While global leaders are firmly focused on reigning in tax planning activities of the large multi-nationals, the ATO has today played its part to curb the profit shifting, announcing a new ruling that will adversely impact our mid-sized enterprises that are innovating and growing internationally.
“The new ruling has effectively positioned mid-size businesses as a square peg in a round hole. The rules apply the same approach to all Australian companies, both great and small, instead of introducing specific rules better suited to the mid-sized operators and their level of resources available,” said Jason Casas, National Head Transfer Pricing, Grant Thornton Australia.
The ruling will force mid-sized enterprises to prepare additional documentation as a compliance measure, increasing the burden on mid-sized enterprises who have less resources to deal with the extensive compliance requirements.
“We would’ve liked to have seen some relief from the compliance burden for mid-sized companies created by this ruling.
“With the G20 in Brisbane, the timing of the ATO release is significant. The ATO has been at the forefront of global efforts to combat sophisticated tax planning arrangements by multinational and this ruling outlines how it intends to use the weapons in its armoury.
“The good news is the ruling provides additional guidelines for mid-sized businesses on the factors that will prompt the ATO to reconstruct their intercompany transactions. We would like to see the ATO take this one step further by providing public benchmarks around cross border transactions,” said Mr Casas.
Australian companies are attracting the attention of the ATO for their planning strategies to minimise tax payments which were highlighted in the release of a large cache of tax agreements with the Luxembourg tax authorities.
Transfer pricing is a major focus for the ATO who received $109m in the 2013 budget for BEPS compliance and has established a team to review arrangements where taxpayers could be inappropriately shifting profits out of Australia.
The ATO has since identified at least 86 cases for review, focusing on taxpayers’ debt arrangements, shifting of IP offshore and profit outcomes. There is a concerted effort globally on transfer pricing led by the OECD at the upcoming G20 which Grant Thornton has been involved in through our briefing papers for the G20 summit in Brisbane. Mid-sized businesses need to understand that this is an area of focus for the ATO. Therefore they must invest in a critical analysis of their international transactions.
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