ATO boss Chris Jordan says tech companies are ‘most aggressive’ in profit shifting

Tax Commissioner Chris Jordan has pledged the Australian Taxation Office will beat a budget target of hitting $1.1 billion in revenue from multinationals by 2017, and says it expects to clock much of it by the end of the year through audits of technology companies.

In an interview with Fairfax Media, ahead of the federal inquiry into corporate tax avoidance next week, Mr Jordan said the ATO had already raised $250 million in liabilities through audits of multinationals, but that this amount did not include 12 technology companies that were also under audit and viewed as the “most aggressive”, and so he expected this number to significantly rise before the end of the year.

Ultimately the best long term solution is to have a clear set of international rules.

Tax Commissioner Chris Jordan
Mr Jordan said it was also working with overseas jurisdictions to take a detailed look at where e-commerce companies were earning profits. The best approach would be to work within the OECD plan to stop profit shifting, but this did not mean Australia could not move ahead with its own laws sooner if need be.

“We’re not waiting for any change,” Mr Jordan said. “We’re challenging the assertions companies are making, about Australia not having a taxing right.”

“Ultimately the best long-term solution is to have a clear set of international rules. It’s up to the government if they want to do anything in the shorter term.”

Treasurer Joe Hockey this week said the government could proceed with a UK-style “Google tax” whereby profits are taxed at higher rates.

The UK’s diverted profits tax proposes to tax companies profits they declare overseas, but which come from local activity, at 25 per cent. This is higher than the UK’s 21 per cent headline company tax rate.

The OECD meanwhile is working on a plan to stop companies such as Apple, Google and Microsoft from shifting profits to low-tax or no-tax jurisdictions.

Mr Jordan said while companies were using tax experts to help in minimising their tax, the Tax Office was often challenging their “artificial and contrived” tax structures.

This was being done through their program targeting multinationals, known as “international structuring and profit-shifting” (ISAPS), but also through greater collaboration and information sharing with six tax authorities that could not be named.

As of June 30 the ATO will have conducted about 200 reviews and 41 audits, including the 12 technology companies, under ISAPS.

“There’s some big dollars in those tech companies – we think we will exceed the $1.1 billion,” Mr Jordan said. “Obviously there’s a lot of resistance here and they’re [the companies] are not being as quick as we’d like in providing the information … so we’re [making] formal demands for information.”

Mr Jordan said while most of the cases would be finalised by year’s end, some of the companies hit with tax bills could dispute the assessments, which would drag out the time frame, and the time it takes to clock the revenue.

“Wed like to get it in court by end of the year,” he said. “We suspect these companies won’t agree with it [the tax bills]. They’ll want to challenge [if Australia has] the taxing rights. But by 2017 we think we will be far in excess of the $1.1 billion.

Mr Jordan also hit back at recommendations made by a parliamentary inquiry that pushes the federal government to radically overhaul current rules that give the ATO wide-ranging powers to gather information and charge people with fraud and evasion.

The Standing Committee on Tax and Revenue, which headed the inquiry into tax disputes, last week recommended that people and companies charged with tax fraud or tax evasion should be granted the presumption of innocence in court.

Mr Jordan said while it was up to government whether or not to change the laws, he cautioned against creating a new set of rules that would “put obstacles in our way” and make it harder for the ATO to do its job to chase tax avoidance.

“Clearly we take fraud and evasion very seriously, and we only make allegations when there’s evidence of fraud and evasion,” he said. “We’re surprised there’s a recommendation there because that’s what happens. Maybe we need to be better at communicating our reasons for [charging a taxpayer with] fraud and evasion.

He said as part of creating internal cultural change at the ATO, it was working towards a system that treated taxpayers more “fairly and respectfully”.

“These things take time,” he said. “Changing administration arrangements at the top of an organisation isn’t going to drive cultural change. The only people who will benefit from new protocols and processes are people with big pockets who want to challenge every single way they can.”

He said an unfortunate feature of tax systems globally was that it was often people with “deep pockets” who were able to mount a challenge.

The committee heading the federal inquiry into tax disputes also backed the Inspector-General of Taxation, Ali Noroozi, in recommending that a new independent second commissioner be appointed with the ATO to hear taxpayer appeals; a move the ATO has been resisting.

Mr Jordan said while he was open to having a separate area to hear appeals – something the ATO already offers to the top end of town but not small business taxpayers – he did not agree with the recommendation to have a separate commissioner to head it. “We don’t agree with changes at the administration level. It’s what happens on the ground that matters.”