The Government released the Board of Taxation’s final report on a voluntary tax transparency code (TTC) on 3 May 2016.

  • On 11 December 2015, the Board released a consultation paper.
  • The Board completed its development of a tax transparency code and provided its report to Government on 16 February 2016.
  • The code is designed to encourage greater public disclosure of tax information by businesses, particularly large multinationals.

In the 2016-17 Federal Budget, the Government encouraged all companies to adopt the Code from the 2016 financial year onwards.

The TTC is currently the most advanced and comprehensive tax transparency measure in the world – according to the Report.

The target audience, comprises, the Board says, ‘interested users’ (such as social justice groups, media, analysts and shareholders) and general users (the ‘person in the street’), rather than the ATO. The ATO has access to far more detailed information about the tax affairs of businesses than is proposed under the TTC. Factors considered by the Board as relevant to most efficiently serving community interests when drafting the TTC included compliance costs, commercial confidentiality and consistency with other local and existing and emerging global reporting requirements.

The Board divided TTC disclosure into 2 parts:

  • Part Alarge and medium businesses – minimum standard of information would be:
    • A reconciliation of accounting profit to tax expense and to income tax paid or income tax payable.
    • Identification of material temporary and non-temporary differences.
    • Accounting effective company tax rates for Australian and global operations (pursuant to AASB guidance).
  • Part Blarge businesses – minimum standard of information would be:
    • Approach to tax strategy and governance.
    • Tax contribution summary for corporate taxes paid.
    • Information about international related party dealings.

The Board recommended that:

  • “Large businesses” should adopt Part A and Part B of the TTC. “Large businesses” are defined as businesses with aggregated TTC Australian turnover of $500 million or more.
  • “Medium businesses” should adopt Part A of the TTC. “Medium businesses” are defined as businesses with aggregated TTC Australian turnover of at least $100 million but less than $500 million.

The TTC will be a minimum standard of content and it is expected that many businesses will provide additional disclosures. Businesses may elect to satisfy the minimum standards of the Australian TTC by publishing the required information as part of other public disclosures, including as part of corporate social responsibility (CSR) reports. Other businesses may choose to disclose in a global ‘taxes paid’ report, an Extractive Industries Transparency Initiative report or a European Union Tax Directive report. These reports are collectively referred to as ‘taxes paid’ reports in this document.

The ‘taxes paid’ report should not need to be externally audited, because it is expected that businesses obtain significant assurance on the content through existing external and internal audit or review procedures. Businesses may choose to provide additional senior management assurance, for example certification by the Chief Financial Officer.

There is no need for additional oversight or penalties for misleading disclosure of TTC information (per the Board’s recommendation). In reaching this decision the Board took account of the possibility of penalties being imposed for misleading disclosures under other laws and regulations. For example, penalties for misleading statements made by a listed company may be imposed under the Corporations Act, consumer protection laws and ASX listing regulations.

Coordination between several government agencies and other organisations will be required to implement the TTC. The Board therefore recommends that:

  • The ATO is nominated as the ‘responsible agency’.
  • Businesses make the TTC report publicly available (for example, by publishing it on the business’s website) and provide the responsible agency with a link to the report.
  • The AASB develops guidance material to assist businesses in meeting the standard required by the TTC and to establish a common definition of the term ‘effective tax rate’ (ETR) to ensure consistency, including addressing issues such as amended assessments, impairments and foreign currency translation.
  • The business community, through its representative bodies, prepares information designed to increase community understanding of the operation of the business tax system and tax accounting disclosures in financial statements.
  • The responsible agency establishes a central website that provides a link to all publicly-issued TTC reports but will not review or provide any assurance as to the completeness or accuracy of the information contained in the TTC reports.

The Board is aware of examples of voluntary ‘taxes paid’ reports that have assisted it in developing the TTC. It is expected that, upon the release of the TTC, there will already be a core group of industry leaders that can demonstrate compliance with its principles with minimal additional cost. The Board believes this will assist in the development of a business culture in which greater value is attached to transparency and disclosure.

The Board recommends the code remain voluntary. As a voluntary code it would be expected that the board of a company and/or senior management will be actively involved in the decision to adopt the code and the level of information to be disclosed. The involvement of the board/senior management will foster a culture within companies to meaningfully and accurately address the public desire for increased corporate tax transparency. As with companies who are currently voluntarily disclosing, the Board expects disclosures will evolve over time as corporate governance cultures develop and as global transparency initiatives evolve. In contrast, a mandatory code is more likely to be viewed as a compliance and box-checking exercise delegated to lower levels within the organisation with less impact on the disclosure culture of the organisation, ultimately resulting in less information being disclosed overall.

The TTC, in its current form, applies to companies and other entities that are treated as companies for Australian tax purposes. Other entities such as superannuation funds, trusts and partnerships may voluntarily adopt the TTC if they wish to do so.

[Board report] [LTN 85, 5/5/16]