Top 100 engagement

The top 100 population:

• consists of public and multinational businesses and superfunds that have substantial economic activity related to Australia
• consists of the largest contributors to corporate income tax, excise, and petroleum resource rent tax (PRRT) collections
• also includes some of the largest remitters of GST.

Based on 2021 income tax returns, top 100 taxpayers paid about $41.9 billion or 39% of all corporate income tax. The largest 10 top 100 taxpayers paid about $34.6 billion or 82% of corporate income tax paid by the top 100 population.

Given Australia’s highly concentrated corporate tax base and the significant impact top 100 taxpayers can have on the health of our tax system, we engage with them on an ongoing basis to manage their compliance and assure their tax performance.

We review and moderate the top 100 population annually. Top 100 taxpayers are initially identified based on the size of their Australian operations. Other factors we consider include the amount of income tax, excise and GST reported and the influence the taxpayer may have on their market segment.

Our engagement with top 100 taxpayers is tailored based on the Action Differentiation Framework (ADF). Our understanding is informed by:

• their size
• the transparency of their engagement with us
• the choices and behaviours evidenced in their tax affairs
• the level of risk they exhibit
• the level of assurance we have previously obtained.

Note: In 2023 there were 84 economic groups in the top 100 population. This number varies year-on-year and some groups have more than one taxpayer in the top 100. Accordingly, the annual number of entities reviewed under the justified trust program does not equal 100.

Since the commencement of the justified trust program in 2016, our justified trust ratings have provided a credible and objective mechanism for organisations to test and assess the effectiveness of their own tax governance processes. It also helps organisations understand how our assessment of their tax profile compares to their peers in the market.

Top 100 taxpayers that obtained overall high assurance ratings can achieve reduced compliance costs and are less likely to have intensive tax disputes with us. Taxpayers can also rely on our high assurance rating to mean that we will generally not apply compliance resources to those issues over which we have justified trust, unless in exceptional circumstances.

Our one-to-one engagements with the top 100 population have resulted in an increase in the income tax assured and the economic activity assured in 2023. As of 30 June 2023, we have assured approximately $30.2 billion in income tax for top 100 taxpayers for the 2020–21 income year. These results reflect our growing confidence over an increasingly larger portion of the corporate tax base and contribute to the sustainable reduction of the large corporate groups tax gap over time.

A justified trust rating cannot be ‘set and forget’. In recognition of the level of trust we have in the reported tax outcomes of taxpayers, we continue to monitor (under the income tax monitoring and maintenance approach) top 100 taxpayers’ disclosures and tax outcomes over the 2 income years following an overall high assurance rating to maintain the level of justified trust obtained. The monitoring and maintenance review is followed by a more comprehensive justified trust review to refresh our confidence in the taxpayer’s tax outcomes every third year. We have completed a substantial number of monitoring and maintenance reviews and an increasing number of refresh reviews in 2023 as we seek to renew our level of assurance. These reviews have been encouraging in that they demonstrate that taxpayers are keeping up their standards in the years after initially achieving a high assurance rating.

We have a tailored engagement approach for top 100 taxpayers who attained overall high or medium assurance in their initial GST review. While it is intended that such taxpayers will be reviewed on a periodic basis at least once every 4 years, we will continue to actively monitor GST compliance and use our data and analytics capability to safeguard against non-disclosure or non-compliance during the interim years. Guidance on our future engagement approach for GST, once an initial review has been completed, is published on our website.

Justified trust and transparency

Tax compliance is becoming an important part of the increasing focus among boards, investors, customers and consumers, suppliers, community groups and other stakeholders of how organisations contribute to the communities in which they operate, with many seeing this as an important component of Environmental, Social and Governance (ESG) performance indicators. Societal attitudes and expectations in Australia and globally are increasingly encouraging organisations to make more transparent and sustainable business decisions that can lead to long-term growth benefiting all stakeholders. There continues to be calls for organisations to be more transparent about their operations and tax contributions and to demonstrate that they are participating fairly in the economy.

Our justified trust ratings are expected to be increasingly used and leveraged by organisations to demonstrate their community and ESG credentials as part of their broader social licence to operate. The objective principles used in the justified trust initiative also serve to enhance the community’s understanding about large market compliance and their ability to differentiate good corporate tax citizens from others. Although there remains a level of non-compliance by some in this population which we continue to robustly address, the overall level of compliance is very high and possibly much higher than the current broader community understanding. Sharing these ratings can help address this gap for those organisations which have achieved high assurance.

Our results to date demonstrate that most large businesses do and want to do the right thing. We have a high level of willing participation in the large corporate groups. This is shown by 83% of top 100 taxpayers having obtained either a high or medium overall assurance rating. There are also examples of companies that have committed to long-term behavioural change, including restructuring, changing their business practices and settling long-standing disputes with us.

We increasingly see justified trust assurance ratings disclosed together with other contextual information to assist the community’s understanding of the tax contributions of the largest participants in the Australian economy. We encourage the continued adoption of tax transparency practices (including the disclosure of assurance ratings) which builds and maintains community confidence that the largest taxpayers are paying the right amount of tax.

Our approach

In 2016 we introduced the justified trust initiative starting with the income tax affairs of the top 100 population. In 2019 we expanded the initiative to include the GST affairs of the top 100 population.

We apply the justified trust methodology and seek to obtain assurance of 4 focus areas:

1. That appropriate tax risk and governance frameworks exist and are applied in practice. This includes the design and operational effectiveness of business systems to create, capture and report transactions correctly for GST purposes.
2. That none of the specific income tax or GST risks we have flagged to the market are present.
3. That tax outcomes of atypical, new or large transactions are appropriate.
4. That we understand why the accounting and tax results vary. We analyse the various streams of economic activity and how they are treated for taxation purposes. For example, we analyse the Effective Tax Borne (ETB) to understand whether the right amount of tax on profit from Australian-linked businesses is being recognised in Australia. We also analyse the sales, acquisitions and other data, and compare this to net GST paid.

The justified trust program has reached maturity in relation to the assurance reviews of the income tax and more recently GST affairs for top 100 taxpayers. Over the past few years, we have worked closely with the top 100 taxpayers to detail in their TARs:

• the criticality of a good, lived, tax governance framework and encouraging self-assessment against our ‘better practices’
• the areas of their economic and tax affairs over which we have a high level of assurance
• areas where we have concerns or where improvements can be made and how a higher level of assurance can be obtained
• how the ETB of the Australian channel is critical to our understanding of their income tax risk profile (in particular, transfer pricing matters)
• our future engagement approach
• where a rating is provisional, how that issue resulting in the provisional rating has been addressed
• how the taxpayer has addressed governance gaps and ATO recommended enhancements, and other client next actions detailed in the TAR
• where the monitoring and maintenance approach is applied, whether we have been able to verify the tax outcomes from significant new transactions or significant changes to the taxpayer’s business activities.

We continue to work towards integrating our reviews, where appropriate, for income tax and GST.

This report outlines our findings for the 4 justified trust focus areas for income tax and GST, as well as our engagement approach once a top 100 taxpayer attains overall high assurance for income tax.