The Australian Taxation Office has confirmed it is reviewing the profit shifting arrangements of multinational corporations to ensure they “pay the right amount of tax on income they earn here”.

The ATO has released a series of taxpayer alerts as a warning to the multinationals and their advisors about arrangements that may lead to tax avoidance.

The alerts centre on four areas of emerging concern including debt loading – also known as thin capitalisation – as well as cross border leasing and financing arrangements.

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As well, the ATO sent out a blunt reminder about the Multinational Anti Avoidance Law (MAAL) that came into effect at the start of the year.

ATO deputy commissioner, international, Mark Konza said the MAAL was designed to counter the erosion of the Australian tax base by multinational entities using artificial and contrived arrangements to avoid attributing profits to a permanent establishment in Australia.

“Our view is that interim arrangements must reflect the economic and commercial reality of operating in Australia and we continue to engage with taxpayers and review these interim arrangements to ensure they do not themselves amount to tax avoidance schemes,” Mr Konza said.

ATO warns on suspect loans to shift profits overseas

Thin capitalisation and profit alienation were fingered by a UTS study last week as the primary tools the foreign multinationals used to slash their Australian tax bills.

ATO deputy commissioner Mark Konza. Photo: AAP

The study found 76 of largest multinationals paid an effective tax rate of 16.5 per cent, roughly half the corporate rate of 30 per cent.

Thin capitalisation sees foreign companies – most commonly the big resource and energy players – finance their Australian subsidiaries with unusually high interest rate loans.

Locally generated profits are then funnelled back overseas to repay the loans and converted into deductions as interest repayments on loans in Australia.

The ATO also said it was reviewing the use of cross currency interest rates swaps which also have the potential push up financing costs and avoid withholding taxes.

The other immediate target of the ATO is cross border leasing arrangements involving mobile assets such as ships and aircraft.

The ATO said alerts are an effective tool to stop the marketing, sale and implementation of schemes, support voluntary disclosures from those who may be involved in these schemes, and enhance community confidence in the integrity of the tax system.

-ABC