No investor tax benefit says ATO

26 Dec, 2012 01:00 AM
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A NUMBER of the State's grain growers have questioned whether foreign investors in WA agricultural land will have a tax advantage over the average family farmer.

But according to the Australian Taxation Office (ATO), the short answer was 'no'.

Last week Farm Weekly took a number of phone calls from concerned growers who wanted to know whether Chinese company, HFA (which recently made a number of landmark deals with its purchase of several large grain growing properties in the Great Southern and Wheatbelt) would be legally obliged to operate on a "level playing field" with WA growers when it came to tax time.

One South Coast grower said despite companies like HFA having to pay tax on its wages and GST, there was a general feeling among the farming community that foreign entities as such would have a tax advantage due to their ability to control their own grain supply chain from the farmgate to the Chinese-based end user.

Another grower from the Great Southern was worried that a failure to pay tax would see WA growers "subsidising" Chinese food production as companies like HFA and its employees utilised roads, schools and hospitals free of charge.

In last week's Farm Weekly, Agriculture and Food Minister Terry Redman pointed to HFA's position and said the company was registered with the Australian Securities and Investments Commission, had an ABN and was subject to Australian corporations laws.

He also said Australia had transfer pricing rules to ensure foreign companies paid tax and referred to the Federal Government which recently released a draft bill which strengthens those rules.

Although the ATO couldn't comment on individual cases and their circumstances as outlined under confidentiality provisions in the tax act, a spokesperson did say the Australian tax system was based on self-assessment and risk management principles.

"International tax issues are one of the risks we manage," the ATO spokesperson said.

"One way of managing this risk is through "transfer pricing" laws.

"In short these laws ensure that international transactions between related parties occur on terms that are 'arm's length', that is, on the same terms, including the price, that would have existed between unrelated parties."

The spokesperson told Farm Weekly, taxpayers with significant related party dealings were required to file a supplementary schedule (formerly Schedule 25A and in 2012 the International Dealings Schedule) which set out the details of their dealings with offshore related parties.

The ATO then used this information, along with intelligence from other sources and risk detection tools, to develop data which was analysed to determine cases of potential non-compliance with its transfer pricing rules.

"The ATO has more than 150 officers conducting about 180 transfer pricing compliance projects, which include reviews, audits and advance pricing agreements, annually," the spokesperson said.

"On average our transfer pricing adjustments raise about $250 million in revenue annually.

"In addition the ATO has networks with other government agencies and sophisticated data matching technology to identity potential tax risks or non-compliant taxpayers."

The spokesperson said Australian tax laws generally applied equally to businesses operating in Australia, including farms.

"These laws apply to resident and non-resident companies, including companies based in China," they said.

A spokesperson from one of the world's big four accounting firms, Ernst & Young was also unaware of any reason why a foreign agricultural company shouldn't have to pay tax.

When Farm Weekly approached WA's Department of Finance it advised the subject was a Commonwealth tax issue rather than a State tax issue and referred Farm Weekly to the Commonwealth Treasury.

Farm Weekly was then told by the Treasury it was unable to provide a detailed answer.

During a tour of the Mid West and Midlands region last week, Premier Colin Barnett said foreign investors were subject to the same State taxation laws, charges and revenue demands that other Australian entities operate under when buying, selling and trading commodities.

He rejected claims foreign investors would produce locally but bypass local tax obligations and markets, by transporting produce direct to their homeland.

"We won't see hordes of Chinese workers coming out to farm this land but it does bring a new type of corporate farming structure into this country and the State which needs to better understood and welcomed," he said.

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