ATO outlines biggest tax risks in private capital space

ATO assistant commissioner Aaron Bennett has advised public and multinational businesses involved in private capital markets about some of focus areas for the ATO in relation to its Private Capital Program.

Bennett noted that the Private Capital Program was established following the growth and increased sophistication of private capital investments in Australia over the past decade.

"This growth has increased the volume, complexity and sophistication of tax issues arising across all areas of our program," said Bennett.

The four key areas of the Private Capital program include private equity, infrastructure and business fragmentation, foreign funds and collective investment vehicles.

"We're now examining isolated transactions as well as tax risks, and the participants involved in them, across the entire investment lifecycle: pre-acquisition, acquisition, holding period, pre-disposal and disposal," said Bennett.

"This approach enables us to identify issues early, which reduces the likelihood of disruption at the disposal stage, when transaction timeframes are often compressed and capital may be leaving Australia."

When capital is at risk of leaving Australia untaxed, the ATO warned that it may seek to enter security arrangements to protect Australian tax revenue.

"Our engagements across private equity, infrastructure and foreign fund investments increasingly involve holding-period reviews, early engagement on acquisitions and disposals, and firm-level reviews for private capital investment managers with multiple Australian investments," said Bennett.

The ATO said its focus for the next 12 months includes examining disposal and asset dissipation risks and rolling out the holding-period and firm reviews from its private equity work to the other areas in the program.

It will also consider whether broader market guidance is needed as it identifies issues.

Bennet said public and multinational businesses should ensure they are familiar with the ATO's guidance on the behaviours and risks that attract the ATO's attention across the investment lifecycle.

The ATO published new information on its website about its private capital program at the end of last month explaining its approach to collective investment vehicles, foreign funds, infrastructure, private equity and security arrangements.

The Tax Office warned businesses that tax or economic performance that isn't comparable to similar businesses, including comparable businesses that are not owned by private capital participants, would attract its attention.

The ATO will also pay close attention to businesses where there is low transparency of that business's tax affairs or where there is aggressive tax planning and cross-border structuring to minimise or avoid tax, including the inappropriate accessing of benefits available under Australia's double tax treaty network.