Australia Faces Billion-Dollar Tax Battle With US Firms

American companies are stepping up efforts to challenge international tax obligations, with Ford seeking assistance from US revenue authorities to contest a multi-billion-dollar tax bill from the Australian Taxation Office (ATO). This move may strengthen business ties with Washington, but it puts significant pressure on Canberra's tax revenue.

The dispute centers on a tax agreement between the US and Australia that allows companies such as Ford to involve the US Internal Revenue Service (IRS) when contesting foreign tax assessments. Since ceasing Australian manufacturing in 2014, Ford has tripled its local revenue. The company is now contesting what may be one of the ATO's largest-ever claims, compelling Australian authorities to confront both multinational corporations and foreign governments.

Ford's Australian division has experienced steady growth since its manufacturing exit. It generated more than $6 billion in revenue last financial year and brought in around $19 billion over the six years from 2014 to 2019. Despite this, it paid no income tax. Ford explains the lack of taxable income as the result of substantial R&D investment and the use of deferred tax assets. However, the ATO is scrutinising the company’s cross-border pricing and income declarations.

This is not an isolated issue. The ATO is engaged in lengthy legal disputes with ExxonMobil, Alcoa, PepsiCo and Newmont. Exxon is facing claims that could surpass $70 million. Alcoa is involved in a dispute over pricing worth more than $1 billion. PepsiCo and Newmont are awaiting outcomes from ongoing appeals. These cases reflect increasing tension over the transfer pricing practices that multinationals use to report profits in different countries.

What is particularly significant with Ford's case is the international involvement. Under the tax agreement, US government agencies are now playing a more active role in backing their domestic corporations. As US leadership grows more resistant to global tax reform, there seems to be greater political support for protecting American corporate interests abroad. This trend could turn future tax disputes into diplomatic challenges rather than just corporate ones.

Source: Australian Financial Review, Argus Media