Federal treasurer Joe Hockey has put multinational companies on notice with plans to crack down on profit shifting measures in the 2015 federal budget.
Last month Australia’s major miners were called to give evidence to the Senate Inquiry into Corporate Tax Avoidance, which revealed the extent of commodity marketing practices through offices in Singapore.
The government will target companies that divert profits offshore in order to reduce taxes paid in Australia, with harsh new fines that could amount to 100 per cent of taxes unpaid.
"These contrived arrangements have been used to avoid paying tax in Australia and they are very complicated transactions," he said.
“Obviously, they have not been paying their fair share of tax in Australia.
“Have no doubt the rest of the world is looking at this legislation.”
The Economic References Committee found that BHP and Rio Tinto used companies in Singapore to sell iron ore in order to revalue and sell to customers in Asia.
It was shown BHP have paid a tax rate of only 0.002 per cent on profits gained by selling iron ore to the Singapore subsidiary of BHP at less than market rates.
With negotiated tax incentives from the Singapore government, BHP paid $US121,000 in Singapore and $945 million in Australia on profits of $US5.6 billion between 2006 and 2014.
In the same inquiry Rio Tinto Australia managing director Phil Edmonds told the committee that Rio Tinto is taxed at a rate of five per cent in Singapore.
The ATO is currently seeking unpaid tax from BHP of $301 million, interest of $145 million, and penalties of $76 million.