The Australian Taxation Office’s (ATO’s) publication of the seventh annual report on corporate tax transparency showcases the trend towards improved voluntary tax compliance among large corporates.
Deputy Commissioner Rebecca Saint explained that the report reflects the ATO’s intensive engagement with the top end of town in recent years.
‘While the tax paid by this population may fluctuate year on year, the overall trend couldn’t be clearer. Corporates are placing a higher value on tax compliance, driving consistent and willing voluntary participation,’ Ms Saint said.
The Tax Avoidance Taskforce (the Taskforce) has had a significant impact on corporate tax collections. Since its inception in 2016, the Taskforce has proven very successful. In addition to contributing to the ATO collecting over $10 billion in additional tax from public and multinational businesses it has driven improved tax compliance.
The resources of the Taskforce have allowed the ATO to establish the Justified Trust program, which requires the largest businesses to assure us they are paying the right amount of tax by having regard to objective evidence.
‘This is a significantly higher level of scrutiny than the previous approach of investigating identified risks,’ Ms Saint said.
‘Our reports on the Top 100 shows that the number of taxpayers achieving a high assurance rating increased from 6% in 2019 to 49% in 2021. We attribute this to a combination of businesses recognising that investing in their tax governance has tangible real-world benefits – as well as a significant investment of time and resources by the ATO in scrutinising structures, transactions and tax governance frameworks.’
‘The health of the tax system is underpinned by willing participation, which is shown by four out of five of the largest businesses in Australia having obtained either a high or medium assurance rating.’
‘Low assurance ratings prompt the ATO to conduct comprehensive and intensive reviews where we are more likely to use audits to resolve issues.’
‘Although we cannot disclose the assurance ratings of individual taxpayers, we note that many are using a justified trust rating as a key performance indicator. We are seeing businesses with ‘high assurance’ tax ratings informing their shareholders, employees and other stakeholders.’
The corporate tax transparency report also shows that the proportion of companies that have paid no income tax remains steady at 33% in 2019-20. This reflects a decline from 36% since the first report in 2013-14.
It is important to note that data in the report is taken directly from tax returns and does not reflect any intervention or compliance work after lodgment of the returns.
There are many reasons why companies pay no income tax. Income tax is paid on profits not revenue and legitimate business or economic factors may see companies pay no income tax due to operating losses, utilising losses from prior years, or projects operating in a start-up phase.
Many single entities that did not pay tax are members of a tax paying corporate group. At the economic group level, a total of 2,061 economic groups or standalone entities were to some degree in scope for the transparency report. Of these, 78% had a tax liability through one or more member entities.
‘The ATO actively verifies that losses in the large market are not created through contrived schemes, but can be traced back to commercial operations. We subject companies that report sustained year-on-year losses to additional scrutiny,’ Ms Saint said.
Corporate Tax Transparency Report
The ATO is required under law to publish tax information reported to us by certain large companies each year. This year’s tax transparency report covers 2,370 corporate entities, of which:
- 1,378 are foreign-owned companies with an income of $100 million or more
- 513 are Australian public entities with an income of $100 million or more
- 479 are Australian-owned resident private companies with an income of $200 million or more.
The companies in the report paid a combined total of $57.2 billion, or around 65% of all corporate income tax in 2019-20.
Since the first report in 2013-14, there has been growth in total income, taxable income, and income tax payable. In 2019-20, the growth in these amounts has been largely driven by the mining sector, which accounted for around 44% of tax payable.
While the report reflects the impact of the early stages of the COVID-19 pandemic (particularly on the wholesale, retail and services sector), it does not provide additional detail on recipients of JobKeeper or other stimulus payments.
Oil and gas sector
The highly concentrated taxpayer base of the Petroleum Resources Rent Tax (PRRT) allows a high level of ATO scrutiny.12 corporate entities paid $881 million in 2019-20, this is a slight decrease from the $1.06 billion paid by 11 corporate entities 2018-19. The decline in PRRT is primarily due to a fall in oil prices.
Large corporate groups income tax performance
Most large businesses do the right thing and are paying the right amount of tax, as reflected in our estimate of the large corporate group income tax gap.
For 2018-19, we estimate a net gap of 4.3% or $2.6 billion after ATO engagement, meaning large corporate groups paid over 95% of the theoretical total amount of income tax payable in 2018-19.
‘Very few other revenue authorities calculate and publish tax gaps. This makes international comparisons difficult, but Australians can be reassured that large corporate groups are held to account more than any other sector of the economy,’ Ms Saint said.