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Why the ATO is losing the battle against the 'transnationals'

Date

Noel Towell

The Australian Tax Office says multinational companies are cashing in on their inability to make them pay their fair share of taxes.

The Australian Tax Office says multinational companies are cashing in on their inability to make them pay their fair share of taxes.

Global companies like Google, Starbucks and IKEA are cashing in on cuts to the Australian Taxation Office's ability to make them pay their fair share of taxes here, an ATO insider has warned.

Despite growing pressure to crack down on multinationals reaping massive profits in Australia each year and paying little tax, the departing taxation official says the ATO has been scaling back its technical ability to force the "transnationals" to pay up.

The former international taxation specialist says private advisors hired by "transnationals" to minimise their tax payments know too much about internal workings of the ATO and are using their insider knowledge to profit their clients.

Public servants with hundreds of years of combined technical know-how have left the ATO's "Internationals' Group" in recent years, with the process accelerated by the present massive cuts to the agency, the insider has warned.

The trend has left younger and less experienced tax officials facing the might of the "big four" accounting firms, KPMG, PwC, Deloitte's and Ernst and Young, who advise the transnationals.

But the ATO has defended its record in Internationals saying it had recently gone on a recruitment drive to beef up its technical know-how.

The former taxation official says that case deadlines of 90 days imposed on audit teams by ATO bosses eager to increase the number of cases covered have allowed transnationals to simply "wait out" the Taxation Office or to have low-ball settlements accepted.

Fairfax revealed on Monday that Swedish furniture giant IKEA paid just $7.7 million in tax in Australia in 2013-2014, despite banking an operating profit of $92 million for its Australian activities that year.

The flatpack operation joins other global outfits like Google and Apple who remit minuscule percentages of vast Australian profits to the Commonwealth.

The ATO has joined tax authorities of other G20 nations in trying to tackle the movement of profits to tax havens, known as "base erosion", but the former ATO Internationals insider says the high-profile effort is a distraction from old-fashioned "bread-and-butter" tax enforcement.

The retiring mid-ranking executive, who has asked to have his identity protected, said the big threats to revenue came from changes made by the ATO itself with big four accounting firms emboldened by the loss of experienced ATO technical staff and trying ever more aggressive tax avoidance schemes.

"That's more likely to be the case in a climate of a loss of staff, it has progressively become that way during the past three years, Internationals has dramatically shrunk in its technical staff," the insider said.

"We lost the overwhelming majority of executive level one and two technical staff about three years ago."

He said that time restrictions imposed by ATO management were making "hard-nosed" audits, taking months or even years,  more difficult to carry out.

"The idea that poring over published accounting reports of a transnational is going to disclose potential tax mischief, is pie-an-the sky," he said.

 "But the Taxation Office is saying they want say, a 90-day turnaround, the office doesn't want a team to be bogged down in a case that might take months or years, unless they know there is going to be a revenue outcome.

"If you truncate cases you're sending a message to large taxpayers that if they drag the Taxation Office out long enough, then they will either back down or they will take pretty much anything you offer them,"

Taxation officials were often pitted against big four accountant who were armed with detailed and accurate knowledge of internal ATO workings.

"There's a bit of a revolving door between the big four and the ATO with staff moving in between, so word gets around very very quickly," the insider said.

 "They know what our rate of coverage is, they know what our staff capability levels are, they've got their finger on the pulse.

"They're tough, they're hard work, you're not dealing with fools, the big four have done their homework very well."

An ATO spokeswoman said staffing levels in Internationals had remained steady during the past three years but internal Taxation Office documents show the profile of workers in the unit had shifted to a more junior cohort.

"Compliance teams carry out their review work according to project plans which allow sufficient time for them to properly complete it," the spokeswoman said.

"They are assisted by senior staff who advise them on technical and planning issues.

 "International strategies and organisation has been and will continue to be reviewed to ensure it can find the right balance between service and advice and active compliance and audits to support voluntary compliance."

21 comments

  • Yes ...that is correct. However if you have case turnovers of 2 years or 90 days the outcome is going to be the same on those audits. The focus on shorter timeframes is simply to get through the work in a streamlined fashion...more audits, more taxes that could potentially be paid. That is not the fault of the auditors but rather the culture in terms of case turnover time frames attached to the management systems that have developed over a long period of time. The issue of transnationals is a very different issue. We have a corporate culture nationally and internationally that has extraordinary leverage on the political and institutional systems in each country. Tax Agencies across the world have to deal with their clients with one hand tied behind their backs....that is just the way it is.

    Commenter
    Jack
    Location
    Sydney
    Date and time
    September 03, 2014, 10:12AM
    • I disagree. The Tax Office is clearly winning their battle against the mums and dads of Australia. These poor unfortunate people are just grist for the mill. Multinationals won't be touched and in far too many cases migrants and multiple passport holders can't be touched if they move outside Australia's jurisdiction. It is a highly unequal and unfair Tax system that has been allowed to develop.

      Commenter
      Grist for the Mill
      Date and time
      September 03, 2014, 4:43PM
    • Jack. That's the way it is because we tolerate it. It doesn't need to be that way. Call their bluff as we should also call the bluff of any company who say they would leave if they have to pay tax.

      Commenter
      Good Logic
      Date and time
      September 03, 2014, 8:22PM
  • INTRODUCE A CONSUMPTION TAX AND WATCH THEM PAY THEIR DUES.

    Commenter
    John
    Date and time
    September 03, 2014, 10:19AM
    • John

      There is a consumption tax.
      Its called GST.

      But the multinationals dont pay it, we do.

      cheers

      Commenter
      highway star
      Date and time
      September 03, 2014, 4:15PM
    • Perhaps John means a tax on turnover. That is, pay proper company tax like everyone else with no dodgy fees coming from further up the chain or pay 5% of your turnover. Something like that. The rate could be worked out from the margins of similar companies operating the same type of business from within Australia. It would mean changing the law though and we haven't been very good at that lately.

      Commenter
      Busker
      Date and time
      September 03, 2014, 6:46PM
    • We must raise our GST further and cut income tax. Only the middle class play income tax and thats unfair!

      The super rich, those in the cash economy and the criminal class cannot avoid the GST when they eat out, visit the cinema or buy a Maserati.

      Commenter
      jmg
      Location
      Canberra
      Date and time
      September 03, 2014, 7:26PM
  • These multi-national companies are leaners not lifters and it is outrageous that they should pay so little tax here in Australia.

    It is about time that there was a bi-partisan agreement by all our political parties here in Australia to make these multi-nationals pay the same amount of tax as a local company does.

    If these multi-nationals don't like paying their fair share then they should not operate here.

    If they all left we would be better off and this would give local companies and manufacturers the chance to fill the gap and hence generate employment opportunities for our local entrepreneurs.

    If an overseas company earns a dollar here they should pay tax on that dollar.

    None of this nonsense about tax minimisation and off-shoring profits and claiming tax deduction losses locally through shady accountancy practices.

    Pay your taxes or get out of Australia and let the local companies prosper honestly under our local taxation laws.

    Commenter
    Get Real
    Date and time
    September 03, 2014, 10:48AM
    • Gee we have some lame people in this country at the that call them self leaders. It seems that it easier to go to war than to do anything that is good for this country these days

      Both governments have been been pathetic in trying to get multinationals to pay their due tax. Pathetic.

      The labor government tried the mining tax and that was ineffective due to the watering down by the coalition. The only effort so far by the LNP is to get rid of the mining tax, tax the poor, pensioners and the disabled more, and pay lip service to everything else.

      The ATO can't wash their hands from this as well.

      Like bullies in the night they have smashed small businesses and familes to pieces and taken their eye off the ball with the bigger picture.

      To say "But the ATO has defended its record in Internationals saying it had recently gone on a recruitment drive to beef up its technical know-how" is woe full as these multinationals have been doing this for many years now.

      Sorry guys but that's just poor management!

      Commenter
      Bob
      Date and time
      September 03, 2014, 1:58PM
      • Bob. So many people would agree with you if only you had Mathhias Cormann's cigar and megaphone or Joe Hockey's bluster and bullying. The Coalition is pathetic; only word for it. And they sat there Stumm while they changed the punters'' super and pension arrangements because they knew it would not affect their own entitlements.

        Commenter
        Clive
        Location
        Manly West
        Date and time
        September 03, 2014, 3:34PM

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