On 26.4.2016, the ATO issues 4 Taxpayer Alerts dealing with concerns it has about emerging profit-shifting arrangements that may lead to tax avoidance.

Deputy Commissioner, Public Groups, Jeremy Hirschhorn said “Taxpayer alerts … are an effective tool to stop the marketing, sale and implementation of schemes, support voluntary disclosures from those who may be involved in these schemes, and enhance community confidence in the integrity of our tax system.”

Deputy Commissioner, International, Mark Konza said the MAAL was designed to counter the erosion of the Australian tax base by multinational entities using artificial and contrived arrangements to avoid attributing profits to a permanent establishment in Australia. “Our view is that interim arrangements must reflect the economic and commercial reality of operating in Australia and we continue to engage with taxpayers and review these interim arrangements to ensure they do not themselves amount to tax avoidance schemes,”

[ATO website]

The 4 Tax Alerts were these.

  • TA 2016/1Inappropriate recognition of internally generated intangible assets and revaluation of intangible assets for thin capitalisation purposes. The ATO is reviewing arrangements where it considers internally generated intangible items have been inappropriately recognised as assets, or have been over valued or inappropriately re-valued, with the consequence of increasing an entity’s maximum allowable debt limit for thin capitalisation purposes. The ATO is concerned that in some circumstances, entities are making choices to recognise internally generated items, where the item chosen falls outside the scope of the intangible asset recognition criteria in Australian Accounting Standards Board’s standard AASB 138 Intangible Assets (AASB 138).
  • TA 2016/2 Interim arrangements in response to the Multinational Anti Avoidance Law (MAAL). This Alert cautions companies and their intermediaries about implementing arrangements to avoid the MAAL, which took effect on 1 January 2016.
  • TA 2016/3 Arrangements involving related party foreign currency denominated finance with related party cross-currency interest rate swaps. The ATO says it is currently reviewing arrangements which appear to be designed to increase the cost of corporate borrowings by Australian companies from their overseas related parties and/or avoid interest withholding taxes. Under these arrangements, companies use their related party financing arrangements to create an alleged need to swap currencies and periodical payments for questionable commercial reasons.
  • TA 2016/4 – Cross-border leasing arrangements involving mobile assets eg vessels. The ATO says its concerns relate to whether an inter-positioned company has been put there for the purpose of gaining favourable tax treaty treatment. The ATO is also concerned about whether the amount brought to tax is consistent with the contribution made by the Australian operations, including the use of the mobile asset, and whether this meets the arm’s length requirements of the transfer pricing provisions of our tax laws.

[ATO Legal Database – Tax Alerts] [LTN 77, 26/3/16]