Australia:Tax audit and controversy trends and key issues

Tax Controversy & Dispute Resolution ()

The tax audit and controversy landscape in Australia continues to shift and evolve due to a number of key trends and emerging issues. Many of them correlate with more macro, broader trends occurring on the global stage, which is apparent from the recent release of the report by the Organisation for Economic Co-operation and Development (OECD) addressing base erosion and profit shifting. Not surprising given that the Australian government and the Australian Taxation Office (ATO) hold active and influential roles with respect to global tax developments affecting multinational enterprises.

Key trends in Australia include the ATO's sharpened focus on information gathering and expanded use of risk assessment as a method of choosing which taxpayers to audit. The ATO is also commencing compliance reviews before a return is lodged, consistent with their desire to have real-time dialogue with taxpayers. At that same time, there are various 'hotspot' issues for multi-national enterprises -- those issues of keen interest to the ATO that are arising more frequently during audits. Examples include the transfer pricing methods used by taxpayers and the pursuit of cross-border arrangements for treaty shopping purposes.

The Australian legislature is also shaping the environment. Just yesterday, amendments were introduced to potentially expand the scope of the anti-avoidance rules as well as strengthen Australia's transfer pricing rules in order to help mitigate base erosion and profit shifting. These developments along with the increasing introduction of retrospective legislation, sets the stage for enhanced enforcement and revenue gathering. The Australian government, with advice from business representatives, tax professionals (such as PwC) and other stakeholders, is also now examining whether new criteria should be the driving factors for corporate taxation -- a development that has the potential to alter the legal cornerstones of taxation upon which businesses rely.

This alert highlights some of these key trends and issues and suggests ways for multinational enterprises to navigate through this period of uncertainty and potential change.