The Tax Office is investigating 27 multinationals over $78 billion in potentially dodgy revaluations used to get around anti-tax avoidance rules.
In a submission to a senate inquiry, the ATO warns that companies are revaluing assets to skirt 2014 changes to thin capitalisation rules designed to stop companies loading debt into their Australian operations to avoid paying tax here.
“Taxpayers have responded to the reduction of the safe harbour thresholds in a variety of ways,” it says in a new submission to the long-standing senate inquiry into corporate tax avoidance.
“One in particular was to increase the value of their total assets by undertaking revaluations of certain assets either for accounting purposes or for thin capitalisation purposes only.
“This has had the effect of limiting the impacts of the reductions in the safe harbour thresholds.”
In 2015, 184 companies made thin capitalisation-only revaluations worth $56 billion, the submission says. In 2016, the figure more than doubled to $122 billion for 33 fewer companies.
This was “significant year-on-year growth and the thin capitalisation arrangements of 27 companies are being reviewed, with $78 billion in revaluations under scrutiny.
The so-called thin capitalisation rules were tightened in 2014 to limit the tax advantages that could be obtained by shifting debt into Australia.
A “safe harbour” threshold was reduced to 60 per cent, signalling to businesses that the Tax Office viewed as acceptable a debt-to-equity ratio of 1.5:1.
ATO pursues legal action
The ATO has previously revealed that it is mounting legal action against at least five companies for breaches of thin capitalisation rules.
Labor has announced a policy that would further restrict debt deductions for some companies.
“Unlike the government, which ran away from reform in 2016, Labor is prepared to tighten these rules and recover $4.6 billion currently dodged by exploiting this loophole,” opposition assistant treasurer Andrew Leigh said.
“Malcolm Turnbull should focus on closing down tax havens, improving tax transparency and making multinationals pay their fair share.”
The ATO submission also reveals that multinationals with related-party loans will be denied $1.4 billion in interest deductions in 2018 and $13.7 billion over the next decade.
The ATO links the result to its legal victory over Chevron in a landmark transfer pricing case.
Also in the oil and gas industry, the submission flags concerns about companies claiming labour costs as an upfront deduction.
The submission revisits the billions in extra tax revenue the ATO has collected from large companies in recent years.
“From July 2016 to December 2017, we raised $5.2 billion in liabilities against public groups and multinationals,” it says.
“The ATO has collected $2.8 billion in cash from those liabilities, with nearly $2.2 billion of that amount coming from multinational enterprises.”
Twenty e-commerce companies are still being investigated and 11 pharmaceutical companies are either under review or audit.