The tax office's transparency reporting is looking a little opaque

The Australian Taxation Office (ATO), in keeping with tax transparency laws, reported information for nearly 2,000 organisations, including the publicly, foreign and privately owned. However, crucial information was missing, and this keeps the public in the dark about tax avoidance.

According to the ATO, in information provided with this report, entities with taxable income or tax payable of zero or less are not disclosed because:

“confidentiality provisions prevent the ATO providing any additional information about particular taxpayers in the report”.

All tax returns are confidential, the contents aren’t available to the public. The transparency legislation is a departure from that rule and mandates that the ATO Commissioner discloses only five line items from the corporate tax return.

Because the tranparency legislation doesn’t include negative taxable income or tax payable which is zero (or less), the result is that this information remains confidential to the ATO. Instead, tax losses, as well as other tax offsets from taxable income, are reported under a different labels on the company tax return.

The data disclosed for each entity is limited to five labels on their tax returns: the entity’s name, ABN, total income (largely equivalent to accounting revenue), taxable income and tax payable. Details of amounts paid for the petroleum resource rent tax (PRRT) and the minerals resource rent tax are also included.

This year four more organisations were included in the report, which covers 2014/15 compared to 2013/14. However, 41 records for 2013/14 were included with this release, so the number of entities for 2014/15 may increase next year.

Overall, there are insignificant decreases in total income, taxable income and tax payable from last year. The largest decrease was in taxable income, which declined by 7.5% for the average entity, whereas the decline in tax payable was only 2.5%.

Despite the ATO’s best efforts in getting organisations to pay the correct amount of tax, the corporate tax collections slightly decreased from 2013/14 to 2014/2015. Entities are required to register for GST, and therefore receive an ABN, if their turnover (total income) is above $75,000. In this latest report another 24 entities did not have an ABN for both years, in contravention of the Tax Administration Act 1953.

The majority of organisations reported have tax payable at close to the company tax rate (30%), on taxable income, in both years.

Notwithstanding, there are 355 entities (including Mitsubishi Development, Lendlease Corp, Exxonmobil Australia, Virgin Australia, Citic Resources Australia, General Motors Australia and Vodafone Hutchinson Australia) that disclosed no taxable income or tax payable for both 2013/14 and 2014/15. That’s a huge A$427 billion of combined revenue these organisations paid no tax on over the two-year period ($214 billion in 2013/2014 and $213 billion in 2014/2015).

There were also 61 other entities (including Bluescope Steel, BHP Billiton Aluminium Australia, CSL, RACV and Boeing Australia) that reported taxable income but no taxes payable over the two years. This is despite reporting combined taxable income of almost A$5 billion (A$2.1 billion in 2013/14 and A$2.9 billion in 2014/15).

According to the ATO, these figures do “not necessarily mean tax avoidance, and assumptions about an entity’s compliance with their tax obligations, or those of their associated groups, cannot be made solely on the basis of this data”.

However, this brings into question the whole purpose of the Australian tax transparency laws. According to the explanatory notes to the legislation, the laws are based on the following grounds:

• to discourage aggressive tax practices
• to inform public debate about corporate tax policy
• to address concerns by the Group of Twenty (G20) and the Organisation for Economic Cooperation and Development (OECD) regarding tax base erosion and profit shifting by multinational entities.

The transparency reports may discourage aggressive tax policies, particularly the more extreme activities, but the limited disclosures do little to inform public debate about corporate tax policy. Based on these disclosures, users of these reports are limited to the view that the majority of entities on the list appear to be paying their fair share of tax, while those that are paying nothing, despite reporting billions in revenues and taxable income, are “not necessarily avoiding tax” according to the ATO.

For example, the reporting of taxable income but no tax payable may be the result of businesses applying carried forward tax losses, or the use of other tax offsets that are provided by the tax system.

Another reason for the high level of compliance with the tax regime is dividend imputation. This provides incentives for Australian-owned firms to pay tax on earnings at the full company tax rate.

The issue of companies accumulating large tax losses is controversial lately, especially in light of scrutiny of the PRRT. A recent ITF report suggested that Chevron’s Gorgon project has accumulated sufficient tax credits from such losses to offset any tax liability for the next ten to 20 years.

There is suspicion the A$17 billion cost blowout for the project is being artificially inflated through excessive interest deductions, debt loading, management fees and transport costs. The fact that losses can be carried forward to offset future tax liabilities makes the disclosure of losses as important for transparency as is the reporting of profits.

The ATO tax transparency reports provide useful information about the tax affairs of Australia’s largest entities, even if it is somewhat limited. It provides confidence that the largest and wealthiest entities are contributing their fair share of tax revenue to the common good.

However, the lack of disclosure around losses and other tax offsets is a black mark against the goal of tax transparency. This is particularly important considering annual revenues of over A$1.7 trillion are involved.

Roman will be online for an Author Q&A between 2 and 3pm on Tuesday, 13 December, 2016. Post any questions you have in the comments below.