Tax & Accounting Blog

ATO corporate tax transparency report – looking beyond the raw data

Accounting, Blog, Business Tax, Corporations, Governments, Indirect Tax, International Reporting & Compliance, Organisations, Tax December 18, 2017

The ATO has published its corporate tax transparency report for 2015-16. The report includes:

  • 1,693 Australian public and foreign-owned companies with an income of $100 million or more; and
  • 350 Australian-owned resident private companies with an income of $200 million or more.

ATO Deputy Commissioner, Jeremy Hirschhorn said the community should have confidence that the largest companies are being required to pay the right amount of tax on their Australian profits, and he said most do so voluntarily. Total income tax payable by large corporates in 2015-16 was $38.2 billion, or almost 60% of total company income tax payable in 2015-16. The ATO has a continuing close relationship with the largest companies in terms of their tax compliance and it knows what is going on. Measures such as the establishment of the Tax Avoidance Taskforce, and the introduction of new laws in Australia such as the Multinational Anti-Avoidance Law (MAAL), the Diverted Profits Tax (DPT) and Country-by-Country reporting (CbC) are instrumental in fostering improved compliance. Of course, disputes regularly occur on tax issues (often, but not always, related to transfer pricing issues in large corporate cases) – there are invariably differences of opinion on how various tax law provisions operate – and these may end up before the courts. That is appropriate. Large companies have a myriad of tax issues at play at any one time. The ATO knows this.

In reviewing the data released, the ATO said there may be a focus on the number of groups which paid either no tax or small amount of tax relative to gross income. However, it cautioned that it is important to remember that:

  • corporate income tax is payable on profits [taxable income], not gross income [it is important to understand for example how accounting income is calculated, although this is not released in the ATO data];
  • in any given year a significant percentage of even the largest companies make losses, not just for tax purposes, but also for accounting purposes;
  • it reflects the tax returns as lodged, and does not reflect subsequent ATO compliance activity.

Large companies may tend to react to the release of the ATO data, but it is suggested they should be proactive and get on the front foot to explain how they comply with the tax laws and why, for example, they may pay small amounts of tax (or no tax) in any given year. There are many reasons for this eg no tax is paid when no profit is made in a year; prior year losses are deductible and can reduce taxable income to nil; tax offsets such as R&D will reduce taxable income. Resource companies for example often undertake large R&D expenditures. It is widely accepted that there should be no truck with illegal tax avoidance/evasion activities, but there are means available under tax laws for legitimate tax deductions to be claimed.

In commenting on release of the ATO data, Corporate Tax Association of Australia Executive Director Michelle de Niese said that not paying tax in a particular year does not equate to tax avoidance, a point made by the ATO. She said commentators that ignore this “are presenting an inaccurate and often patently false picture of the level of compliance by large corporates” in Australia. Ms de Niese said the significant reduction in tax payable by large corporates in 2015-16 (it was down $3.6 billion over the previous year) was overwhelmingly driven by the energy and resources segment, reflecting a decline in iron ore and coking coal prices.

Reasons why large corporates did not have a tax liability included:

  • current year accounting loss incurred.
  • Current year tax loss incurred (an accounting profit was reported but tax adjustments, such as depreciation, resulted in a tax loss).
  • Prior year losses were utilised.
  • Tax offsets such as R&D were claimed.

Ms de Niese said these outcomes reflect the proper working of Australia’s tax laws and relevant accounting standards and would be reflected in the data of any business, large or small.

There is a danger that tax transparency measures and disclosures may not consider, or ignore, the complexities of the tax system. This can cause misinterpretation and confusion. Tax transparency is here to stay, but corporations affected need to be on the front foot in handling it. The rapid media news cycle demands it.