Key News Summary – the ATO released its income tax gap statements for $250m+ turnover companies for the 2015-16 year, showing the gap down  to $1.8b or 4% of the $40b total tax paid.


 

On 13 Dec 2018, the ATO released details of the latest figures ‘income tax gap’ figures for the large corporate groups ($250m+ turnover) income tax gap. That gap is the difference between the total amount of income tax collected and the amount the ATO estimates would have been collected if every one of these taxpayers was fully compliant.

For 2015-16, the ATO estimates the net income tax gap to be down to $1.8 billion or 4.4% of tax payable. In this year, large corporate groups reported $1.7 trillion in gross income and paid approximately $40 billion in tax.

Income tax gap – large corporate groups, 2009–10 to 2015–16(a)

2009–10

$m

2010–11

$m

2011–12

$m

2012–13

$m

2013–14

$m

2014–15

$m

2015–16

$m

Tax paid

34,940

43,280

45,776

42,748

43,744

43,641

39,775

Gross gap

3,307

3,876

4,739

5,197

5,153

4,049

3,774

Amendments

888

1,373

2,073

2,213

2,311

1,983

1,942

Net gap

2,420

2,503

2,666

2,984

2,842

2,067

1,833

NOTE
(a) The amounts for amendments include projections from 2011–12 onwards, as detailed in Step 2 of the methodology.

 

Gross and net income tax gap (%) – large corporate groups, 2009–10 to 2015–16

This line graph shows the gross and net large corporate groups tax gap as a percentage over the period 2009-10 to 2015-16. This information is available in the second table above this graph.

For this group, the gap primarily reflects differences in the interpretation of complex areas of tax law – the most common issues being:

  • profit shifting (including transfer pricing and thin capitalisation);
  • treatment of offshore income and the use of controlled foreign companies;
  • business restructures;
  • debt-equity tax arbitrage.

According to the ATO, the large corporate groups income tax gap has been decreasing in recent years, coinciding with improvements it has made to its methodology to increase the accuracy of its estimates.

  • It uses a ‘bottom up’ approach.
  • Apparently, there is no data available to reliably calculate the gap using  a ‘top down’ approach.

For the ATO’s current estimates undertaken in 2018, it said it made 2 significant improvements to its estimation methods:

  • Incorporating information about the large corporates in which the ATO has justified trust. Increasingly, more of this information becomes available through the ATO’s assurance activities, “allowing us to produce estimates we have greater confidence in”, the ATO said.
  • The second is in the way the ATO projects the tax gap. While the ATO’s latter year estimates were previously made up entirely of projections, it says it now uses additional information it currently has to inform these estimates. The ATO says that combining this information with projections allows it to more accurately estimate the tax gap for years where it does not yet have complete information.

[ATO website: Large Corporate Gap; LTN 241, 13/12/18; Tax Month – December 2018]

FJM 19.1.19

CPD (comprehension) questions

  1. What is the latest year for which this ‘gap’ analysis is published?
  2. What is the gap, for this year?
  3. What is the trend of the gap, from 2012-13?
  4. What are the main source of this gap (for large companies)?
  5. What is the first of the issues, relevant to this?

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