The Australian Taxation (ATO) Office has issued a series of alerts, cautioning large companies and multinationals that they could face penalties if they use contrived arrangements to avoid paying tax.
The ATO said it was already investigating cases where contrived arrangements were being used for tax avoidance, while it was also reviewing the structures that such companies developed to reduce their GST payable.
Contrived arrangements often involved offshore permanent establishments, GST, the operation of multinational anti-avoidance law (MAAL), and the incorrect calculation of debt capital for thin capitalisation purposes, the ATO said.
Deputy commissioner, Jeremy Hirschhorn, said Australian consolidated groups who used such offshore permanent establishments that had intra-group transactions, were claiming their tax deductions incorrectly.
"The end result is double non-taxation, and in some cases, groups are even claiming further tax relief they're not entitled to," Hirschhorn said.
ATO was concerned that some of these structures had been set up to avoid GST, which was clearly inconsistent with the underlying policy intent of MAAL and the GST Act.
Companies found using contrived arrangements would have to pay back liabilities and they could face penalties of up to 75 per cent of the tax owned.
Deputy commissioner, Mark Konza said: "We're also looking closely at intermediaries who encourage these arrangements and may consider them promoters of tax exploitation schemes".
"In some cases, taxpayers are failing to include the value of debt interest that's been treated as equity for accounting purposes in their capital. As a result, the taxpayer's adjusted average debt is understated, allowing them to claim more debt deductions than they're entitled to," Konza said.