar loopholes. In the case of Chevron, the ATO ruled that it used intra-company loans in order to shift profits offshore, thereby avoiding tax on its Australian income. The decision left Chevron with a $300 million tax bill. The company may soon be forced to pay an even larger bill on the $42 billion loan that its Australian subsidiary received from its US-based associate in the low-tax state of Delaware.
Of taxes actually owed, the ATO estimates that 91% are correctly paid by large corporations, thanks to new laws and compliance policies. Another 3% are paid after enforcement procedures are initiated. The remainder – 6%, or $2.5 billion per year – go uncollected. The ATO is pleased with its 94% success rate, noting that few countries are able to show more impressive numbers. Still, it acknowledges, there is more work to be done.
The ATO lists 7 key ‘clusters’ where tax avoiders may be hiding. These include e-commerce and pharmaceutical companies, as well as offshore marketing hubs used to sell Australian commodities. Certain financial cases are also under investigation for alleged intangible asset migration.
Whether these investigations will lead to reclamation of unpaid taxes, followed by a cleanup of financial practices in these business sectors, remains to be seen. But given the changing political winds surrounding corporate taxes – e.g. the recent failure of the government to enact corporate tax cuts due to a lack of popular support – the ATO remains an organisation of great power and influence.