Information security cited

Multinationals fear that commercially sensitive information, such as profit margins, will leak despite assurances from government officials that the data will remain confidential.

Some advisers fear any resistance from companies around disclosure will make clients easy targets of Australian Tax Office audits.

The revenue authority confirmed these fears. In a written statement to The Australian Financial Review, a spokesman for the commissioner said: "It seems unlikely that companies would choose to refuse to disclose under country by country reporting because companies would realise that such refusal would probably not end at a non-disclosure penalty".

Global revenue authorities want to ensure their fair share of the tax take. Louie Douvis

"The ATO could explore other avenues to obtain the information, including issuing information notices."



Tax advisers are urging the government to consider exempting multinationals where appropriate to reduce red tape.

"Since the focus is on large-scale profit shifting, and the inconsistent treatment of hybrid-style transactions in different countries to gain a tax benefit, businesses that obviously are not involved in these types of transactions should be exempted. It's overkill," BDO tax partner Chris Ball said.

Mr Ball feels many Australian companies have become ensnared in a reactionary response to concerns about profit shifting, triggered by the aggressive tax minimisation strategies of some offshore-based global companies whose intellectual property or operations are housed in low-tax jurisdictions.


"The global tax strategies of these companies have caused an overreaction that everyone now has to live with," he said.

Tax adviser Chris Ball urges the ATO to exempt entities from compliance "overkill". Glen Hunt

ATO to exercise discretion

A spokesperson for the commissioner said the tax office will use its discretion to exempt companies from country-by-country reporting.

"The commissioner has the power under the rules to exempt an entity, or a class of entities, from providing statements," the ATO spokesperson said.

"The ATO will consider the materiality question in consultation with affected taxpayers through 2016."

Profit shifting is among the hottest topics of debate in the international political arena. Sluggish economic growth has motivated governments to ensure they are getting their fair share of the tax take.

The government signed up to implement the OECD's new transfer pricing documentation standards, commonly referred to as country-by-country (CbC) reporting, at the mid-year budget. The legislation passed in December.


It requires multinational entities with more than $1 billion in global sales to report on income earned in each jurisdiction, as well as how much tax they pay in each country, on a yearly basis.

Multinationals will also have to supply to the tax office an overview of an entity's global business, its organisational structure and its transfer pricing policies, in addition to detailed information about a local subsidiary's inter-company transactions.

They are required to lodge the documents with the Australian Tax Office within 12 months of their income tax year end.

Compliance costs up

In conjunction, there is also a new requirement for entities affected by these measures to prepare General Purpose Financial Statements, a move that will increase compliance costs.

The move is designed to prevent multinational enterprises that operate in Australia as a subsidiary, branch or permanent establishment from avoiding more detailed financial disclosures.

A long-running senate inquiry into corporate tax avoidance, led by Labor senator Sam Dastyari, has been the source of discomfort for several high-profile brands throughout 2015, including Google, Apple, News Corp, Rio Tinto, BHP Billiton, and global drug companies Pfizer, Johnson and Johnson, Roche, GlaxoSmithKline and AstraZeneca.

Last month, the tax office released data on 1539 large public and foreign companies operating in Australia, showing 38 per cent of them paid no tax last year.

It follows a landmark federal court case involving multinational oil giant Chevron, which was hit with a tax bill of about $300 million after losing a profit-shifting case that could have global implications for the way tax is assessed.

The case was watched closely by the tax and business community, and will give the ATO greater confidence to challenge other multinationals about their tax affairs.