Hundreds of companies have reduced their tax charges to zero according to the latest corporate income tax transparency data from the Australian Income Department.
- The proportion of companies that do not have to pay taxes has fallen in the last three years from 34 percent in 2016 to 17 percent to 32 percent
- The ATO confirmed that it was the first to invoke the Diverted Profits Tax Act to combat multinational tax avoidance
- Australian public and overseas companies have a higher proportion of “zero taxes” compared to Australian private companies
Of the 2,311 companies that fall within the scope of the 2018-19 Transparency Report, which deals with the pre-COVID-19 pandemic, 741 beneficiaries (32 percent) have not paid any taxes.
However, the ATO said some companies belonged to a larger group where at least one company in the group was paying taxes, and when that was taken into account, the no-tax percentage dropped to 22 percent (449 companies).
Of all the companies reported, 1,570 companies paid taxes totaling $ 56.1 billion in 2018-19. That was $ 3.8 billion more than last year, mainly due to increased raw material prices at mining companies.
At the same time as reporting the data, the ATO confirmed that it had for the first time asserted powers conferred on it under the Diverted Profits Tax (DPT).
It has hit a large corporation with tax legislation under this law and is watching the agreements of several others.
Unofficially known as the “Google Tax”, the DPT was introduced under former Liberal Treasurer Joe Hockey.
Unofficially known as the “Google Tax”, the Diverted Profits Tax (DPT) was introduced under former Liberal Treasurer Joe Hockey. (AAP: Gary Schafer)
It allows the ATO to make what it believes are “made up agreements” with a 40 percent tax on all profits.
It was one of the most recent powers of the Coalition to Combat Multinational Corporations, in addition to the Multinational Anti-Avoidance Act (MAAL), which saw a number of companies including Facebook and Google restructuring their tax charges.
These laws complement the earlier transfer pricing laws introduced under the previous Labor administration. This was another of the major forces the agency uses to fight corporations.
Companies hit with tax law under DPT could go to court
Ms. Saint said over the past 12 months, “A small number of DPT matters have moved on significantly, with one moving to an assessment.”
She was unable to reveal the name of the company or the value of the tax assessment.
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She said it was up to the company to decide whether to pay or fight the ATO in court.
The data from the ATO Annual Report shows that large companies typically choose to come to an agreement with the ATO rather than arguing them in court. However, this may be different in cases where the DPT applies as it is a grave alleged violation of the law.
And usually the DPT applies if the company does not cooperate with the ATO.
Ms. Saint was unable to go into the details of the tax assessment, but said the DPT law prevents multinational corporations from reducing the amount of tax they pay by diverting profits offshore through “fabricated related party agreements”.
It also found in December 2015 that the ATO issued a tax warning about fabricated agreements regarding the use of offshore companies.
Ms. Saint said some companies had split the offshore operations in two to avoid repatriating revenues to Australia.
ATO Deputy Commissioner Rebecca Saint says that for the past 12 months they have selected companies that violate the tax on diverted profits. (Delivered)
She said these agreements are being examined by the ATO’s main anti-corporate unit, the Tax Avoidance Taskforce.
Since its inception, the task force has raised $ 19.8 billion in tax liabilities and raised $ 11.2 billion from large public groups, she said.
And the Multinational Anti-Avoidance Act (MAAL) had resulted in 44 taxpayers being restructured to record sales in Australia.
“These taxpayers now collectively register more than $ 8 billion in additional sales in Australia and pay more than $ 100 million in additional income taxes each year compared to 2015-16,” said Ms. Saint.
However, the OECD’s plan to raise $ 100 billion ($ 134 billion) globally by taxing digital giants like Google, Apple, Facebook and Amazon more aggressively has been delayed due to the COVID-19 pandemic.
Governments around the world have been unable to agree on a plan to tax digital giants or on proposals to enforce a global minimum tax.
Australia had considered introducing its own digital tax, but Treasurer Josh Frydenberg had said the government would wait for the OECD’s multilateral plan before introducing domestic measures.
Meanwhile, Google, along with Facebook and a number of other multinational corporations, have continued their longstanding practice of counting revenues in low-tax Singapore.
Space to play or pause, M to mute, left and right arrows to search, up and down arrows for volume.ClockDuration: 3 minutes 14 seconds3m 14s Elysse Morgan talks to Nassim Khadem about Google and Facebook taxes. (Elysse Morgan)
Eighty companies did not pay taxes for six consecutive years
Ms. Saint said that since the ATO began collecting corporate tax data in 2013-14, 80 companies have not reported taxes each year.
While some of these 80 companies had valid reasons not to pay taxes for six consecutive years, others did not.
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“All industries are in those 80 and we are seeing some sectors like oil and gas have higher numbers of companies in those 80,” said Ms. Saint.
“Some of them took advantage of tax planning as well,” Ms. Saint said, adding that the ATO has since addressed it with big wins like the Chevron lawsuit.
However, she said tax avoidance and profit shifting were more common, with some companies ignoring the economic value such as intellectual property created in Australia.
Ms. Saint told ABC News that some companies are still using tactics, including mispricing credit and channeling revenue into low-tax areas like Singapore.
ATO data, which was made available to ABC News earlier this year, showed 181 resource, e-commerce, pharmaceutical, health, and science companies hit a $ 2.5 billion tax burden in fiscal 2020 were.
About $ 1.5 billion of the $ 2.5 billion is paid for by 26 different taxpayers.
In addition to the assessments of USD 2.5 billion collected in fiscal year 2020, there are still tax disputes pending from the previous fiscal year.
Tax charges of around $ 1.3 billion from fiscal 2019 remain controversial.
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Eleven companies paid $ 1.06 billion in 2018-19.
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This is a slight decrease from the $ 1.16 billion that nine business units paid in 2017-18. Ms. Saint said this was mainly due to a drop in the price of oil.
Of the 2,311 companies covered in the report, 1,320 are foreign-owned companies (with incomes of $ 100 million or more), 527 are Australian public companies and 427 are Australian private companies.
Australian public and overseas companies have a higher proportion of “zero taxes” compared to Australian private companies.
The proportion of companies for which no taxes are payable has fallen in the last three years from 34 percent in 2016 to 17 percent in this and last year.
Businesses with incomes greater than $ 5 billion make up around 2.5 percent of the population for corporate transparency and account for around 55 percent of taxes payable ($ 30.9 billion).
Firms with incomes between $ 250 billion and $ 5 billion make up the largest portion (nearly 56 percent) of the corporate transparency population and account for 40 percent ($ 22.5 billion) of taxes payable.
Ms. Saint said the company’s financial accounts don’t always give the full picture of tax positions.
Some legitimate reasons for not paying taxes, she said, were to take advantage of losses from previous years or start-up projects.
From the companies that have not paid taxes:
- 293 companies (13 percent) reported a balance sheet loss
- 136 companies (6 percent) reported a book profit, but reconciliation items (e.g., tax deductions that were allowed at higher rates than accounting permits) resulted in a tax loss
- 58 companies (3 percent) reported taxable income, but were also entitled to offsets (such as the incentive for research and development) that at least equaled the tax otherwise payable
- 254 companies (11 percent) reported taxable income, but losses from the previous year could be deducted from that profit so there was no tax to be paid
- The remaining 741 companies (32 percent) did not report taxes, but the data gives no reason.
Ms. Saint said overall, most companies are compliant and some multinational companies are also volunteering to provide public information on their tax affairs.
She said the ATO’s Justified Trust program “ensures that 1,100 largest business groups are paying the right amount of tax”.
“Taxpayers who achieve low reliability ratings are subject to extensive scrutiny and investigation,” said Ms. Saint.
Next year’s corporate tax transparency report will reflect the economic impact of COVID-19.
Ms. Saint said while the mining sector would likely have continued to pay large amounts of tax during the recession, other parts of the economy could see sharp declines.