The commissioner has outlined the Australian Tax Office’s (ATO) compliance program for 2007–2008. In his address the commissioner noted that the following areas will be the focus of ATO audit activities in the current tax year.
Tax performance at odds with economic performance
The ATO will examine whether there are valid reasons for discrepancies between large accounting profits reported to shareholders and low levels of taxable income.
Companies with low profits or persistent losses relative to their market share
The commissioner described a focus on working with large businesses to ensure that transfer pricing processes and outcomes are in line with the arm’s length principle. Further, he noted that the ATO will examine cases that involve significant increases in the tax value of an entity’s assets when joining a consolidated group, as well as cases involving the exit from, and transfer of carry-forward losses to, consolidated groups.
Mergers, acquisitions and divestments
The ATO will focus on areas including:
- the appropriate use of rollovers
- the utilisation of capital losses
- tax planning involving stapled instruments
- capital raisings that involve the use of hybrid securities
- the circumvention of the debt/equity provisions through the use of unit trusts
- compliance with the thin capitalisation rules, and
- GST compliance on financial supplies and acquisitions.
The ATO will also be examining the role of investment banks and other intermediaries in ‘promoting and facilitating’ merger, acquisition and divestment deals, along with the appropriate treatment of fees generated.
International arrangements
Global corporate restructures that shift assets, functions and risks offshore will also be reviewed by the ATO to ensure that they are in accordance with the arm’s length principle. As part of this focus, the ATO will review, in particular, the transfer of intellectual property rights to offshore low-tax jurisdictions and their licence back to Australia. The ATO will also examine transactions and arrangements that involve tax havens and other low-tax jurisdictions, which result in a reduction of Australian tax.
This article was written by Annalie Mitchelson, Solicitor, Sydney.
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