Last week, the Australian Taxation Office (ATO) published the fourth year of the Corporate Tax Transparency Report for the 2016-17 income year. This year’s report includes:1,721 Australian public and foreign-owned companies with an income of $100 million or more, and 388 Australian-owned resident private companies with an income of $200 million or more.
It also includes 14 entities with Petroleum Resource Rent Tax (PRRT) payable.
The name and ABN of each company is listed, as well as information taken from three labels of their tax returns: total income, taxable income and income tax payable.
The biggest contributor to the $7.5 billion rebound in company tax collections from 2015-16 was the mining, energy and water sector, which contributed more than 75 percent of the additional tax. Companies in this sector represented 11 percent of the companies included in the 2016-17 report, but paid 26 percent of the company income tax (compared to 16 percent in 2015-16.) This serves to highlight not only the sector’s contribution to the corporate tax base, but also the volatility of that contribution.
The proportion of companies not paying tax dropped in 2016-17. More than a third of the companies not paying tax in 2016-17 were utilising prior year losses.
Companies should review their data and understand the narrative underpinning their tax performance. This should be communicated with key internal stakeholders – in particular where numbers differ from the likely initial expectations. For example, where tax on taxable income is not equal to 30 percent. Tax leaders should also engage internally to prepare the business to address questions from external parties such as employees, customers and wider stakeholders.
The ATO also confirmed high levels of compliance with PRRT obligations, with the gap estimate for the 2015-16 income year showing 98 percent of PRRT is paid voluntarily.
PRRT payable by entities within the tax transparency report rose by close to $100 million to $946 million in 2016-17 primarily due to higher oil prices. There were 14 entities in this population compared to nine in 2015-16.
The ATO expects PRRT payable will exceed $1 billion in 2017-18. On average in 2017-18, crude oil prices were up 25 percent and the Australian dollar was up 2.6 percent against the U.S. dollar.
Many taxpayers are linking their tax performance narrative in terms of the ATO’s published tax data to disclosures made in response to the Voluntary Tax Transparency Code. With the ATO’s Justified Trust program in full swing, Boards and Management of companies should consider how adopting the Code contributes to demonstrating good tax governance and transparency on an emerging aspect of Corporate Social Responsibility.
On the same day the ATO also published its tax gap statistics for large corporate groups (income of over $250 million) for the 2015-16 income year. The tax gap is the difference between the tax that the ATO collects, and what the ATO estimates it would have collected if all taxpayers were fully compliant with the ATO’s interpretation of the law.
The ATO has also re-stated its tax gap statistics for this group of taxpayers for 2009-10 through to 2014-15, based on new, improved estimation methods.
The statistics show that the net gap (after post-lodgement amendments, including those arising from ATO compliance activity) has decreased from around 6.5 percent of the tax that the ATO believes should have been paid in 2009-10, to around 4.5 percent of that amount in 2015-16.
However the difference between the gross gap and the net gap has widened – for 2015-16 the ATO believes its audit, review and other compliance activity, including its Justified Trust program, reduced the gross gap by more than 50 percent. In 2009-10 it was only able to reduce the gross gap by less than 30 percent.
The net gap for large corporate groups for 2015-16 stood at just over $1.8 billion. By way of comparison, the ATO estimated the net GST gap for 2016-17 at $5.2 billion, or nearly 8 percent of the tax that should have been collected.
For some, it may be even more interesting to compare the size of the tax gap for large corporate groups to the ATO’s estimate of the net personal income tax gap for 2014-15 of $8.7 billion (6.4 percent), and to the net PAYG withholding gap for 2015-16 of $3.3 billion – of which nearly two thirds was attributed to the impact of the black economy.
The question is, do these statistics provide an indication of where the ATO may focus its future activity, and also of where government will look to tightening of legislation to protect the tax base?