Corporate tax system more robust than the headlines suggest

Recent media coverage has focused on corporate tax transparency data released by the ATO last December. The most recent data set was for the 2015-16 income year, and includes tax information for more than 2,000 large companies operating in Australia.

In the face of widely dispersed commentary on Australia’s corporate tax system, and the perceived deficit or otherwise of corporate entities paying a “fair share” of tax, the ATO has felt compelled to issue a public statement that reiterates the factual state of affairs in regard to the corporate tax system.

“In reviewing the data, there can be a disproportionate focus on the number of groups which paid either no tax or a small amount of tax relative to gross income,” the ATO says. It adds that it is important to remember that:

  • corporate income tax is payable on profits, not gross income
  • profits for tax purposes are closely linked to realised earnings, not paper earnings
  • in any given year a significant percentage of even the largest companies make losses, not just for tax purposes, but also for accounting purposes
  • the data reflects the tax returns as lodged, and does not reflect subsequent ATO compliance activity.

While the flurry of headlines homes in on some of the facts, the ATO has stated before that it has confidence in the tax compliance of large corporate groups. It is also keen to remind taxpayers that while information included in the corporate tax transparency report may be new to the community, it’s not new to the ATO. “The ATO has access to far more detailed information and regularly engages with these large companies to assure their tax behaviours, with a particular focus on companies which make sustained losses,” it says.

“Importantly the data only reflects tax returns as lodged,” the ATO says. “Since 1 July 2016 the ATO raised liabilities in excess of $5 billion against public groups and multinational corporations, not reflected in these (data) releases.”

The Corporate Tax Association (CTA) is an advocacy body representing major companies in Australia on corporate tax issues. The organisation’s objectives, on behalf of its members, is to influence and develop tax policy that contributes to a corporate tax system under which tax obligations are cooperatively met, and to improve its administration as well as reduce the cost of compliance.

The CTA is also critical of the coverage being afforded corporate tax collection in Australia at present. Executive Director Michelle de Niese says: “Like all businesses, big or small, not paying tax in a particular year does not equate to tax avoidance. Commentators who ignore this fact and suggest that companies who do not pay tax in a particular year or over a number of years are engaging in tax avoidance are presenting an inaccurate and often patently false picture of the level of compliance by large corporates,” she says.

Assistant Director of CTA, Paul Suppree, says CTA membership is 75% comprised of Australian-based listed companies, with the remainder being foreign-based corporates. “Publically listed groups are represented by CTA, and one large private group,” he says. “I’d say we represent about 60% of the companies on the ASX100, and 95% of the ASX top 20.” ATO data indicates that there are around 1,450 large corporate groups in Australia, each with a turnover of more than $250 million.

Membership of CTA however is not limited to larger corporate entities. “We’re open to anyone, and whoever wants to join is welcome to,” Paul says. “There isn’t really a threshold (in terms of annual turnover) for being able to sign up.”

One big issue he says the CTA is grappling with at present is the cost of compliance, which of course is not isolated to larger corporates but can be experienced by SMEs as well. “Our members are very concerned with the cost of compliance,” he says. “For instance, FBT affects corporate players a lot — I’d say that evidence suggests that about 10% of compliance time is absorbed by FBT matters.”

Paul says it is not uncommon to even find some companies winding back arrangements that have led to FBT liabilities. “And you’ve got to remember that with larger groups there can be several entities within that particular group, with each entity required to lodge an FBT return.” The CTA is a member of ATO consultative committees, including a fringe benefits safe harbour working group, which has been meeting to determine ways to lighten the red tape burden of corporates.

Corporate tax system more robust than the headlines suggest Corporate tax system more robust than the headlines suggest Corporate tax system more robust than the headlines suggest Corporate tax system more robust than the headlines suggest 

Corporate tax system more robust than the headlines suggest Corporate tax system more robust than the headlines suggest Corporate tax system more robust than the headlines suggest Corporate tax system more robust than the headlines suggest