The Australian Taxation Office (ATO) has recently released its sixth annual report on corporate tax transparency which covers the tax affairs of the largest companies operating in Australia.
Deputy Commissioner Rebecca Saint said the report included tax information from 2,311 corporate entities with a combined total income tax paid of $56.1 billion in 2018–19.
“Over 60% of all corporate income tax in 2018–19 was paid by the companies included in this report,” Ms Saint said.
The report shows that since the first report in 2013-14, there has been growth in total income, taxable income, and income tax payable. In 2018-19, all three ownership segments reported growth in income tax payable with foreign-owned entities contributing the most to the increase ($2.09 billion), followed by Australian public entities ($1.33 billion) and Australian private entities ($341 million).
“Total income tax paid increased $3.8 billion from 2017-18, which can be attributed to the mining and resource sector and increases in commodity prices. All other sectors saw the first decline in income tax payable since the first report was published, partly reflecting the downturn in non-mining company profits during the 2018-19 financial year,” Ms Saint said.
One third of Australian large companies paid no income tax
Despite the fall in income tax payable in most sectors, the report shows that the proportion of companies that have paid no income tax remains steady at 32% in 2018-19 in comparison to 2017-18. This reflects a decline from 36% since the first report in 2013-14.
There are many reasons why companies pay no income tax including legitimate business or economic factors. Companies may pay no income tax due to operating losses, utilising losses from prior years, or expensing projects operating in a start-up phase.
“The ATO takes steps to verify that losses in the large market are not created through contrived schemes, but actual losses that can be traced back to commercial operations. Companies that report sustained losses year-on-year face scrutiny from the Tax Avoidance Taskforce,” Ms Saint said.
“The Taskforce and the Justified Trust program allow us to change behaviours and engage directly with the largest corporate taxpayers to assure their tax compliance. The majority do the right thing and pay the right amount of tax, but we take firm action against companies that try to avoid their tax obligations.”
“The Tax Avoidance Taskforce has proven very successful, contributing to the ATO raising a total of $19.8 billion in tax liabilities and collecting $11.2 billion from large public groups, multinational corporations, wealthy individuals, and private groups from 1 July 2016 to 30 September 2020,” Ms Saint said.
Multinationals restructured their businesses in compliant with the MAAL
The successful implementation of the Multinational Anti-Avoidance Law (MAAL) resulted in 44 taxpayers restructuring to recognise sales in Australia. In 2018-19, these taxpayers are now collectively booking more than $8 billion in additional sales in Australia and paying more than $100 million each year in additional income tax compared to 2015-16. They also reported an estimated net GST paid of approximately $80 million in 2018-19. The vast bulk of the additional sales can be seen in the report.
“By ensuring taxpayers are compliant with the MAAL and locking in their future compliance via robust settlements and Advance Pricing Arrangements, we have brought millions into Australia’s tax system, ensuring economic activity in Australia is taxed in Australia,” Ms Saint said.
“Our Justified Trust program assures that the largest 1,100 corporate groups pay the right amount of tax. Around a third of large corporates have achieved the highest assurance rating with around half achieving a medium rating. Taxpayers that achieve low assurance ratings are subject to intensive scrutiny and investigation by the Tax Avoidance Taskforce.”
“The intensive scrutiny of our Justified Trust program sets the bar higher for the largest taxpayers. But achieving a high assurance rating doesn’t just build community confidence in the taxation system, many Boards find the rating to be an investment in good corporate governance and ultimately lower tax compliance costs.”
“Increasingly we are seeing corporate groups that have achieved ‘high assurance’ tax ratings informing their shareholders, employees and other stakeholders, providing confidence in their tax performance.”
Background
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 2,311 corporate entities, of which:
- 1,320 are foreign-owned companies with an income of $100 million or more
- 991 are Australian public or private entities, of which
- 527 are Australian public entities with an income of $100 million or more
- 464 are Australian-owned resident private companies with an income of $200 million or more.
It is important to note the data in the corporate tax transparency report is pre-pandemic. Next year’s report will reflect the economic impacts of COVID-19.
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