Hundreds of companies have reduced their tax bills to zero, according to the Australian Taxation Office’s latest corporate tax transparency data.
Key points:
- The proportion of entities with nil tax payable has decreased over the past three years, from 34 per cent in 2016–17 to 32 per cent
- The ATO confirmed it had, for the first time, invoked the Diverted Profits Tax law to fight multinational tax avoidance
- Australian public and foreign-owned entities have a higher portion of “nil tax payable” when compared to Australian private entities
Of the 2,311 entities in scope for the 2018–19 transparency report, which looks at the situation before the COVID-19 pandemic, 741 entitles (32 per cent) did not pay any tax.
But the ATO said some entities belonged to a larger group where at least one corporate in the group did pay tax, and when that was considered, the percentage with nil tax payable dropped to 22 per cent (449 entities).
Over of all the entities that reported, 1,570 entities combined paid tax totalling $56.1 billion in 2018–19, which was $3.8 billion than the previous year and largely due to mining companies facing increases in commodity prices.
At the same time as reporting the data, the ATO confirmed it had, for the first time, invoked powers given to it under the Diverted Profits Tax (DPT).
It has hit one major company with a tax bill under this law and is eyeing the arrangements of several others.
Known unofficially as the ‘Google tax’, the DPT was introduced under former Liberal treasurer Joe Hockey.
Known unofficially 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 hit companies it deems to be engaging in “contrived arrangements” with a 40 per cent tax on all profits.
It was one of the more recent powers introduced by the Coalition to fight multinationals, on top of the Multinational Anti-Avoidance Law (MAAL) which has seen a number of companies including Facebook and Google restructure their tax bills.
These laws come on top of previous transfer pricing laws introduced under the former Labor government, which has been another one of the main powers the agency uses to fight companies.
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Ms Saint said over the past 12 months, “a small number of DPT matters have advanced significantly with one progressing to an assessment”.
She could not disclose the name of the company or how much the tax assessment was worth.
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She said it was now up to the company whether it would pay up or fight the ATO in court.
The ATO’s annual report data shows large companies typically opt to settle with the ATO rather than fight it out in court, but this could be different in cases where the DPT applies as it shows a serious alleged breach of the law.
And typically the DPT applies when the company is not being cooperative with the ATO.
Ms Saint could not go into the specifics of the tax assessment, but said the DPT law prevented multinationals from reducing the amount of tax they pay by diverting profits offshore through “contrived arrangements with related parties”.
She also noted in December 2015 the ATO issued a taxpayer alert about contrived arrangements involving the use of offshore entities.
Ms Saint said some companies split the offshore entities into two to avoid attribution of income back to Australia.
ATO deputy commissioner Rebecca Saint says over the past 12 months they have singled out companies in breach of the Diverted Profits Tax.(Supplied.)
She said these arrangements were being scrutinised by the ATO’s main unit fighting large companies, the Tax Avoidance Taskforce.
Since its inception, the taskforce has raised $19.8 billion in tax liabilities and collected $11.2 billion from large public groups, she said.
And the Multinational Anti-Avoidance Law (MAAL) had resulted in 44 taxpayers restructuring to recognise sales in Australia.
“These taxpayers are now collectively booking more than $8 billion in additional sales in Australia and paying more than $100 million each year in additional income tax compared to 2015-16,” Ms Saint said.
However, the OECD’s plan to raise $US100 billion ($134 billion) more globally by more aggressively taxing digital giants such as Google, Apple, Facebook and Amazon has been delayed due to the COVID-19 pandemic.
Governments worldwide have been unable to agree on a plan to tax digital giants or proposals to enforce a global minimum tax.
Australia had been pondering introducing its own digital tax, but Treasurer Josh Frydenberg had said the Government would wait for the OECD’s multilateral plan before introducing any domestic measures.
In the meantime, Google, along with Facebook and a number of other multinationals, have continued their long-standing practice of counting revenue in low-tax Singapore.
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Elysse Morgan speaks to Nassim Khadem about Google and Facebook’s taxes.(Elysse Morgan)
Eighty companies paid zero tax for six years in a row
Ms Saint said since the ATO started collecting corporate tax data in 2013-14, every year there were 80 companies reporting zero tax.
While some of these 80 companies had legitimate reasons for paying zero tax six years in a row, others did not.
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“All of the industry sectors have representation in that 80 and what we do see is some sectors such as oil and gas do have a higher number of entities within that 80,” Ms Saint said.
“Some of them did take advantage of tax planning opportunities as well,” Ms Saint said, adding the ATO had since tackled these with big wins such as the Chevron court case.
But she said tax avoidance and profit shifting happened more widely, with some companies failing to account for economic value created in Australia, such as intellectual property.
Ms Saint told ABC News some companies were still using tactics including mispricing loans and channelling income into low-tax jurisdictions such as Singapore.
ATO data provided to ABC News earlier this year showed that 181 companies across the resources, e-commerce, pharmaceutical, health and science sectors were hit with $2.5 billion worth of tax bills during the 2020 financial year.
About $1.5 billion of the $2.5 billion is being disputed by 26 different taxpayers.
In addition to the $2.5 billion in assessments raised in financial year 2020, there are still outstanding tax disputes from the prior financial year.
About $1.3 billion of tax bills from the 2019 financial year remain in dispute.
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This is a slight decline from the $1.16 billion paid by nine corporate entities in 2017–18, which Ms Saint said was primarily due to a fall in the oil price.
Of the 2,311 corporate entities covered in the report, 1,320 are foreign-owned companies (with an income of $100 million or more), 527 are Australian public companies and 427 are Australian private companies.
Australian public and foreign-owned entities have a higher portion of “nil tax payable” when compared to Australian private entities.
The proportion of entities with nil tax payable has decreased over the past three years, from 34 per cent in 2016–17 to 32 per cent both this year and last year.
Corporate entities with an income of more than $5 billion represent around 2.5 per cent of the corporate transparency population and account for around 55 per cent of tax payable ($30.9 billion).
Corporate entities with incomes between $250 million and $5 billion represent the largest portion (almost 56 per cent) of the corporate transparency population by count, and also account for 40 per cent ($22.5 billion) of the tax payable.
Ms Saint said company financial accounts do not always give the full picture of tax positions.
Some legitimate reasons for not paying tax, she said, included utilising losses from prior years, or projects operating in a start-up phase.
Of the entities that didn’t pay tax:
- 293 entities (13 per cent) reported an accounting loss
- 136 entities (6 per cent) reported an accounting profit but reconciliation items (for example, tax deductions allowed at higher rates than accounting permits) resulted in a tax loss
- 58 entities (3 per cent) reported a taxable income but were also entitled to offsets (such as the research and development incentive) at least equal to the tax otherwise payable
- 254 entities (11 per cent) reported a taxable income but prior-year losses were available to deduct against that profit, so no tax was payable
- The remaining 741 entities (32 per cent) reported nil tax but the data does not give a reason.
Ms Saint said, overall, most corporates were compliant with the law and some multinationals also voluntarily provide public information about their tax affairs.
She said the ATO’s “Justified Trust” program, “assures that the largest 1,100 corporate groups pay the right amount of tax”.
“Taxpayers that achieve low assurance ratings are subject to intensive scrutiny and investigation,” Ms Saint said.
Next year’s corporate tax transparency report will reflect the economic impacts of COVID-19.
Ms Saint said while the mining sector would likely continue to have paid large amounts of tax during the recession, other parts of the economy could report sharp declines.