Australia's tax authority has warned large multinational firms it is looking into the use of offshore marketing hubs over concerns such subsidiaries were being utilised to shift profits and reduce tax bills.
The Australian Tax Office (ATO) issued the advice in a note to large businesses as the government and other nations stepped up their efforts to crack down on profit-shifting by global companies that use complex structures to pay less tax in some jurisdictions.
The Organisation for Economic Co-operation and Development (OECD) has also been leading a worldwide push against so-called tax optimisation.
The ATO said yesterday it was reviewing companies' arrangements for such hubs, highlighting concerns that "in some circumstances it appears the amount charged by the marketing hub to the Australian company is not what arm's length (or independent) parties would pay".
"In particular, we are concerned that the economic substance of these arrangements may be materially different to the associated legal form."
Some marketing hubs previously identified by the ATO include Singapore and Switzerland.
The arm's length principle is part of the "transfer pricing" framework, where goods and services are sold within different entities in an international company.
It is meant to mimic a transaction that involves two separate firms, rather than a transaction between two arms of a company, to help international enterprises avoid double taxation.
But transfer pricing has also been the subject of increased attention. Some firms allegedly use high transfer prices, close to retail prices, in higher-tax jurisdictions to minimise the amount of profit generated. The lower profit reduces the amount of tax paid.
The ATO added that it was developing a guide to help companies assess their compliance risks when they have arrangements for marketing hubs, which usually provide marketing and sales support for goods or commodities produced in Australia and sold overseas.
Senior executives from the world's top pharmaceutical companies, including Pfizer, AstraZeneca, GlaxoSmithKline and Johnson & Johnson, were grilled at an Australian Senate hearing last week following allegations they were charging higher transfer prices to minimise tax.
The companies said they were compliant with local and international laws.
