RSM Bird Cameron’s Simon Aitken provides helpful recommendations for companies preparing for this major shift in the Australian tax system.
The Australian tax system has traditionally included unconditional secrecy regarding taxpayer data. While this gives individuals and organisations conﬁdence that their ﬁnancial details won’t be shared, it also means that the tax reporting process is not as transparent as it could be.
In June 2013 Australia’s tax secrecy laws were amended, meaning the Australian Taxation Ofﬁce (ATO) must publicly report certain large company tax data. This applies to corporate tax entities (companies and entities taxed as companies) with an income exceeding $100 million.
The $100 million threshold is determined by reference to the ‘total income’ line (label 6-S) in the company’s tax return (or on the head company’s tax return for tax consolidated groups).
Certain speciﬁc income tax data will be published for large companies, whilst details of all Mineral Resource Rent Tax (MRRT) and Petroleum Resource Rent Tax (PRRT) payments will also be published.
At this stage all companies are included. This means listed, public unlisted, and private Australian companies, and non-Australian companies that lodge Australian tax returns. However, former Prime Minister Tony Abbott moved to exempt approximately 700 Australian private companies from this legislation. According to the former Prime Minister, this was to protect the Australian owners from potential kidnap threats. The Opposition suggested the move is to make it easier for these companies to avoid paying their fair share of tax. With Prime Minister Michael Turnbull at the helm, the action is currently in limbo.
In early July of this year, a Treasury consultation on Exposure Draft Legislation closed, so the question of excluding the data of Australian private resident companies and private company tax consolidated groups is with the government for a ﬁnal decision.
The Commissioner of Taxation says this proposal is in line with the original intent of the transparency amendments. However, these proposed amendments are attracting adverse commentary. If private companies are excluded, it will only be those that are private by reference to tax law, not all company law proprietary limited companies.
While the legislation was introduced in 2013, the ﬁrst disclosure is expected to happen in late November or early December 2015. The information will be uploaded to the www.data.gov.au website, and will be extracted from tax returns for the 20132014 income year. Affected companies received the draft information in September 2015, giving them the chance to make any necessary corrections before general publication.
One of the potential outcomes of this public disclosure, particularly for larger or wellknown companies, is media attention. The tax data, which has not been released in the past, will give media organisations and certain lobby groups a new insight into company ﬁnancials. This is likely to create public debate about tax policy, which was one of the policy’s key goals.
Companies that have, up until now, paid low effective tax rates, may need to consider making a pre-emptive statement before the data is released, to provide context for the inevitable public scrutiny.
The information is likely to be published as a simple list that includes the company name, Australian Business Number (ABN), total income, taxable income, and tax payable. Because no other information will be released, readers will be forced to draw their conclusions about the reasons behind a low effective tax rate without access to all the information.
For companies anticipating a low effective tax rate, it will be critical to have at hand information that balances the minimalist ATO reporting and explains the underlying commercial reasons for the lower tax rate. This could include foreign-sourced income, controlled foreign corporation (CFC) income,
accelerated depreciation rates, tax losses, R&D tax incentives, and more.
There are further moves towards increased transparency on the horizon. The ATO is independently developing a methodology to determine the ‘effective tax borne’ (ETB) by global groups on proﬁts from Australian sourced activities, including tax paid in Australia and overseas on those proﬁts.
The ATO is running a pilot study of 10 corporate taxpayers to determine whether a standardised approach can be developed that allows for an accurate comparison of the ETB by economically and functionally disparate groups. This is being based on earlier work done and responses made by the ATO to the Senate Economics References Committee, and aims to improve meaningful tax transparency, and ultimately improve community conﬁdence in the corporate tax system.
This ATO initiative can be seen as consistent with the Treasurer’s May 2015 Federal Budget announcement that the Government would be working with business to develop a code for the greater public disclosure of tax information by large corporate taxpayers. Some large taxpayers already have a high level of tax disclosure—notably Rio Tinto, which has published a detailed ‘Taxes Paid’ report for a number of years. Other large corporates are following suit.
A more widely adopted domestic voluntary code would spotlight ‘aggressive tax planning’ strategies by corporates. G20/OECD BEPS Action Plan point 12 (if adopted internationally) calls for the mandatory reporting of aggressive tax strategies by corporates to their domestic Revenue Authority. The proposed voluntary code, together with Australia’s existing ‘reportable tax positions’ law, should see Australia meet the BEPS Action 12 requirements. But these measures are future developments.
Returning to the existing transparency measures, and whether or not amended to exclude private companies, there has been plenty of notice regarding the planned disclosures; companies that have not acted already must act now to prepare. Companies facing disclosure of their tax data should make sure they know exactly what ﬁgures are going to be released, and understand the story those ﬁgures will tell. These organisations must work with their tax advisors to gather the information necessary to explain the true position, deﬂecting potential negative media commentary.
Companies should not be afraid of the new tax disclosure rules, even if their effective tax rate is low. By providing contextual information that further explains the raw data, these organisations can protect or even enhance their reputation while continuing to minimise their tax burden. The key is to speak with an experienced tax advisor and plan proactively for the future.