Australia's Economics References Committee, which has been conducting hearings into corporate tax avoidance, looks to have made a breakthrough by eliciting a new method for taxing multinationals from the nation's Taxation Office.

Recent hearings have revealed how the likes of Apple, Google and Microsoft manage to pay such low tax in Australia, and probably elsewhere too. In Apple's case the company uses a structure whereby it pays overs for the products it resells, so that the company's business can be done in nations with lower tax rates. This arrangement sees Apple report tiny profit margins in Australia, well out of kilter with the 30 per cent plus margins it reports to investors.

Microsoft and Google just book their sales through their Singapore entities to take advantage of the island-state's kinder tax rates.

There's no suggestion such practices are illegal, but the Committee contends they are certainly cynical.

To figure out how to crimp these practises Committee asked the Australian Taxation Office (ATO) to explain how it might be possible to compare the practices of businesses with conventional tax arrangements to those using the kind of arrangements described above. The ATO has reportedly done so, delivering a 13-page document seen by some analysts, and which apparently explains how to unravel tax tricks in order to assess how much multinationals actually earn. The methodology reportedly counts many payments made to related entities as income so that, for example, the payments Apple Australia makes to other Apple companies to buy products would be assessed for the component of income in the transferred sums.

Apple Australia, for what it is worth, has argued that it pays overs because doing so means it is contributing to R&D costs, among other expenses borne by Apple headquarters.

The ATO's delivery of the document to the committee is unusual, as the organisation has previously argued that it cannot reveal specifics about any entity's tax arrangements. The ATO has, however, said that is willing to dispute some testimony to the inquiry. Taking the next step to explain how to address such practices, apparently with considerable detail about the structures and practices observed, is therefore a significant escalation.

The chair of the committee's inquiry, opposition senator Sam Dastyari, has told ABC Radio he expects the methodology will let the committee report on just how much tax tech companies and other multinationals should be paying.

With OECD nations pledging a united front on the topic of corporate tax avoidance, the committee's report – due in mid-June – should make for good reading in Australia and beyond. ®