Board of Taxations December 2017 meeting – CEO’s report – pipeline of possible projects; Sounding Board; Tax Transparency Code report (120 signatories – 50% of company tax)

The Board of Taxation’s CEO: Ms Karen Payne, reported on the Board’s meeting on Thursday 7 December 2017 (the final meeting for the year).

Pipeline of possible projects

The Board continued to discuss the scope and content of a number of possible projects, including:

• A review of small business tax concessions;
• A comparison of the taxing rights for real property under Australia’s double tax agreements and domestic laws;
• Certain issues relating to taxation in agriculture;
• New tax measures to promote innovation; and
• Tax settings and digital disruption.

Sounding Board

The Board discussed several new ideas recently posted to Sounding Board and a number of ideas that are under consideration. Specifically there is an idea contributed by Michael Flynn QC regarding tax uncertainty arising from absolute entitlement. The Board completed a Review of the tax treatment of bare trusts and similar arrangements which raises these issues. This report is currently with the Minister for Revenue and Financial Services.

Tax Transparency Code

The Board completed a preliminary review and noted an improvement in transparency and some good examples in the community publishing their transparency reports.

As at 1 December 2017, there were 120 signatories to the Voluntary Tax Transparency Code (the Code):

1. 89 signatories have published a tax transparency report.
2. Twelve signatories are private companies; and
3. 4 signatories are Australian Government enterprises.

The Board estimates that this represents more than 50% of company tax payable and taxable income. However, this is not the only measure of a successful implementation.

The Board’s secretariat completed a preliminary review of 21 out of the 89 companies who have published a Code report (roughly a quarter of the reports).

Some key observations include:

• Although the Code provides signatories with the flexibility to choose the form of their disclosure, most groups in the sample selected opted to make their disclosure via a separate tax transparency report (18).
• Two companies made their disclosures within financial statements.
• one disclosed by ‘other’ means.
• Several ‘separate’ reports included cross references to notes to the financial statements.
• The Code does not require reports to be audited and most reports, in the sample set, were not audited. Five reports were audited (this includes 2 disclosures by a separate report).
• The disclosure of the effective tax rate (ETR) is an area where there is a variety of disclosure practices and in some cases more than one disclosure. The Code permits ETRs to be calculated on different bases (for example total earnings vs underlying earnings) where the base is defined and any assumptions are disclosed. The variations in approach are likely due to the different reasoning around the form of ETR which is meaningful to stakeholders. For example, some may consider that an ETR calculated on underlying earnings rather than total earnings is more reflective of the ongoing ETR on the basis that one off or abnormal transactions are excluded from underlying earnings.

Fifteen (15) of the eighteen (18) reports sampled, for large businesses, included both the core element and optional elements of Part B.

A small number of groups, in the sample selected, disclosed their use of entities incorporated in tax havens.

Whilst the Board believes that the code should remain voluntary and flexible to encourage a culture of transparency which allows each entity to choose the best approach to publish their information, the Board considers that to be useful to the community:

• It is important for all elements of the minimum standard to be included in disclosures released in response to the code.
• It is also important that where groups are relying on multiple sources of information, to meet the minimum standards within the code, that links are provided to all relevant sources (for example where some disclosures are in a separate report and some are located in financial statements).

Merits of new DGR category for community foundations

The Board has submitted its advice to the Minister for Revenue and Financial Services in response to a request from the Minister to evaluate:

• whether a proposal for a new deductible gift recipient category for community foundations has merit; and
• if so the appropriate safeguards that would need to be in place if the proposal was to be implemented.

[Board of Taxation’s website: CEO’s Updates; FJM; LTN 243, 19/12/17; Tax Month Dec 2017]