JONES DAY PRESENTS®: Navigating Australia's Toughening Tax Controversy Landscape
Australia's tax controversy landscape is becoming increasingly difficult for multinationals to navigate, with the Australian Taxation Office ("ATO") adopting sophisticated, assertive positions that test the limits of the law. Jones Day partners Lauren Moses and Niv Tadmore discuss the ATO's focus on transfer pricing, intangibles, and other cross-border issues, and they explain why understanding what drives the ATO is key to resolving disputes efficiently.
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Lauren Moses:
Australia's a particularly difficult environment for clients at the moment. The tax authority is very sophisticated, very well resourced, and is taking positions that are really pushing the limits of the law. So we're in uncharted waters with clients often in Australia.
Niv Tadmore:
The landscape in Australia is continuing to be tough. The tax office can be a bit novel. They can come up with issues or ideas that may not be common in other countries and they would pursue them.
There is a very intensive process for which multinationals need to go with the tax office. The amounts at stake are large, and the ATO, from its perspective, takes its job very seriously in the way that it thinks it should protect the revenue base of the country. And the practical reflex of that is more disputes, more audits, more litigation.
The issue of what the ATO would focus on is not so much industry but area. It could be financing, it could be intangibles, it could be transit pricing. We talk about intangibles. That can apply not only to tech companies, that could apply to consumer products, to energy and resources technologies that companies may use. Around 80% of the ATO's activities focuses on transit pricing.
And then you have other legal issues like intangibles, royalties, permanent establishment, and source of income.
Lauren Moses:
When you're dealing with the tax authority, there's far more to managing that relationship than just going through a process to litigate a matter. You have to understand what drives them. And that's often more than the money.
The particular officers you're dealing with within the authority often have their own internal metrics and KPIs. They have internal pressures that might be different from what the pressures are placed on them under the law.
Niv Tadmore:
Tax disputes are very different to commercial disputes. This is not a crash and burn sort of dispute because this relationship is there forever. You have to be measured, you have to be accurate. Sometimes it's not only about the money at stake. They may have a bigger picture, they may have other players in the market. They have a broader perspective, and that's critical to understanding how to resolve the issue or how to litigate it if you have to.
Lauren Moses:
We have a real depth of experience in the Australian tax team. We have a number of people who've worked at the ATO, including myself, and a depth of experience in dealing with them and knowing how they operate so that we can work with them and achieve the best results for clients.
