• ATO's large business focus 2015–16

    Large businesses play an important role in the tax system, and make significant tax contributions on a regular basis.


    In 2014–15, large businesses transferred $98.2 billion in tax to fund services for the Australian community. Large businesses also withheld and remitted around $58.9 billion (PAYGW) on behalf of their employees.


    What to expect in 2015-16

    Minimise the tax gap

    Our goal is to sustainably minimise the overall ‘gap’ between the legal tax base and the tax actually received.

    What you can expect:

    • tax gap estimates for indirect taxes
    • large company income tax gap estimates.

    Achieve justified trust

    Achieving justified trust means giving the community confidence that large businesses are paying the right amount of tax.

    What you can expect:

    • continued work towards understanding the whole taxpayer using improved data analysis, intelligence, and risk assessment
    • a pilot of our Effective Tax Borne (ETB) methodology
    • a refined risk differentiation framework for large market taxpayers.

    Support for large businesses

    To help large businesses get it right, we're providing regular and relevant information, support and tailored services.

    Most large businesses pay the right amount of tax. However, we recognise the inherent risks in the large market due to complexity and uncertainty in the law and increasing opportunities for global tax planning.

    Find out about:

    Tax governance

    Effective tax governance and tax risk management controls are essential for large business. We are:

    • reviewing the tax governance of large businesses considered high consequence
    • conducting workshops and reviews to improve our understanding of business dealings and governance for future compliance
    • introducing cooperative approaches with key large businesses for GST integrity of business systems.

    Find out about ‘better practices’ for governance frameworks and management of tax risks:


    You can expect greater transparency, particularly with complex and contentious issues.

    We will promote international tax transparency and global sharing of information to ensure taxpayers with offshore investments comply with their domestic obligations.

    Key initiatives:

    • the Convention on Mutual Administrative Assistance in Tax Matters – sharing Australian bank information with revenue agencies in other countries
    • the OECD Common Reporting Standard (CRS) – sharing information with other revenue agencies, with the likely first exchange of information with other revenue agencies in 2018
    • the government’s transparency measure – ensuring the accuracy of tax data published.

    To demonstrate our commitment to greater transparency we will:

    • share our assessment of tax risks for our highest consequence taxpayers
    • provide income tax risk reports specifically for large private groups to
      • set out our interpretation of the tax risks and any issues attracting attention
      • facilitate early engagement discussions and to tailor our service and assurance activities
    • work with the Board of Taxation (BoT) in their development of a voluntary tax transparency code.

    Early and cooperative engagement

    Our focus is shifting to prevention before correction, as this reduces costs and provides more certainty for everyone.

    You can expect us to:

    • resolve issues as early and cooperatively as possible
    • provide more relationship managers and priority services for support and education
    • provide greater certainty and guidance about the operation of new provisions, such as the multinational anti-avoidance law (MAAL).

    We recognise that differences of view can arise in a complex commercial and legislative environment. If we need to clarify the law, we are committed to obtaining court decisions as quickly as possible.

    Increased guidance

    Increased guidance will help large businesses ‘get it right’. We will:

    • provide formal safe harbours and public statements on specific compliance issues
    • release timely alerts on behaviours, choices, transactions, and arrangements that concern us
    • engage with you ‘one-on-one’ on large transactions, issues and concerns.

    Compliance risks

    Find out about our key focus areas to address risks to the system:

    Tax risks

    Income tax

    • International and profit shifting risks – we are tackling tax avoidance through ensuring multinationals pay the right amount of tax and Australian entities are claiming the right amount of deductions
    • Business structures and restructures – the tax obligations associated with restructure events, and the structures of high wealth individuals and their private groups will be scrutinised
    • Trust schemes and arrangements to minimise tax –schemes that aim to extract profit through concealment or artificial means is a key target
    • Exploitation and misapplication of the law – the tax treatment of complex transactions relating to property, asset disposal, mergers and acquisitions and claiming of deductions is prone to error or exploitation

    Indirect tax

    • GST – expect early engagement to address issues, and we will work with you to ensure strong governance and risk management is in place
    • Excise – our relationship managers will provide support and education with excise obligations

    Goods and services tax (GST)

    Area of concern


    Large businesses can expect

    Integrity of business systems

    This is the most significant GST risk for large businesses because of the multiplier effect of incorrect transactions

    • cooperative assurance agreements for key large business – this will be extended to other suitable large businesses

    Property transactions

    Unreported property sales, the incorrect application of the margin scheme provisions and large scale property developments

    • early engagement to educate and assure GST is considered in property contracts and development structures

    Financial supplies apportionment

    The apportionment of input tax credits

    • increased certainty through new advice and compliance products, including developing and implementing benchmarks and safe harbour

    Low value goods and digital products importation

    The Government has announced measures for GST on imported digital products and other services, and low value goods (start date 1 July 2017).

    We are currently scoping a range of design and implementation issues

    • targeted consultation and engagement with foreign-based large multinational companies
    • early advice of business impacts to allow adequate time to adjust systems and processes

    Cross border transactions

    The domestic and international implications associated with collaborative consumption (also referred to as the sharing economy and peer to peer and e-commerce business models)

    • we will monitor and assess the impact of these models on the tax base and overall compliance with indirect tax obligations
    • preventative strategies that limit inadvertent errors (for example, International and Cross Border fact sheet highlighting common errors) and working collaboratively with influential industry bodies and leaders


    Area of concern


    Large business can expect

    Excise, wine equalisation tax and luxury car tax obligations

    Maintaining high levels of voluntary compliance with excise, wine equalisation and luxury car tax obligations

    • a pilot involving a low touch review of a fuel major, which may be expanded to other large fuel and energy clients
    • a focus on the 'third party service providers' (transport entities and warehouse operators) in relation to imported tobacco products to ensure compliance with excise equivalent goods obligations
    • improved guidance products and online access
    • changes to apportioning fuel use for fuel tax credit claims
    • a simpler process for correcting wine equalisation tax mistakes, allowing errors to be included in a single activity statement in specific circumstances
    • developing online registration through the business portal

    Income tax

    Global tax planning risks remain a focus with increasingly complex global business structures and value chains.

    Our primary concerns involve structures and pricing arrangements that seek to shift profits offshore, resulting in double non-taxation on part or all of the income.

    We have allocated significant resources to combat corporate tax avoidance and minimisation. The International Structuring and Profit Shifting (ISAPS) program has a compliance focus on a large number of companies that have significant cross border arrangements or are undertaking international restructures. The program also includes international collaboration and clustering like cases to determine patterns, drivers, and appropriate strategies for treatment.

    Piloting our effective tax borne (ETB) methodology

    The methodology identifies an economic group’s worldwide profit from Australian- linked business activities, and the Australian and offshore tax paid on that profit. We will also be consulting with the Corporate Tax Association, Australian Accounting Standards Board and other intermediaries to refine the methodology and related processes.

    Continuing our international collaboration and engagement

    We will continue our implementation of Base Erosion and Profit Shifting (BEPS) action items including:

    • Country by Country (CbC) reporting initiatives (Action item 13)
    • Board of Taxation consideration of Australian implementation on hybrid mismatches (Action item 2)
    • exchange of information to increase risk identification and detect behaviours that seek to achieve double non-taxation.

    We will continue to work with other revenue administrations through the OECD Joint International Tax Shelter Information Centre (JITSIC) network, and domestic agencies like Foreign Investment Review Board (FIRB) to address cross border tax avoidance.

    Providing guidance and support

    • Information on specific profit shifting and international tax issues
    • Alerts and bulletins on specific areas of concern and behaviour that are attracting our attention – examples are certain procurement hubs and related party swap arrangements

    More specifically, we will be focussing on the following behaviours, choices, transactions and issues:

    International and profit shifting risks

    Area of concern


    Large business can expect

    International profit shifting

    Use of related party or back-to-back cross border transactions or contracting via non-resident entities, to reduce Australian tax on income from Australian business operations and activities by:

    • claiming Australian tax deductions for non-arm's length amounts payable to the overseas related party
    • not paying interest or royalty withholding tax payments to offshore associates
    • not returning income from Australian business operations that should be returned in Australia
    • early warning about specific arrangements of concern, eg Taxpayer Alert 2015/5 on certain procurement hub arrangements
    • differentiated compliance approaches including APAs, reviews, and audits
    • tax rulings or guidance on relevant issues (including transfer pricing documentation simplification measures for taxpayers with simple cross border and intra group transactions)

    International and profit shifting risks include:

    • inappropriate application of thin capitalisation rules
    • offshore management, marketing, procurement hub arrangements on non-arm's length terms
    • non-arm’s length conditions for offshore related party arrangements including financing arrangements
    • use of hybrid instrument and hybrid entity mismatch arrangements
    • asset transfers to offshore related parties on non-arm's length terms
    • sales and purchases of commodities and other stock in trade with offshore related parties that are, respectively, under-priced or over-priced
    • income from Australian customers or business operations claimed to not be taxable in Australia which is taxable in Australia
    • controlled foreign companies (CFC) attribution issues and eligibility for offshore branch exemptions.
    International and profit shifting risk detailed examples
    Example 1: Inappropriate application of thin capitalisation rules

    We are concerned with:

    Large business can expect:

    • inappropriate asset revaluations (ie inflation of asset values, particularly for intangibles, to comply with thin capitalisation safe harbour nations)
    • inappropriate application of accounting standards
    • timing issues and choices made under thin capitalisation
    • arm’s length debt test (ALDT) issues
    • an alert on incorrect recognition and revaluation of internally generated intangible items for thin capitalisation purposes
    • guidance on inappropriate asset revaluations and certain timing issues and choices for thin capitalisation purposes
    • information on the administration and compliance with the ALDT test following the Board of Taxation's review of the ALDT


    Example 2: Offshore hub arrangements

    We are concerned with:

    Large business can expect:

    Arrangements where the:

    • economic substance is materially different to the legal form
    • offshore hub does not operate in the way independent parties would agree to


    If you have entered or are contemplating entering into a hub arrangement, contact the ATO to discuss: offshorehubs@ato.gov.au

    • a practical guide to help taxpayers self-assess the compliance risk associated with their hub arrangements
    • certain marketing hub structures and procurement hub structures will be reviewed to determine whether current CFC and transfer pricing rules are being applied appropriately
    • the application of capital gains tax (CGT) and the MAAL will be examined
    Example 3: Related party financing arrangements

    We are concerned with:

    Large business can expect:

    Arrangements that result in tax deductions shifting Australian profits offshore which may:

    • include use of hybrid instruments or hybrid entities
    • not be prevented by Australian thin capitalisation rules.

    The use of related party derivatives to:

    • synthetically produce AUD interest deductions with no interest withholding tax
    • hedge tax liabilities from foreign exchange movements generated by borrowing in a non-natural currency
    •  an early warning will be released on certain related party derivative arrangements
    Example 4: Schemes and arrangements to minimise tax

    Area of concern


    Large business can expect:

    Trust schemes

    Profit is extracted through concealment of income, mischaracterisation of transactions, or to artificially reduce trust income amounts and reduce tax.

    • ongoing scrutiny of those who exploit trusts
    • closer examination of higher risk trust arrangements that involve offshore dealings including secrecy jurisdictions, characterisation of transactions to achieve deductions, concessional treatment or reduce income

    Business structuring and restructuring

    Area of concern


    Large business can expect:


    Mergers and acquisitions, demergers, share buy backs, return of capital and major divestments give rise to a range of CGT, consolidation, and losses implications and the risk of incorrect tax treatment

    Structuring or restructuring before a sale to a third party producing unintended outcomes, such as cost base uplifts to which Part IVA may apply

    • guidance – please contact us before entering a restructure event
    • education products associated with initial public offerings

    Complex structures of wealthy individuals and their private groups


    We are concerned some arrangements push the boundaries of tax planning

    Utilisation of flow-through entities such as trusts, partnerships and companies

    Lower information levels due to not being subject to the same regulatory requirements as their public counterparts with regard to disclosure of information

    • online guidance on good tax governance specifically for privately owned and wealthy groups

    Exploitation or misapplication of the law

    Area of concern


    Large business can expect:

    Research and Development (R&D) claims

    Claims for non-eligible expenditure such as construction of a building or part of a building, and software development

    The origin and source of the R&D expenditure for deductibility

    • guidance, alerts, and early engagement (in partnership with AusIndustry)
    • R&D tax offset claims identified as high risk will be reviewed


    Incorrect application of complex CGT provisions, such as Division 855

    Of interest are private equity firms that make an investment in the Australian market

    • early engagement for capital asset disposal events, and with private equity firms when they enter the Australian market
    • further guidance for taxpayers and advisors
    • we will consult with Treasury to improve CGT provisions


    • misapplication or miscalculation of the rights to future income (RTFI) and residual tax cost setting (RTCS) rules
    • cost base uplift in order to overstate losses and deductions and reduce CGT on entry or exit of entities to or from a consolidated or multiple entry consolidated (MEC) group
    • non-disclosure on the RTFI/RTCS return labels
    • early engagement for restructure events, targeted compliance assurance on RTFI and RCS prospective rules
    • all consolidated and MEC groups affected by newly enacted legislative changes will be notified in writing
    • transactions which have resulted in unintended cost base uplifts to consolidated or MEC groups, to which Part IVA may apply will be identified and monitored

    Liquefied Natural Gas (LNG) industry

    Increasing use of offshore hubs for marketing and use of assets

    • engagement about hub structures and to develop the specific risk flags

    Exploration expenditure deductions

    Deductions for mining and petroleum exploration expenditure

    • tax ruling about deductions for mining and petroleum exploration expenditure
    • tax determinations dealing with the meaning of 'use' and 'for' exploration or prospecting respectively
    • guidance so you can self-assess the compliance risk for exploration claims

    Bank branch attribution

    Incorrect attribution in respect of bank branches

    • guidance on bank branch attribution following consultation

    Privatisations and public infrastructure transactions

    Tax consequences of privatisation and domestic infrastructure transactions

    • guidance on the tax implications of large infrastructure transactions, specifically privatisations and domestic infrastructure transactions (first part of a guide released, with the second part due later this year)

    Insurance industry

    Establishing an appropriate level of substantiation about the risk margins selected by management in the tax values adopted for outstanding claims liabilities

    • a declaration process to substantiate management’s adoption of a particular percentage probability of adequacy (POA) for outstanding claims liabilities by general insurance companies

    Super industry

    • inappropriate treatment of distributions from offshore investments by APRA regulated super funds
    • exploitation of the deferral regime for super fund PAYGI – through contributions transferred to pooled super trusts
    • a tax ruling outlining when a distribution is deemed a dividend for Australian income tax purposes
    • early engagement with higher consequence large business
    • we will investigate whether an administrative solution is possible to address this risk


    Last modified: 23 Mar 2016QC 48527