Tax Office pursuit of offshore tax dodgers ramps up

The Australian Taxation Office has vigorously pursued an offshore insurance company through the courts as, one lawyer involved in the case told Crikey, a “back door attempt to get multinationals like Google and Apple to pay more tax in Australia”.

That attempt failed; the High Court last month threw out the case against Crown Insurance Services Limited – fought all the way on appeal from the Administrative Appeal Tribunal via the full federal court. Now, as Fairfax reports today, a new ATO taskforce will be fast-tracked to “investigate whether highly profitable international companies doing business in Australia are deliberately avoiding Australian tax by moving profit centres overseas”.

There is considerable political pressure on political parties of all major countries and tax authorities to be seen to be doing something as national and international attention is directed at big companies using complex tax-planning arrangements to defeat tax laws. Assistant Treasurer David Bradbury last year took the extraordinary step to name Google and Apple as possibly not paying enough tax in Australia. “If enormous multinational corporations aren’t paying their fair share of tax on economic activity in Australia, then that’s not fair game,” he said.

As Crikey explained last year, while Google’s tax affairs are complex they are nonetheless almost certainly completely legal.

David Hughes from SMH tax lawyers told Crikey: “In running their appeals in this matter, the ATO ignored several High Court and other authorities over many years. There is no doubt that they were trying to change long-established law on how Australia treats the source of foreign income.

“Had the ATO succeeded in the High Court, there would have been major taxation repercussions for foreign companies that deal with Australian companies and made Australia a less attractive business destination.”

Crown Insurance Services, based in Vanuatu, provided funeral benefits on the death of Aboriginals who were members of various funds operated by associated Australian companies. The ATO claimed that because Crown Insurance dealt with related Australian companies, which made their income from Australia, Crown Insurance’s income was indirectly derived from Australian sources.

But the Administrative Appeal Tribunal in November 2011 found Crown was not an Australian resident and was not in receipt of income having an Australian source as its central management and control was clearly in Vanuatu. The Tax Office appealed because “an adverse decision could encourage taxpayers to enter contracts offshore”, the ATO said in its 2012 annual report where the matter was recorded as a significant case.

In November last year the full Federal Court found the ATO’s appeal was incompetent – that is, the ATO should not have attempted to appeal the factual findings of the Administrative Appeals Tribunal which found, as a matter of fact, that the source of Crown’s income was not in Australia. The ATO then appealed to the High Court.

Tax commissioner Chris Jordan says the new taskforce, headed by deputy commissioner Mark Konza, will target the “highly aggressive structures people are putting in place”. The ATO’s pursuit of them appears similarly aggressive.

This article was first published on LeadingCompany’s sister site, Crikey.