The Australian Taxation Office has published the fifth annual report on corporate tax transparency, which provides insights into the operation of Australia's corporate tax system and the tax affairs of the largest companies operating in Australia.
Deputy Commissioner Rebecca Saint said the report includes tax information of more than 2,200 entities and shows combined total income tax paid of $52.3 billion in 2017–18.
"The entities covered by this report contributed over 60% of all corporate tax paid in 2017–18. The significant increase of $6.6 billion in tax payable was primarily driven by strong commodity prices," Ms Saint said.
"Significantly, over $7 billion of sales income is now being booked in Australia as a result of companies restructuring in response to the Multinational Anti-Avoidance Law (MAAL).
"As the ATO foreshadowed last year, the Petroleum Resources Rent Tax payable has exceeded $1 billion. This is despite a reduction in the number of payees, and is primarily driven by higher oil prices.
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 2,214 corporate entities, of which:
- 1,197 are foreign-owned companies with an income of $100 million or more
- 1,017 are Australian public or private entities, of which
o 594 are Australian public entities with an income of $100 million or more
o 423 are Australian-owned resident private companies with an income of $200 million or more.
Many companies also provide additional information about their tax affairs as part of the Board of Taxation's Voluntary Tax Transparency Code.
"Over the five years to 2018, all industry segments reported growth in the number of reporting companies, total income, taxable income and tax payable. The report also shows that the number of large companies paying no tax continues to decline," Ms Saint said.
"Paying minimal or zero tax may be a result of companies making a loss, utilising losses from prior years or having projects operating in start-up phase. However, groups that consistently report losses or unusually low taxable income are more likely to attract ATO attention.
"The positive trend we are now observing is that many companies have ceased generating accounting losses and are now offsetting profits by utilising losses from prior years. We expect many companies to exhaust these losses and begin paying income tax in the coming years.
"However companies that consistently report sustained losses do raise a red flag. The community should be reassured that we closely scrutinise the tax affairs of the largest companies.
"As part of the Tax Avoidance Taskforce, we have a robust compliance program with specialist tax teams engaging directly with large companies to ensure they meet their obligations. We take firm action where we see tax avoidance.
"There will be no lessening of our efforts to hold multinationals to account. Additional funding provided to the ATO has enabled the Tax Avoidance Taskforce to be extended to 30 June 2024 and expanded to cover even more large companies.
Background
Multinational Anti-Avoidance Law (MAAL)
The Multinational Anti-Avoidance Law (MAAL) was implemented on 1 January 2016. The law ensures multinational enterprises pay their fair share of tax on the profits earned in Australia and counters the erosion of the Australian tax base by multinationals using artificial and contrived arrangements to avoid the attribution of profits to a permanent establishment in Australia.
In response to the law, companies have restructured their operations to book income in their Australian subsidiaries rather than bill from overseas. In the 2017–18 year, over $7 billion was booked in these Australian subsidiaries, and much of this is directly reflected in the report.
Oil and gas sector
The highly concentrated Petroleum Resources Rent Tax (PRRT) taxpayer base allows the ATO to closely monitor projects that are, or are close to being, profitable for PRRT purposes. The report shows that the total PRRT payable reached $1.16 billion in 2017–18. This was paid by nine corporate entities, a decrease from 14 the previous year.
"We do not expect to see much change in the amount of PRRT payable in the near term given the large expenditures made by oil and gas companies," Ms Saint said.
"As for income tax, a number of corporate entities in this sector were still generating tax losses in 2017–18. This is expected as projects transition to production, however we expect that as production increases these companies will move from generating losses to utilising losses and then paying income tax, some by the early 2020s," she said.
Loss making companies
It is important to remember that corporate income tax is payable on profits, not gross income. A significant percentage of companies continue to make losses each year, for both accounting and tax purposes.
However, many single entities that did not pay tax are members of a corporate group that did pay tax. The corporate transparency population comprising this report belong to 1,740 unique economic groups, as well as 208 standalone entities (totalling 1,948 unique groups or standalone entities). Of these 1,948 unique economic groups and standalone entities, 1,530 (79%) paid income tax.
There are a number of reasons why a company may make losses. Companies are also able to carry forward losses to offset tax payable in the future. A company that makes a big loss in a year will not pay tax in future years until the loss is fully recouped. This is reflected in the report, with some high-profile companies paying tax again after a number of years of not paying tax.
"The ATO is very focussed on ensuring that companies making sustained losses understand their obligations to the ATO and the wider taxpaying community. We have one of the strongest compliance programs in the world and we are better equipped than ever before to target compliance by the largest companies," Ms Saint said.
"However, in looking at particular companies, it should be stressed that most companies report a tax loss as a legitimate consequence of their business activities, either having lost money in their business activities in the current year or a prior year, or because they have spent money starting up and are yet to recoup that investment," she said.
Large corporate groups income tax performance
Looking at the bigger picture, and taking a step back from individual companies, the ATO analyses the entire market, and estimated that in 2016–17, these large corporate groups lodged returns recognising on average 92% of the theoretical tax payable, moving to 96% after compliance activity. This is up from our estimate of 95% after compliance activity for 2015–16. Within this, many companies, especially high-profile Australian owned companies, are fully compliant at lodgment.
This is already world leading performance, and Australians should take great comfort in this: however, we are driving further improvements.
Our estimates are that individuals on average pay 94% of the tax due at lodgment, and the community would expect that large corporate groups should hold themselves to even higher standards. The challenge we have set, for large corporate groups and ourselves, is to increase the voluntary tax performance of large business to 96% on average, and 98% after compliance activity.
