Australia warns accountancy firms against avoiding ‘Google tax’

Australia has warned the Big Four accountancy firms against undermining its crackdown on multinational tax avoidance by creating "artificial and contrived" schemes to sidestep new laws modelled on the UK's "Google tax".

The Australian Taxation Office (ATO) issued an alert on Thursday asking multinationals not to use a newly devised tax scheme, which uses an "Australian partnership" structure to try and reduce foreign companies' tax bills while still allowing them to divert profits offshore.

Mark Konza, ATO deputy commissioner, said some accountancy firms were telling clients they could provide them with "inoculation" from the new "Google tax" laws.

“We are concerned this particular scheme is another creative attempt to undermine the policy intent of the multinational anti-avoidance law,” Mr Konza said.

Shot across the bows

Chris Evans, professor of tax at the UNSW Business School Australia, said this was a shot across the bows of the Big Four, which were likely to be providing similar advice to multinational clients in the UK.

“It’s a game with billions of dollars at stake,” he said.

“It would be remiss for companies not to get advice on whether they are subject to these laws and for their advisers to try and circumvent the most draconian aspects of them in a legal manner.”

Global regulators are targeting aggressive multinational tax avoidance, including in Europe, notably through the commission's €13 billion ruling on Apple.

In January, Google reached a settlement with the UK to pay £130 million (€153 million) in back taxes in a controversial deal linked to Britain’s new “diverted profits tax”.

Australia is following the UK in implementing tough anti-avoidance laws, including new rules put in place in January which cancel tax benefits obtained from tax avoidance schemes and increases penalties on income that companies seek to shift offshore. But the ATO is becoming frustrated with schemes devised by the Big Four accountancy firms that, it claims, set out to exploit legal loopholes and unfairly shields multinationals from tax on sales made to Australian customers.

‘Clever scheme’

"I told them it was a clever scheme and that cleverness is not a compliment in the tax world, and we would commence an audit of their client as soon as I got back to the office," an ATO officer told the Australian Financial Review.

The latest alert issued by the ATO – its third this year – relates to a newly devised tax scheme that interposes an Australian partnership between the foreign company and its Australian customer.

This enables the company to claim the partnership is technically an “Australian entity” for tax purposes and so the new anti-avoidance laws should not apply. However, under the complex structure, the company’s profits are predominantly allocated to offshore entities for tax purposes, according to the ATO.

Chartered Accountants Australia and New Zealand said it was not aware which firms were involved with the particular scheme referred to in the ATO tax alert.

"The ATO clearly feels that the days of using a black-letter-law approach to tax planning are well and truly over and advisers should be more focused on the spirit of the law," said Michael Croker, tax leader at the chartered accountants organisation.

Jason Casas, head of transfer pricing at Grant Thornton, said: "It is becoming clear that any attempt to set up any artificial or contrived structures to sidestep the new anti-avoidance law will only increase a company's tax risk." – (Copyright The Financial Times Limited 2016)