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About one third of large companies have once again failed to pay a cent of tax, even though they have made a gross profit, according to the Tax Office's latest corporate tax transparency report released today.
Key points:
- The ATO's corporate tax transparency data again shows that hundreds of companies have been able to reduce their tax bills to zero
- ATO deputy commissioner Rebecca Saint said the agency was still seeing some companies avoid tax by shifting profits offshore
- Company financial accounts do not always give the full picture of tax positions and the ATO wants companies to be more transparent
Of 2,214 entities covered by the Australian Taxation Office (ATO) data for 2017-18, 710 did not pay any tax.
Many companies have claimed tax losses and concessions that often go back several years.
There were 1,504 corporate entities in the 2017–18 data that reported tax payable of $52.3 billion — a net increase of $6.6 billion from the previous year.
The ATO's report noted the increase was primarily driven by the mining, energy and water segment, off the back of strong commodity prices, which were up 15 per cent in Australian dollar terms in 2017–18.
ATO deputy commissioner Rebecca Saint said groups that consistently reported losses or unusually low taxable incomes were more likely to attract the ATO's attention.
She told ABC News there were still instances of outright tax avoidance, in which multinationals attempted to shift profits outside of Australia to reduce their local taxable income, and these often resulted in the ATO's Tax Avoidance Taskforce specialist teams undertaking audits.
"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," Ms Saint said.
"We expect many companies to exhaust these losses and begin paying income tax in the coming years," she added.
ATO says it takes 'strong action' against tax avoidance
Ms Saint said laws passed by the Federal Government were helping the ATO take "strong action".
She said more than $7 billion of sales income was now being booked in Australia as a result of companies, including Facebook and Google, restructuring in response to the Federal Government's tougher anti-avoidance laws, including the Multinational Anti-Avoidance Law (MAAL).
The Diverted Profits Tax (DPT) is also helping the agency get the information it needs if companies are deliberately obfuscating.
And previous stronger transfer pricing laws passed under the former Labor government have given the ATO an arsenal to fight companies it believes may be overstepping the line.
Of the 2,214 corporate entities covered in the data, 1,197 are foreign-owned companies with an income of $100 million or more.
Of the 1,017 Australian public or private entities, 594 have an income of $100 million or more, and 423 have an income of $200 million or more.
Corporate entities with an income of more than $5 billion represent only 2 per cent of the corporate transparency population but are liable for 53 per cent ($27.9 billion) of the tax payable for the population.
This share of tax payable decreased slightly from 57 per cent in the previous year, the ATO report said.
Why companies did not pay any tax
The proportion of entities with nil tax payable has fallen over the past three years, from 36 per cent in 2015-16 to 34 per cent in 2016-17 and 32 per cent in 2017-18.
"We look at the tax positions of these [large] companies very, very closely," Ms Saint said.
"And we have observed that companies can and do make losses as part of usual business practices."
The reasons why 710 companies did not pay any tax in 2017-18 included:
- 269 entities that reported a taxable income but prior-year losses were available to deduct against that profit, so no tax was payable
- 242 entities reported an accounting loss
- 146 entities reported an accounting profit but reconciliation items (such as tax deductions allowed at higher rates than accounting permits) resulted in a tax loss
- 53 entities reported a taxable income but were also entitled to offsets (such as the research and development tax incentive) at least equal to the tax otherwise payable
Petroleum Resources Rent Tax tops $1 billion
As the ATO foreshadowed last year, the Petroleum Resources Rent Tax (PRRT) payable exceeded $1 billion.
There were nine corporate entities with PRRT payable of $1.16 billion.
The number of entities paying PRRT decreased from 14 in the previous year and PRRT payable increased from $946 million.
"The increase in PRRT payable reflects the increased profitability of PRRT-liable companies in 2017– 18, of which oil prices (up 21 per cent) were a key driver," the ATO's report said.
The ATO also provides a theoretical estimate of how much tax is owed by large corporates with a turnover of more than $250 million.
In 2016–17, large corporate groups reported approximately $47 billion in corporate income tax.
The net tax gap was estimated at $2 billion, or 4 per cent.
Call for more transparency
While more than 170 large corporate groups have signed up to the Board of Taxation's Voluntary Tax Transparency Code, many companies still do not give detailed information about their tax affairs.
Second commissioner Jeremy Hirschhorn has previously made public comments noting that the corporate tax transparency data offers limited information which is hard to reconcile with accounting information in company financial reports.
The financial reports often give limited insight into a company's Australian operations, and Mr Hirschhorn has called on companies to be far more transparent, including by providing more details about money flowing offshore to related entities in financial and/or other reports.
The ATO notes several limitations in its data. First, the 2,214 corporate tax entities are not necessarily standalone entities and are sometimes part of a group of entities.
"The majority of economic groups in the corporate transparency population have linked entities outside the scope of this measure," the report said.
About 72 per cent of Australian private entities in the transparency population are linked to groups controlled by wealthy individuals, including high-wealth individuals.
The groups consist of close to 11,000 linked entities, including companies, trusts, partnerships and superannuation funds.
The ATO report said confidentiality provisions prevented the agency disclosing certain information about them.
"This means we cannot include details of the income and tax paid by other related entities," the report said.
ATO settles with companies more than it litigates
The ATO often hits companies with tax bills, but later decides to settle rather than fight for the money in court.
For example, the ATO said in 2017-18 it hit "large corporate groups" with $3.7 billion in tax assessments but ended up collecting $2.86 billion in cash (including interest and penalties) after audits.
Ms Saint said the ATO was very careful about which cases it litigated, and any settlements with large corporations were checked by retired Federal Court judges to ensure they were appropriate.
"It is not possible to litigate each and every case, nor is it an effective use of resources," Ms Saint said.
She also noted settlements often resulted in companies agreeing to lock in future taxes.
For example, when BHP made a settlement with the ATO last year, it agreed that from July 2019 all profits made from its Singaporean marketing hub in relation to Australian commodities would be fully subject to Australian tax.
"We are looking for taxpayers to make changes in their compliance behaviour going forward," Ms Saint said.
Topics: business-economics-and-finance, tax, tax-evasion, federal-government, regulation, australia