The fifth annual report on corporate tax transparency has been released by the ATO. The report provides insights into the operation of the corporate tax system and the tax affairs of the country’s largest companies.
Under law, the ATO is required to publish tax information reported to it 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
- 594 are Australian public entities with an income of $100 million or more
- 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.
The ATO’s Deputy Commissioner Rebecca Saint said the latest report, which covers the 2017-18 income year, includes tax information of more than 2,200 entities and shows combined total income tax paid of $52.3 billion.
“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),” she says.
Saint says that the paying of 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,” she says.
“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.”
On the back of this trend however, Saint says companies that consistently report sustained losses do raise a red flag. “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.”
Additional funding has been provided to the ATO which Saint says has enabled the Tax Avoidance Taskforce to be extended to 30 June 2024, as well as being expanded to cover even more large companies.
Loss making companies
The ATO says 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 the 2017-18 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.
The ATO reminds the community that 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.
“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,” Saint says.
Large corporate groups income tax performance
Looking at the bigger picture, and taking a step back from individual companies, the ATO 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. It says this is up from its estimate of 95% after compliance activity for 2015-16. Within this, the ATO says many companies, especially high-profile Australian owned companies, are fully compliant at lodgment.
“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 ATO says. “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.”