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TIA accuses ATO of scare tactics and bias over multi-national statistics

Publication date: 06 Apr 98 | Source: THE TAX INSTITUTE

The Taxation Institute of Australia has accused the ATO of selectively using statistics as a scare tactic to infer multi-national companies are not paying their fair share of tax.

It views the conclusions drawn from the statistics by the ATO as both biased and unfounded.

The statistics are collected by the ATO from schedule 25A, part of the tax return submitted by companies.

Schedule 25A seeks information about related party transactions with overseas entities.

"The ATO statistics reported recently in the media included companies with related party transactions of as little as a single Australian dollar," commented Michael Happell, a Partner with Price Waterhouse and the TIA's representative on the ATO's Transfer Pricing Forum.

"How could this level of transaction be a contributing factor toward tax losses being claimed by some of these companies, which is the conclusion that the ATO has drawn and which is described as an issue of great concern?

"In fact the full statistics show that companies with related party transactions represent less than 2 per cent of the total taxpayer population but pay 46 per cent of total company tax.

"How can the ATO therefore infer that they are not paying their 'fair share?"

Mr Happell said the ATO was clearly using the statistics as a scare tactic.

Even the ATO's own transfer pricing audit program was not showing results to support this level of concern.

"The use of statistics implies a level of profit shifting which is not occurring in practice," said Mr Happell.

"It should be reiterated that any increase in related party transactions results from an economic phenomena caused by the globalisation of business. It does not flow from some conspiracy by multi-nationals to minimise their tax."

Mr Happell said the irony was that tax jurisdictions around the world were all claiming that profits were being shifted offshore.

"If that is the case, where are they being shifted to?" He asked.

In Australia the dividend imputation system provided a real incentive for Australian companies to bring their profits home so that shareholders could benefit from the franking credits accruing from the payment of Australian tax.

Mr Happell said the TIA conceded that the ATO had a right to investigate an alleged profit shifting practices but believed it should not prejudice such investigations by the use of misleading statistics.

"Prejudging causes tax auditors to work with a 'guilty until proven innocent' mindset which is, in the long term, only going to be detrimental to the ATO and to Australian business."