In efforts to increase the “public awareness of corporate tax issues,” tax transparency has been a popular policy option to “maintain public pressure on aggressive tax practices”. Whilst the focus has typically been on large multinationals, broader tax transparency measures that could apply to Private Groups are far from being ruled out.
ATO disclosure of tax information
To date, there have been a number of tax transparency measures that have already impacted private groups. The release of tax information for certain private companies has perhaps been the most publicised, with the first round of the report evidencing that “30 per cent of large private companies pay no corporate tax”.
Under these tax transparency laws, the ATO must disclose the total income, taxable income and tax paid for private companies earning over $200M of annual income. The next round of data in relation to the 2015 income year is expected to be released shortly. In its report regarding this law, the Senate Economic Reference Committee (SERC) has recommended to bring down the annual income threshold to $100 million. This would mean that a greater number of Private Groups would be captured by the threshold if this recommendation was to be adopted. Whilst the lower threshold has been debated by policymakers in the past, its renewed focus is an example of equalising the application of tax transparency measures between private and public groups.
Voluntary tax disclosure code
The voluntary tax disclosure code (Code) is another tax transparency measure that has been recently implemented. Developed by the Board of Taxation (BoT), the Code is designed to apply to:
- ‘large businesses’ with Australian turnover of $500M or more; and
- ‘medium businesses’ with Australian turnover of $100M to $500M.
The terms of reference provided by the Government to the BoT for the development of the Code recognised that mandatory or voluntary public disclosure may not be appropriate for certain Australian-owned private companies. However, the report prepared by BoT said little else about Australian owned Private Groups. Notably, there was no express carve out from the Code for Private Groups. However, the Code is voluntary…at least for now.
As a “minimum standard” the Code recommends large and medium businesses to disclose a reconciliation of accounting profit to income tax expense and effective tax rates (Australian only and global, if applicable). Large businesses also have the additional requirement of disclosing tax policy, strategy and governance, total tax contributions and international related party dealings.
The effectiveness of the Code has recently been called into question with only 36 companies signing up. Indeed, the SERC recommended the implementation of a mandatory code which requires Australian corporations and subsidiaries of multinationals to report financial information on revenue, expenses, tax paid, and tax benefits/deductions from government incentives. Again, the SERC did not recommend an exclusion from this proposal for Private Groups.
In addition to the recommendations in the formal report of the SERC, in their additional comments to the report, the Australian Greens called for the establishment of a public register of beneficial ownership. The proposed register of beneficial ownership would reveal the ultimate owners of trustees and incorporated entities where there is a public interest to do so.
The recommendations of the SERC and the additional recommendations of the Australian Greens have not been adopted by Government, however they do provide an indicator of the political environment surrounding tax transparency.
Current ATO approach
Notwithstanding the aforementioned announcement and recommended tax transparency measures, the ATO has affirmed that it will only disclose information allowable by law, and it will not surpass this boundary. In ordinary circumstances, the ATO is unlikely to make a public comment on how a specific individual or entity has reached a certain tax position. Of course, this does not preclude the media from making comments or drawing conclusions on the tax affairs of certain Private Groups. Indeed, it is the interplay between the media and the new transparency measures which will be of most concern.
What do these tax disclosure measures mean for private groups?
Private groups should start thinking about how increasing tax transparency may impact their business, in particular when it comes to managing public expectations on what “fair taxation” may mean, and how tax transparency aligns with any governance frameworks in place (please refer to our Does your tax governance framework live up to ATO expectations?).