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Dec. 9 — Australia’s tax office released a trove of corporate tax data that showed 36 percent of big companies—including almost 60 percent of energy and resources companies—didn’t pay any tax in fiscal year 2015.
Not paying tax doesn’t necessarily mean avoiding tax, Taxation Office Commissioner Chris Jordan said. But he urged companies to adopt the country’s voluntary transparency code to better explain their tax status.
The Corporate Tax Transparency Report for 2015, which the tax office released Dec. 9, includes data on 1,579 public companies with incomes of A$100 million ($74.5 million) or more, and 325 Australian-owned private companies with incomes of at least A$200 million.
For each company, the report provides total income, taxable income, income tax payable and any petroleum resource rent tax (PRRT) payable.
Jordan cautioned against concluding that not paying tax in 2015 didn’t mean companies were doing anything wrong. “These companies may have incurred an accounting and tax loss in the current year or in prior years, and are now using those to reduce current taxable income,” he said.
Most large companies do the right thing, but the ATO would continue to keep them under a “watchful eye,” he said.
The companies listed in the report jointly account for A$42 billion, or around 63 percent, of total company income tax payable for 2014-15.
Entities with income of more than A$5 billion represent only two percent of the companies listed in the report, but were liable for almost 60 percent of the tax liability of the entities.
Foreign-owned entities accounted for 25 percent of tax payable by the entities listed in the report.
The release of the data showing so many companies didn’t pay tax prompted Treasurer Scott Morrison and Revenue Minister Kelly O’Dwyer to issue a statement highlighting the government’s progress in implementing its Multinational Anti-Avoidance Law (MAAL).
MAAL powers “have so far forced 24 multinational companies to either restructure their arrangements or signal their intention to do so in order to ensure they pay tax on what they earn in Australia,” the two ministers said. “Several of these taxpayers were already under audit when the MAAL commenced and are now adopting commercially realistic and compliant tax structures in response to this law,” they said.
“For example, Google has publicly admitted it was under audit and has announced it is restructuring to comply with the MAAL.”
Jordan said the ATO data “doesn’t tell the whole story of a company’s tax affairs” and encouraged businesses to adopt a voluntary tax transparency code developed by the government’s advisory Board of Taxation.
The head of the Business Council of Australia, which represents the country’s largest companies, also recommended that companies adopt the code to explain their tax status better.
“The Australian public should feel assured that companies are meeting their tax obligations, which is why we’re encouraging our members to sign up to the voluntary Tax Transparency Code,” BCA chief executive Jennifer Westacott said Dec. 9.
The ATO data “should be interpreted with care,” she added. Companies don’t pay taxes on income, she said. “They pay it on profits after paying all expenses.”
Tax specialists also backed the calls for large companies to consider adopting the transparency code as a way of avoiding a misleading impression of their tax affairs. The tax office’s report doesn’t provide crucial information such as the extent to which total revenue includes foreign earnings taxed at a different company tax rate, noted Karen Payne, chief executive of the Board of Taxation.
“The code actually helps to fill those gaps,” she told Bloomberg BNA by phone just ahead of the release of the ATO data.
Companies that have signed the code, which was endorsed by the government in May, include BHP Billiton, Rio Tinto, Shell, Qantas Group, Woodside Petroleum and the country’s ’big four’ banks—ANZ, Commonwealth, NAB and Westpac.
Nevertheless, widespread advocacy of the code has yet to resonate with many large businesses, particularly foreign-owned ones, and it so far has only 60 signers.
“We’ve had mixed results in terms of the response,” Payne acknowledged. “We are very pleased with the take-up that we’ve seen from the Australian multinationals,” she said, but acknowledged a “much lower take-up response with both private and with foreign multinationals.”
Still, “we haven’t given up hope on their willingness to participate,” she said.
The absence of foreign multinationals could simply reflect a lag, due to the fact that Australian tax matters are competing with other global tax activities, Payne suggested. And some foreign multinationals might already be producing transparency reports in response to developments in jurisdictions such as the U.K., without having formally adopted the Australian code, she said.
In the case of private companies, many might feel daunted by the detailed reports released by public company signatories to the code, she said. But she hopes that once a few pioneering private companies demonstrate it is possible to satisfy code requirements with quite a succinct document, this view might change.
If companies don’t adopt the code in greater numbers, it could prompt the government to take further action, Payne said. “I think it is fair to say there may be consequences for those who don’t adopt the code voluntarily,” she said.
“Ultimately that is a question for government,” she said. “Just thinking through the process intuitively, if you don’t get the take-up of the voluntary code there are two possible reactions.”
“Someone may decide it should be a mandatory code for everyone. And alternatively, someone may decide if you are not prepared to provide information on a voluntary basis then you will be a subject to a mandatory code.”
Paul McCartin, Melbourne-based tax partner with PricewaterhouseCoopers, told Bloomberg BNA that companies should treat tax transparency as “the new normal,” particularly in Australia, where a high-profile Senate inquiry into corporate tax avoidance is entering its third year.
Adopting the transparency code is likely to result in an incremental increase in disclosure for most companies, leading in particular to the provision of more information on tax strategy and governance, he said.
There were likely to be several reasons why foreign multinationals have so far shown little interest in it, McCartin said.
Australia-headquartered companies generally consider “they have got a good story to tell and a relatively easy story to tell, so there is no real concern about disclosing their tax performance,” he said.
In the case of foreign multinationals, it is partly “a cultural issue, they are not used to disclosing so much about their tax affairs,” he said. “It does take a little while to get those companies more comfortable that transparency is something that they want to do in Australia.”
As well, it can be a struggle within an organization to prepare a detailed, transparent report on a complex issue like tax, McCartin said.
“We’ve had anecdotes of tax managers doing the first draft of the disclosure, and then it goes to the legal division for review, then it goes to corporate affairs for review, and various other departments,” he said. “And the end result can be quite different to what the tax manager drafted in the first instance.”
A further factor is that, for a foreign multinational, Australia is often a very small part of the business, so the local operations “just don’t have the profile within the organization” to make their case for signing up to the code, he said.
“Getting momentum within a large organization is difficult,” McCartin said. “It’s just getting the rest of the organization to appreciate that the Australian landscape is quite different to other parts of the world. Tax has such a high profile in Australia compared to other countries.”
He added that there can also be extra anxiety for business-to-consumer corporations contemplating adopting the code.
A business-to-business operation is “a bit more insulated” from any criticism that might emerge because of greater tax-arrangement disclosure, compared with some B2C companies, he said.
McCartin added that if the code or a version of it became mandatory because of low voluntary adoption, it could well become less effective, and more onerous.
If there is an obligation to follow it, he said, “every company may default to what is the mandatory threshold.”
Responding to it would become a compliance issue that “just falls to the tax function,” rather than being something that leads to active engagement at the board level. Consequently, PwC is encouraging boards to discuss adopting the code.
“Our advice to companies is that they should actively consider it,” he said.
To contact the reporter responsible for this story: Murray Griffin in Melbourne at email@example.com
To contact the editor responsible for this story: Penny Sukhraj at firstname.lastname@example.org
The Corporate Tax Transparency Report for 2014-15 is at https://data.gov.au/dataset/corporate-transparency.
Details on the Voluntary Tax Transparency Code are at http://taxboard.gov.au/current-activities/transparency-code-register/.
Copyright © 2016 The Bureau of National Affairs, Inc. All Rights Reserved.
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