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Canberra bets on $1bn ATO crackdown to drive revenue

AUSTRALIAN BUSINESS REVIEW   April 2, 2019   Ben Butler

Cartoon: Rod Clement.

Josh Frydenberg has bet $1 billion on an ambitious plan to crack down on tax avoidance at the big end of town that the Morrison government hopes will claw back as much as $3.6bn.

The extra funding for an existing Australian Taxation Office taskforce focusing on avoidance by large companies and the rich will turn the blowtorch on tax advisers, scheme promoters and other intermediaries who enable tax dodging.

Treasury predicts the attack will result in $3.6bn in extra tax bills over the next four years, $2bn of which it expects to collect before the end of the period, making it the biggest revenue collection measure in this year’s budget.

The extra money, which replaces existing funding that runs out next year, will enable the ATO to increase its “scrutiny of specialist tax advisers and intermediaries that promote tax avoidance schemes and strategies”, according to budget papers.

The move, among several budget measures that continue the Coalition government’s assault on tax dodging by big companies, follows ATO warnings that it is prepared to criminally charge tax lawyers who shield scams behind legal professional privilege.

ATO officers have also recently increased their legal attacks on scheme promoters, including over the much-exploited R&D tax refund.

The renewed assault on intermediaries comes as budget papers show about $5.6bn in tax was in dispute as of January 31, down from $6.1bn at the end of September.

The government also plans to give the ATO $42.1m over four years to recover unpaid tax and superannuation liabilities from “larger businesses and high wealth individuals”.

However, in line with the pro-small business tone of the budget, it will be excluded from the hunt even though the sector is notorious for collapses that leave behind mountains of unpaid tax and super.

And it plans to make changes to laws cracking down on exotic “hybrid mismatch” financial arrangements, where multinational companies exploit differences in laws here and overseas to avoid paying tax in one or both jurisdictions. Hybrid mismatch arrangements are a key target of the Organisation for Economic Cooperation and Development’s base erosion and profit-shifting project and are also at the centre of a $360m dispute between the ATO and James Packer’s Crown Resorts.

The changes, which apply retroactively to January 1, will make it clear that the laws apply to what are known as “multiple entry” groups, where a multinational has two or more subsidiaries in Australia that report back overseas, rather than going through a single local head company.

Another change, which took effect yesterday, is designed to make it clear that anti-avoidance rules in the law apply even when other parts of it could be used.

As part of its attack on multinational tax dodgers — especially tech giants such as Google and Facebook — the government funded the ATO’s tax avoidance taskforce to the tune of $679m for four years from July 2016.

The money was due to run out next year, but the taskforce will instead receive top-up funding of $54.4m.

It is to receive funding of a little over $315m a year for the remaining three years.

While the government expects the tax avoidance taskforce to bring in more than $1bn a year, it has set no revenue target for the crackdown on unpaid taxes and superannuation owed by big business and rich people because the debts have already been recognised in the tax system.

However, Treasury said it expected a cash gain through increased collections of $103.6m over the coming four years, and a gain in GST payments to states and territories of $41.8m over the same period.

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