09/12/21

AUSTRALIA: More big companies paid no tax during the COVID crisis, according to ATO transparency data.

As published on abc.net.au, Thursday 9 December, 2021.

The number of Australian public companies that paid no tax in 2019–20 has risen during COVID-19 lockdowns, according to the Australian Taxation Office (ATO).

In total, 782 (33 per cent) of companies paid zero tax, according to the ATO's latest corporate tax transparency report for 2019-20.

The proportion of all entities with nil tax payable has decreased from 36 per cent in 2013–14 to 33 per cent in 2019–20.

But the ATO says there was a significant increase in Australian public companies that paid nil tax in 2019–20, with service industries, transport and financial asset investing sectors badly impacted by COVID-19 lockdowns.

The data comes as the ATO continues to battle large companies over unpaid taxes, with ATO deputy commissioner Rebecca Saint telling ABC News that 122 companies had assessments raised against them during the 2021 financial year, to the value of $3 billion.

Of that, $2.5 billion is being disputed by 15 companies.

Ms Saint said the agency was concerned that some companies were still using tactics including mispricing loans and shifting income into low-tax jurisdictions such as Singapore.

The ATO tax transparency report examined 2,370 corporate entities, of which:

• 1,378 are foreign-owned companies with an income of $100 million or more
• 513 are Australian public entities with an income of $100 million or more
• 479 are Australian-owned resident private companies with an income of $200 million or more.

Of the 2370 entities that reported to the ATO, 1588 (67 per cent) paid tax, 371 (16 per cent) incurred an "accounting loss", 52 (2 per cent) used offsets, 237 (10 per cent) used losses from a prior year to offset against, and 782 (33 per cent) did not pay any tax.

Despite ongoing disputes with big business, the ATO said there was a slight increase in tax paid by large companies in 2019-20.

Large companies paid a combined total of $57.2 billion, or about 65 per cent of all corporate income tax in 2019-20.

Compared to 2018–19, this represented a net increase of 59 entities (2.6 per cent) and an increase in tax payable of about $1.1 billion (2 per cent), driven largely by higher mining company revenue.

Some of the $2.5 billion in disputed tax bills for 2021 have already been paid to the ATO under a 50:50 arrangement.

There's also significant money from previous tax years still under dispute.

For 2020, about $1.5 billion remains in dispute covering 23 different taxpayers.

For 2019, about $1 billion remains in dispute covering 13 different taxpayers.

"We're concerned that these transactions do not reflect what independent parties would do in the real world, and that greater amounts should be subject to tax in Australia," Ms Saint said.

While the practice of shifting profits to low tax or no tax jurisdictions was not limited to any specific industry sector, she said "there are some sectors that we do observe higher risk for profit shifting", and this included the mining and oil and gas sectors.

In 2019-20, the growth in tax payable was largely driven by the mining sector, which accounted for about 44 per cent of tax payable.

Miners had done well off the back of increases in iron ore prices during the period.

Next year's report (2020-21 data) would give a clearer picture of the COVID impact on large companies.

Ms Saint said the agency was "very conscious to ensure that the exports of commodities are getting the right amount [of tax] in Australia".

"There's some other issues like related party finance arrangements that can occur across any industry sector," she said.

"[For example] when you have an inter-group loan … and the interest rate has been mispriced."

Ms Saint said the ATO had a big win against Chevron some years ago, but recently lost a tax battle against Australia's biggest coal producer Glencore.

The Tax Commissioner had argued that dealings between Swiss-based Glencore International AG and its Australian subsidiary breached transfer pricing rules in relation to the sale and purchase of copper concentrate in the 2007 to 2009 years.

The Federal Court in 2019 rejected aspects of the Commissioner's interpretation of the relevant transfer pricing rules.

It found that the terms operating between the Australian copper mine and its Swiss trader parent to calculate the price at which the mine sold its entire copper concentrate production were within an "arm's length" range.

Earlier this year, the High Court dismissed a request for special leave by the ATO (to appeal the decision) in the Glencore case. It was a landmark victory for the commodity giant in its long-running battle with the ATO.

Ms Saint said legal cases are costly for the ATO, noting the agency spent $10 million on the Chevron case alone. She said "the big takeaway" from the Glencore tax case was that the agency needs to have strong evidence gathering.

Separate to the court case, a recent report by the Centre for International Corporate Tax Accountability & Research (CICTAR) and Tax Justice Network handed to a parliamentary inquiry said that Glencore may avoid hundreds of millions in tax payments to the Australian Government, leaving the community short changed.

But Glencore has rejected that CICTAR report, stating that the company does not "enter into artificial arrangements in order to avoid taxation" or engage in aggressive tax planning.

The ATO is also pursuing several cases using its Diverted Profits Tax (DPT) legislation powers, with these cases potentially going before the courts.

Known unofficially as the "Google tax", the DPT was introduced under former Liberal treasurer Joe Hockey.

It allows the ATO to hit companies it deems to be engaging in "contrived arrangements" with a 40 per cent tax on all profits.

The Coalition had also introduced 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.

Ms Saint said because the DPT investigations were ongoing investigations, she could not reveal exactly how many cases were afoot and the nature of the industries involved.

But some of the assessments may be challenged by taxpayers.

Ms Saint said while large company tax disputes were afoot, the Tax Avoidance Taskforce had collected more than $10 billion in tax from public and multinational businesses since its inception in 2016 and had it driven "improved tax compliance".

Taxpayers can also lock in their tax payment for a period of about three or five years via an "advanced pricing agreement", or APA.

As of June 30, there were 101 companies with active APAs.

Globally, leaders of the world's biggest economies in October endorsed a global minimum tax on corporations in a bid to discourage companies from profit shifting to lower tax countries.

The G20-endorsed deal, to have a minimum corporate tax rate of 15 per cent, fell short of US President Joe Biden's original idea to have a minimum rate of 21 per cent.

The ATO report also showed that corporate entities paid $881 million in Petroleum Resources Rent Tax (PRRT) in 2019-20.

This is a slight decrease from the $1.06 billion paid by 11 corporate entities 2018–19.

The decline in PRRT, the ATO said, was primarily due to a fall in oil prices.

Australian public and foreign-owned entities had a higher portion of "nil tax payable" when compared to Australian private entities.

Australian public entities contributed the most tax paid at 62.8 per cent, foreign entities followed at 28.9 per cent and private entities contributed the remaining 8.3 per cent.

But the ATO said that in 2019-20, private entities contributed the most to the growth in tax payable ($1.06 billion).

Australian public entities also contributed $119 million in growth, while foreign entities had a decline in tax paid of $12 million.

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.

A separate report released by the Australian Securities and Investments Commission (ASIC) this week found payments under the JobKeeper wage subsidy scheme totalled more than $90 billion and flowed to thousands of listed and unlisted companies as well as charities.

Listed companies received $1.65 billion of JobKeeper in the 2020 financial year and $2.56 billion in the 2021 financial year. They repaid $26.8 million in 2020, and $241 million in 2021.