On 14 February 2018, the ATO issued a statement (on its website) seeking to assure taxpayers that it was well placed, after various ‘BEPS’ initiatives, to ensure that companies, including particularly big companies, were paying ‘appropriate’ amounts of Australian income tax.
The ATO also wants to advise that it is already getting on top of previous problems (think Apple, Google, Amazon, Singapore ‘hubs’ for miners: BHP & Rio Tinto, old transfer pricing provisions, permanent establishment limitations, diverted profits, treaty shopping, ‘double Irish sandwich’, diverted profits, unknown multi-nationals’ foreign structures and stateless income).
This is likely to be true, but it is also part of the ATO’s rhetoric to help justify it moving on to what it sees as the it’s next (and bigger) priority, namely: to address the ‘cash economy’, over-claimed ‘work-related deductions’ and illegal phoenixing of employee benefits, together with mis appropriation of remittances to the ATO (such as the $160m fraud, which it is alleged that Adam Cranston presided over – the son of the former high ranking ATO officer: Michael Cranston).
The ATO’s statement includes the following.
Australia has one of the strongest corporate tax systems in the world. We have one of the strongest compliance programs which, on any measure, is as good as anywhere in the world.
The ATO wants the community to have trust and confidence that the ATO is taking action to ensure the largest companies are required to pay the right amount of tax on their Australian profits and most do so voluntarily. The ATO is better equipped than ever before to fulfil its commitment to further increasing the level of compliance by large companies.
It has a Tax Avoidance Taskforce, which intensively engagement with the:
- Top 1000 multinational and public companies
- Top 320 private groups and the high wealth individuals who control them.
Between them, these groups pay about two thirds of all corporate tax in any given year. The Task force has been funded with $679.9 million over four years to adequately resource this project.
We have new laws, to address the BEPS problems, including, the Multinational Anti-Avoidance Law (MAAL) and the Diverted Profits Tax (DPS) – both of which are in our ‘General Anti-Avoidance Provisions’ in Part IVA of the ITAA36, s177DA and s177H, respectively). Our transfer pricing laws have been strengthened when they were moved to Div 815 of the ITAA97, including the BEPs measure of Countries sharing standard form information, known as country-by-country (CbC) reports (found in sub-div 815-E, as part of the new ‘profit shifting’ measures). These are already having a significant effect.
Since the establishment of the MAAL in December 2015 we have already seen 38 companies restructure and $7 billion of additional income being booked in Australia that previously wasn’t.
Measures such as CbC reporting will also provide us a broader picture of compliance behaviour from 2017 onwards. In fact, tomorrow (15 February) we will be receiving the first substantial tranche of CbC information from multinational companies which will provide us with an in-depth view of their global structure, operational and economic activity. We recognise that transparency of tax affairs is a fine balance as some of the information the ATO receives, through measures such as CbC reporting, are only made available to the ATO by other countries through a multi-lateral instrument that requires the information to be held confidentially by revenue authorities.
The ATO has released corporate tax transparency data, for the past three years, which includes, gross income, taxable income and tax paid by more than 2,000 large companies operating in Australia. The most recent data set for 2015-16 was released in December 2017.
There has been a disproportionate focus on the number of groups which paid either no tax or small amount of tax relative to gross income. As we are trying to build trust and confidence in the system for all taxpayers, 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
- it reflects the tax returns as lodged, and does not reflect subsequent ATO compliance activity.
This information is 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.
The Tax Transparency data is pre-audit and adjustments (as assessed, per returns). Since 1 July 2016 the ATO raised liabilities in excess of $5 billion against public groups and multinational corporations, not reflected in these releases.
Study questions (answers available)
- Is the ATO trying to say that it’s got on top of BEPS compliance issues for Corporate Australia?
- Is the sub-text of this, that they are moving on to other employee and cash economy issues?
- Has their ‘Taskforce’ engaged with the top 320 multinationals and public companies together with the top 1,000 private groups?
- Is the CbC reporting regime in the General Anti-Avoidance Provisions?
- Are the MAAL and DPS in sub-div 815-E of the ITAA97?
- Was the ‘tax transparency data’, published for the last 3 years, for the top 1,000 companies?
- Has there been a ‘disproportionate focus’ on the companies which paid no tax?
- Do the reasons for this include that income tax is not paid on ‘taxable income’ (not accounting profits); it is generally paid on amounts realised, not paper profits; and it can result from legitimate carry forward tax losses?