Australian corporate tax compliance improves under agency efforts, ATO claims

By Doug Connolly, MNE Tax

The Australian Taxation Office states that its latest annual corporate tax transparency report, published December 10, demonstrates that voluntary tax compliance by large corporations is improving. In this respect, ATO highlights that under a recently launched compliance program, the percent of large corporations with a “high assurance” rating has increased from just 6% in 2019 to 49% in 2021.

“Corporates are placing a higher value on tax compliance,” ATO Deputy Commissioner Rebecca Saint said, “driving consistent and willing voluntary participation.”

The ATO attributes the improvements in compliance to the work of the Tax Avoidance Taskforce, which it states has contributed to collecting more than AUD 10 billion (USD 7.2 billion) in additional tax from public and multinational companies.

Enhanced tax compliance program for large businesses

With the resources of the Tax Avoidance Taskforce, the ATO has established the “justified trust” program, under which certain large businesses must demonstrate that they are paying the correct amount of tax with objective evidence. ATO introduced the program in 2015 for the “Top 100.”

The Top 100 consists of public and multinational businesses identified by ATO based on the significance of their economic activity and corporate income tax responsibility in Australia. The population changes annually and does not necessarily total 100 (e.g., there were 77 in the “Top 100” in 2000).

The ATO’s third annual “Top 100” report on the program showed an increase in the percent of taxpayers achieving a “high assurance” rating – from 6% in 2019 to 49% in 2021. About a further 30% received a “medium assurance” rating, bringing the total with medium or high assurance ratings to about 80%.

“We attribute this,” Saint explained, “to a combination of businesses recognising that investing in their tax governance has tangible real-world benefits – as well as a significant investment of time and resources by the ATO in scrutinising structures, transactions and tax governance frameworks.”

For those Top 100 businesses receiving “low assurance” ratings in the program, ATO undertakes comprehensive reviews and is likely to engage in audits.

ATO does not disclose ratings of individual taxpayers, but some companies might choose to disclose their positions. “We are seeing businesses with ‘high assurance’ tax ratings informing their shareholders, employees and other stakeholders,” Saint said.

Other corporate tax metrics

The ATO estimates the tax gap for corporate groups (i.e., taxes that corporations theoretically owe but have not paid) to equal 4.3% of taxes owed, or AUD 2.6 billion (USD 1.9 billion), after ATO engagement.

Of the more than 2,000 reviewed entities in the tax transparency report, a third (33%) paid no income tax in the past year. However, ATO cautions that there are several reasons why companies may pay no income tax, including lack of profitability or carryover losses. Moreover, this number only reflects information from the returns filed, before any further compliance or intervention by ATO.

The companies reviewed in the annual transparency report accounted for about two-thirds (65%) of all corporate income tax paid in Australia in the past year. The reviewed companies included 1,378 foreign-owned companies with an income of at least AUD 100 million (USD 71.6 million), 513 Australian public entities with an income of at least AUD 100 million, and 479 Australian-owned resident private companies with an income of at least AUD 200 million (USD 143 million).