The proposed voluntarily tax transparency code announced in the May budget is not worth the piece of paper it is written on.
The code is all about spin rather than substance, aimed at helping multinationals come up with better messaging, rather than giving the public an honest account of their tax positions.
It will be important that all levels of management, up to and including the board, are ‘on message’.”
PwC note to clients
Multinationals, under fire for sending profits to offshore tax havens, continue to work up strategies about how to pay less tax.
‘Governments and courts are increasingly intolerant of vexatious challenges’ PwC warns in a note to its clients. ‘Governments and courts are increasingly intolerant of vexatious challenges’ PwC warns in a note to its clients.
It’s just that now their clever tax tactics are being devised with consideration of the political landscape, and the greater threat of audits.
In a note to its multinational clients, big-four accounting firm PwC – the same firm named in the Lux Leaks – tells multinationals: “be prepared to revisit your approach as the law changes”.
Its note, Managing Tax Disputes in Asia: new strategies for the post-BEPS environment, says: “countries are moving very quickly to implement changes to protect and secure their tax base and you need to ‘read the play’ and be agile as the landscape shifts”.
With mums and dads involved in the discussion around multinational tax policy, “it is a very real threat to your brand and even your customer base if you don’t have a clear and supportable message around global tax compliance”.
Companies must have their PR lines prepared: “It is vital to ensure that your key stakeholders, both internal and external, across all jurisdictions, are aligned on strategy,” it says.
“Presenting a consistent position requires co-operation within companies, and within a corporate group. It will be important that all levels of management, up to and including the board, are ‘on message’.”
The ‘old-world’ v ‘new-world’ tax strategies
The “old-world” strategies used by multinationals are no longer valid, PwC says, due to tougher domestic laws and more information sharing between tax authorities.
The federal government last year introduced tougher anti-avoidance rules under its Multinational Anti-Avoidance Law.
Then, in the May budget, it announced the diverted profits tax – informally known as the “Google tax” – which increases penalties and documentation requirements for multinationals.
In the old-world, multinationals relied on “legalistic and technical arguments, asserting form over substance”, PwC says.
Now, “taxpayers must lead positions with substance that can be proved”.
As Tax Commissioner Chris Jordan has repeatedly told Senate estimates hearings, the game playing is over.
“Tax authorities have the resources to withstand endless procedural skirmishes,” PwC says, and “governments and courts are increasingly intolerant of vexatious challenges”.
Move to lock in tax deals
PwC suggests multinationals “litigate where necessary but explore other avenues for an acceptable resolution”.
This can be done by seeking tax rulings or tax agreements to lock in the level of future taxes they pay.
“Seek to agree in advance rather than argue later,” its note says.
Multinationals can lock in their tax payment for a period of about three years via an “Advanced Pricing Agreement”, or APA.
Technology giants like Apple and Google have used APAs with governments all over the world for decades.
At the same time, the ATO has not been litigating in the top end of town as much as it once did, with settlements on the rise.
But it’s not just the ATO that does tax deals. As PwC says, “tax authorities in the region also undertake various other processes” whereby they can “agree with the taxpayer an upfront”.
Let tax authorities battle it out
If a dispute is “not avoided or resolved in its early stages” PwC tells its clients it can appeal to special bodies or committees inside the tax authority.
This might include a Tribunal, a Review Authority or a Board of Audit depending on the jurisdiction, it says.
Multinationals can also let tax authorities fight for revenue against one another, PwC says, via what’s known as a Mutual Agreement Procedure (MAP).
If a taxpayer thinks he or she has been double-taxed, representatives from two or more different tax authorities attempt to reach an agreement.
As Fairfax Media has previously reported, the number of multinational companies appealing Australia’s right to tax them has spiked.
And if all this doesn’t work, head for the courts, PwC says, as this “may be the only avenue likely to achieve an outcome that is wholly in favour of the [multinational] taxpayer”.
Tax transparency code useless
PwC isn’t the only big-four firm to give such advice to its multinational clients.
EY last year released a note advising its clients to move fast to counter the bad publicity.
If governments are serious about making multinationals pay up the only way is greater transparency. Country-by-country reports detailing how much tax multinationals pay here and overseas should be made public.
Politicians should also stand by pre-election commitments to introduce a public register of beneficial owners – one that names the real people behind shell companies like those revealed in the Panama Papers.
There will be much pressure from the business lobbies and tax advisers not to introduce one. These advisers are not earning their big salaries from ordinary ‘mum and dad’ taxpayers
Originally published SMH