Government warned that ATO not up to catching tax avoiders
Tax attack
Bill Shorten accuses the government during Tuesday’s question time of going soft on corporate tax avoidance; Tony Abbott says Labor did nothing in government.
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The Abbott government was warned that the Australian Tax Office was ill-equipped to tackle a potential multibillion-dollar international tax dodge as it prepared to cut 3000 ATO staff.
At a time when Treasurer Joe Hockey is touting Australia’s efforts in conjunction with the G20 to close international tax loopholes, the Tax Office no longer has a dedicated team to fighting the problem.
A report by the independent Inspector-General of Taxation has raised serious concerns about an exodus of experienced staff from the ATO at a time when money flowing between Australian companies and their foreign subsidiaries has topped $270 billion – a sum that equates to more than half of the Commonwealth Budget.
Sources close to the ATO told Fairfax Media many of the ATO’s most experienced staff in tracking international profits have moved to the big four accounting firms, where they now advise the nation’s biggest companies on how to minimise their tax.
Inspector-General Ali Noroozi warned government the loss of key ATO experts in so-called “transfer pricing” posed risks to Commonwealth revenue.
The issue of transfer pricing and the use of tax havens was raised in a report, revealed by Fairfax Media on Monday, which became a focus of debate during question time on Tuesday, with the government and opposition accusing each other of failing to close corporate tax loopholes.
Mr Noroozi’s report was delivered last December but not released by the government until June 2, three weeks after Treasurer Joe Hockey announced savage cuts to the ATO in his first budget.
Three thousand ATO staff will have been made redundant by the Coalition by October 30, leaving a total workforce of roughly 20,000.
In his 290-page report, Mr Noroozi questioned whether “generalists” in the ATO were up to the job of locking in tax on the $270 billion flowing back and forth across Australia’s border annually.
“The underlying theme of the review was insufficient ATO transfer pricing capability which was caused by inadequate succession planning and resource management,” he said.
“Internationally, there are government and community concerns regarding risks to revenue arising from transfer pricing, base erosion and profit shifting as evidenced in the OECD and G20 forums.
“The review has found … experienced specialist officers had left the ATO’s transfer pricing area and their knowledge was not effectively disseminated across the organisation.”
The ATO accepted in full or part 17 of his 18 recommendations but has refused to reform a specialist team in transfer pricing or establish an “overseeing body”.
The ATO told Fairfax it has developed an implementation plan, which it has shared with the Inspector-General of Taxation (IGT). “We have in the meantime progressed implementation of the recommendations, resulting from the IGT review into the ATO’s management of transfer pricing matters.”
Finance Minister Mathias Cormann’s office had not responded by the time of going to print.
Labor assistant treasury spokesman Andrew Leigh accused Mr Hockey of “hectoring the ATO” to clamp down on multinational profit shifting and tax avoidance.
“But at the same time he has gutted the workforce that would actually deliver on that. By cutting over 3,000 tax officers, the Abbott government has allowed decades’ worth of experience in this highly specialised area of tax law to just walk out the door,” he said.
