Is Australia a global leader in the field of tax transparency? Tammy Eccles and Tony Gorgas recently explained the Australian measures to promote tax transparency, discussed some recent trends and considered what it means for multinational enterprises (MNEs) at The Tax Institute’s 2021 National Transfer Pricing Conference. Overall, it seems there is a growing appetite from the general public for more transparency, and an ever-increasing burden on MNEs and tax authorities to disclose tax-related data.
Tax transparency involves making information and data relating to an organisation’s tax affairs available to users outside of the organisation. In their paper,1 the authors focus on the public disclosure of tax information by MNEs. In this regard, Australia has arguably been a leader in tax transparency and is also a leading example of the movement of increasing transparency between taxpayers and the tax authorities, as well as from the tax authorities to the general public.
ATO’s corporate tax transparency report
The ATO is required by s 3C of the Taxation Administration Act 1953 (TAA) to publish information in an annual Corporate Tax Transparency Report (CTTR) about public and foreign-owned corporate entities with income exceeding $100 million and Australian private companies with income exceeding $200 million. The CTTR discloses tax information including the amounts of total income, taxable income, tax payable, as well as the names of entities who pay petroleum resource rent tax (PRRT) and the amounts of PRRT they pay.
The data is usually released in December and 2021 will see the seventh instalment of the report, covering data for the 2019–20 income year. It will be an anticipated report, as it will be the first year to reflect the effects of both the COVID-19 pandemic and the various economic support provided to corporate entities in response.
The rules contain some notable exclusions (eg ATO-initiated amendments to assessments after an audit) that may reduce the validity of general trends identified from the data. Along with the raw data, the ATO includes its own caveats on the consumption of the data, eg why some corporate entities pay no income tax. The appetite for more transparency continues although previous attempts to cast a wider net to disclose tax paid by private companies with lower turnover have been unsuccessful.2
Voluntary tax code
The Board of Taxation developed the Tax Transparency Code in 2016, which is a set of principles and minimum standards to guide the public disclosure of tax information by businesses. Under the code, companies sign up voluntarily to disclose a minimum standard of information, depending on the size of their businesses.
Large and medium businesses disclose the following quantitative information:
- a reconciliation of accounting profit to tax expense and to income tax paid or payable
- identification of material temporary and non-temporary differences, and
- accounting effective company tax rates for Australian and global operations, pursuant to Australian Accounting Standards Board (AASB) guidance.
In addition, large businesses disclose the following qualitative and quantitative information:
- approach to tax strategy and governance
- tax contribution summary for corporate taxes paid, and
- information about international related-party dealings.
Companies’ Reportable Tax Position Schedules
Some corporate taxpayers are required to lodge Reportable Tax Position Schedules (RTPS) as schedules to their Company Income Tax Returns. Those required to disclose include certain large public and private businesses headquartered in or operating in Australia. The RTPS involves the disclosure of 3 categories of reportable tax positions, including:
- Category A: tax positions for which there is uncertainty in tax return (broadly speaking, positions which are about as likely to be correct as incorrect, or are less likely to be correct than incorrect)
- Category B: uncertain tax positions disclosed in the financial accounts of the taxpayer or the global consolidated group, or
- Category C: specific arrangements, transactions and positions which have specified characteristics or are subject to ATO taxpayer alerts or practical compliance guidelines.
Categories A and B are triggered only when they meet specific materiality thresholds.
Transparency by the ATO to the public
The authors submit there is growing transparency from the ATO as the regulator to the public, which forms part of the “pillar” of transparency relating to establishing and maintaining trust between the ATO and the public. In addition to the CTTR (see above), the ATO publishes information annually including:
- an annual report setting out how the ATO has performed in a particular year
- tax gap and performance estimates across market segments
- aggregate quantum of annual settlements reached with taxpayers by market segment, and
- reports on the findings of the ATO’s assurance programs, such as its Top 100 and Top 1000 assurance review programs.
Recent developments and global trends
Recently, there has been an increase in mandatory public disclosure requirements worldwide. Further, tax has played an increasing role in the evolving topic of environmental, social and governance (also referred to as ESG), with implications for the decision-making processes of investors. There are also critical interdependencies between tax transparency and ongoing international tax reform, as well as the role of data and technology as enablers in promoting tax transparency.
To illustrate, the Australian subsidiaries of global tech giants such as Amazon, Google, Uber, Facebook and Airbnb have for several years been the subject of public scrutiny (in particular following the ATO’s publication of CTTR), with a focus on the amount of taxes paid, compared to the revenue earned from Australian customers. This is an example of how increased transparency is placing pressure on international tax reform, and the interdependency between the 2.
The authors consider that Australian MNEs maybe better placed on the international playing field to deal with increasing transparency requirements, because Australia and the ATO have an advanced agenda around transparency, trust and governance.
Why is tax transparency so important?
The central purpose of the tax transparency agenda is to foster trust in the community of taxpayers about compliance with tax rules, their contributions to tax systems where there is value creation and market participation, and their general attitude towards contributing to society through their tax contributions. It would also involve fostering trust in governments and the ATO regarding their administration of tax systems.
Tax transparency is inherently focused on fostering trust, however there may be instances where public disclosure of information could exacerbate public trust and confidence. Further, as we see increased transparency by MNEs to the public, a necessary implication is likely to be increased transparency of tax authorities (such as the ATO) to the public regarding their approach to dealing with information in the public domain.
Increasing transparency and its impact for MNEs and the ATO
The public’s appetite continues for greater transparency from both MNEs and the ATO. To illustrate, the public had requested disclosure of data related to JobKeeper support given to large taxpayers. Legislative amendments from the Senate have since been agreed to via the Treasury Laws Amendment (2021 Measures No 2) Bill 2021, which requires certain listed entities to disclose JobKeeper information.
One should also be mindful of the myriad of measures promoting tax transparency in general, such as the expanding third party reporting regime in Div 396 of sch 1 to TAA. Subdivision 396-A of sch 1 to TAA gives effect to the FATC Agreement between Australia and the US, under which Australian financial institutions are required to give the Commissioner certain information about US reportable accounts. Subdivision 396-B of sch 1 to TAA requires certain third party entities to report information to the ATO about transactions that could have tax consequences for entities. Subdivision 396-C imposes obligations on Australian financial institutions to report certain information about accounts for foreign residents under the OECD Common Reporting Standard.
Most recently, a third party reporting regime has been proposed for the sharing or gig economy, requiring online platforms to report information of their members on the platforms. The proposed amendments, contained in the Treasury Laws Amendment (2021 No 7) Bill 2021, are currently before the parliament.
From the above developments, it can be seen that there is increasing pressure on stakeholders to become more transparent and disclose tax-related information. This trend could have implications for future tax policy developments. We may see policy makers and stakeholders considering incorporating issues of tax transparency and related compliance obligations as relevant considerations when formulating new tax measures.
Wolters Kluwer has commentary in the Australian Federal Tax Reporter and CCH iKnow on various measures to promote transparency, including:
- the CTTR ¶961-310
- the Tax Transparency Code ¶961-311
- the RTPS — ¶79-329
- Subdiv 396-A of sch 1 to TAA on FATCA reporting from ¶978-933/5
- Subdiv 396-B of sch 1 to TAA on the third party reporting regime from ¶978-933/90, and
- Subdiv 396-C of sch 1 to TAA on the OECD Common Reporting Standard from ¶978-933/200.
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1 Eccles, T and Gorgas, T, KPMG Australia, “Increased transparency, future trends and what it means for multinational enterprises”, The Tax Institute 2021 National Transfer Pricing Conference, 9 – 10 September 2021 (online).
2 The private member’s Bill, the Taxation Administration Amendment (Corporate Tax Entity Information) Bill 2018, that proposed to reduce the threshold for private companies from $200 million to $100 million, has so far failed to gain parliamentary support.