A spate of disputes with Australian authorities about suspected tax avoidance is prompting multinational energy and resources companies to seek more advice on the transparency of their corporate structures in order to ensure their social licenses remain intact, Deloitte experts said.
An Australian Senate committee is due to report on a long-awaited inquiry into corporate tax avoidance by May 30, and Deloitte Global Head of Energy and Resources Rajeev Chopra told a media roundtable in Perth that energy and resources multinationals were "on a journey" toward explaining structures more clearly.
In 2017, diversified miner BHP Billiton Group was accused of routing profits amid a A$1 billion dispute with the Australian Taxation Office, or ATO, over the taxes payable on the sale of Australian commodities to its Singapore marketing business.
Also fronting the Senate inquiry was California-headquartered Chevron Corp., which withdrew its application to appeal the Federal Court of Australia's April 2017 ruling that upheld a A$340 million tax demand which the ATO levied on the oiler.
Chevron sought to challenge transfer pricing rules and the appropriate method for establishing an "arms-length" interest rate for a related party loan, as the case centered on the interest Chevron Australia paid to a U.S. subsidiary.
Revenue and Financial Services Minister Kelly O'Dwyer said Aug. 18, 2017, that the ATO estimated the ruling against Chevron's group financing would "bring in more than A$10 billion" from similar business activity in the next 10 years.
The ATO has also challenged miner Rio Tinto and Google over cross-border taxation arrangements. The moves by the Australian authorities come as governments around the world crack down on multinationals' attempts to channel profit through low-tax jurisdictions.
Meanwhile, governments and the market "could do a better job" of understanding those project financing structures, Chopra said.
"What we're seeing overall is that companies are using tax structures which are pretty vanilla, so in my experience, there is actually more of a misunderstanding of what they're doing than actually companies choosing to use aggressive ways of structuring their operations," Chopra said. "Whatever the structure is, it follows what has already been commercially agreed between parties, the government and so on."
Deloitte's Western Australia managing partner, Michael McNulty, conceded there was "no doubt" that there was an "increasing level of sensitivity" about tax avoidance, citing one unnamed client that went "way too far the other way" by failing to structure its operation in a way that would have made most commercial sense.
The move was made because the client was concerned about the perceptions around tax transparency, he said.
"You need to be in a position where it's commercially responsible and makes more sense," McNulty said, though he added that such practices had occurred more than once.
Chopra defended resources companies, saying he had observed them being "very, very aware of what the brand perception and influence on that decision is."
Deloitte Access Economics Partner Matt Judkins said at the roundtable that many of the firm's clients in both oil and gas and mining were becoming more aware of their social footprint.
"They're operating within local communities, and they need the mandate from the local community to operate ... maybe not right now, but if anything should go wrong, or they meet any hurdles, they want to be seen as a good corporate citizen," he said.
"Over the last couple of years, we've seen that change, as we're quite often asked to come and help companies think through that social, economic and corporate aspect.
"It's really important to recognize that a lot of these companies are actually doing more than just what appears on their balance sheets, and a lot of those activities are where broader economic benefits flow."
Judkins said the key was getting that message to the market, though corporates "sometimes don't do a great job of that."
