The ATO is outsourcing sensitive tax work to a small army of labour hire workers in an "accounting trick" designed to disguise the size of the ATO workforce, its main workplace union alleges.
The private firms reaping multi-million profits from the deals are paying only tiny amounts of tax their vast earnings, according to the Community and Public Sector Union.
The ATO has declined to comment on CPSU research showing 20 per cent of workers at the Tax Office are non-public servants hired through lucrative deals with multi-national suppliers.
The union says the deals are an accounting trick, designed to satisfy the Coalition government's demands for staffing cuts in the public service, with labor hire workers not officially counted as part of the workforce.
Labour hire staff company employees are now carrying out audits, doing debt work and other "core" functions traditionally done by Tax Officials, the CPSU says.
In a parliamentary submission, the union says the use of labour hire workers has grown from hiring extra temporary workers to answer phones during peak demand to "engaging in compliance and debt work...undertaking audits and other 'core' ATO functions."
"Given the number of external workers, and their geographical spread we believe they are engaged in the full range of ATO functions," the union wrote in its submission.
"The use of labour hire in the ATO affects the quality of work that is undertaken, the quality of service provided to the public and it can be costly for the ATO."
"The CPSU understands that the pressure from Government to reduce staffing levels is driving some of the decisions to use external labour sources.
The union says the trend is being driven by the relentless pressure by the government on public service agencies to reduce their official head counts
"There is an incentive for the ATO to use labour hire as an accounting trick," the submission reads.
The ATO has signed more than 100 labour hire deals with several dozen firms during the past three years but the the union's research focused on tax paid by three big players, Stellar, Serco and Datacom.
The CSPU says that Serco's Australian operation earned $1.25 billion in the 2014-2015 financial year but paid just over about $31 million million in tax while Stellar Asia Pacific reported Australian income of $122 million but paid less than $2 million in tax and Datacom's local income was about $378 million but it paid $8.3 million in tax.
"The largest ATO contractors with multinational parent companies are reporting very low profit margins," the union wrote.
"This raises questions as to whether these companies are using multinational tax structures to avoid their tax obligations, which would be particularly galling given they are being paid to undertake tax work."
A Serco spokesman denied moving money offshore to avoid Australian taxes.
"All Serco Australia revenues are received in Australia and we pay all tax that is due in Australia," he said.
"Serco Australia has no arrangements for its income to be received or taxed offshore."
A spokesman for Datacom, which supplies 670 workers to the ATO, said that his firm too was fully compliant with Australian taxation requirements.
"We do not artificially reduce our profits in any country in which we operate in order to reduce our tax liabilities.
"We are fully compliant with all our financial and legal obligations in all the countries we operate in," he said.
"With regards to our Australian tax obligations, we pay the full corporate tax rate of 30 per cent with deductions for our [research and development] offset."
Stellar did not respond to requests for comment and the ATO said it had nothing to say in response to the CPSU's submission.
"The ATO will not be making any comment on their submission," a spokeswoman said.