The ATO says explanations from manufacturers don’t wash. Picture: iStock
The ATO says explanations from manufacturers don’t wash. Picture: iStock

Big brands targeted in major tax-dodge probe

Exclusive: Multinational makers of shampoos, deodorants and other shopping-trolley staples have been accused of deliberately downplaying the value of their mega-brands and are being pursued for more than $100 million of unpaid tax.

The Australian Taxation Office has also put "a tad over 100" other large companies with foreign operations in what it's dubbed a "red zone" over tricked-up supply chains.

Being in the red zone could see companies pursued by the tax avoidance taskforce that has already retrieved $5.6 billion. Google could be among those in the red zone.

The move against mega-brands takes the form of a taxpayer alert - the ATO's most serious warning.

Deodorant makers are among those in the ATO’s crosshairs. Picture: Supplied
Deodorant makers are among those in the ATO’s crosshairs. Picture: Supplied

Manufacturers of popular household products have been put on notice over concerns royalty withholding tax is being dodged.

Using as an example a bottle of shampoo made in Thailand and sold to an Australian supermarket chain for $5, the ATO says 60c of tax is not being paid.

In this scenario it's assumed the ingredients cost 20c and the application of chemical technology plus manufacturing efforts in the Thai factory are worth 80c.

But the product is being sold to the Australian subsidiary for $3.

At the moment the tax-dodging multinational's subsidiary is only booking 60c of Australian company tax - rate 30 per cent - on the $2 of profit between the $5 it received from Woolworths or Coles and the $3 it paid to its corporate cousin in Thailand, and receiving a tax deduction for the $3 as a cost of business.

The ATO says only $2.40 should have been sent to Thailand for the product and 60c of royalty withholding tax should have been forwarded to the ATO, bringing the total tax to $1.20.

Also in the ATO's crosshairs are software sellers that have been claiming their local arms are nothing more than digital box delivery services.

The ATO has looked under the hood of some of these overseas-headquartered businesses and become convinced the Australian subsidiaries are in fact customising solutions for clients and paying their parent companies a fee for the right to do that.

The ATO says royalty withholding tax is payable on such fees.

"In this taxpayer alert, we are saying to foreign companies you can't avoid royalty withholding tax by mischaracterising what you are actually selling," ATO deputy commissioner Mark Konza told News Corp Australia.

The amount that had been avoided was "$100 million-plus", Mr Konza said.

The ATO’s Mark Konza at a Senate inquiry. Picture: Tim Hunter
The ATO’s Mark Konza at a Senate inquiry. Picture: Tim Hunter

The ATO has also issued a "practical compliance guideline" to tell multinationals the amount of profit it expects to see being made. Those in line with profit expectations go into the ATO's "green zone" which means they are unlikely to having to open their books.

About half of all foreign-controlled companies with Australian sales of more than $50 million have instead been put in the "red zone". That's a "tad over 100" companies, Mr Konza said. That could see them pursued by the tax avoidance taskforce, he added.

Google and the ATO are known to be in dispute over its tax bill.

"This isn't something we'd comment on," a Google spokeswoman said.