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  • Public and multinational businesses

    Approximately 34,000 public and multinational groups operate in Australia, including around 9,000 listed and unlisted Australian public groups and some 25,000 majority foreign-owned groups. Over 1,000 of these have a turnover of more than $250 million and are key participants in the tax and superannuation systems.

    As well as directly contributing by paying income and indirect taxes, they play a key role as employers and service providers – withholding tax from payments and operating the digital and financial infrastructure on which the tax and superannuation systems rely.

    The financial and tax positions of Australian-listed groups are relatively transparent due to the nature of their ownership and governance frameworks. Risks to compliance tend to be around interpretation of tax law and the tax treatment of business transactions.

    Stronger compliance measures, including new intelligence sources such as country-by-country reporting, are helping us to monitor and assure the tax performance of public and multinational businesses.

    Indicators of participation

    Correctly registering in the system

    Our close monitoring and analysis activities indicate that public groups and multinational businesses are almost always correctly registered in the tax and superannuation systems.

    Lodging tax information on time

    In 2016–17, 73% of public and multinational businesses lodged their 2015–16 income tax returns on time, an improvement on the previous year. This increased to 81% lodged within 60 days of being due and by 30 June 2017, 89% of returns were lodged overall. We generally see even higher rates of on time lodgment amongst larger public and multinational businesses.

    For 2016–17 activity statements due during 2016–17, 84% of public and multinational businesses lodged on time, increasing to 90% within 60 days and by 30 June 92% were lodged overall.

    Reporting complete and accurate information

    Our key compliance focus for public and multinational businesses is on the correct reporting of taxable income. We are engaging earlier with this group of taxpayers, often before lodgment, and providing them with guidance on arrangements that present a compliance risk.

    This increased transparency, together with our robust general anti-avoidance and transfer pricing rules, has given us greater confidence in the tax outcomes being reported in income tax returns. During 2016–17, we have continued to work on the estimated tax gap for large corporate groups. See tax gap estimates in this report and ato.gov.au/taxgap for more information.

    Similarly, where we resolve a dispute with a taxpayer, we look to agree on their future tax treatment as part of the resolution. This provides us with a high level of confidence that the reporting of their taxable income is accurate. In 2016–17, the ATO resolved numerous significant disputes with very large taxpayers, which will result in improved reporting in future years.

    Paying tax obligations on time

    Our work in managing the tax debts of public and multinational businesses focuses on cooperative relationships with them. The vast majority generally pay their tax obligations on time. In 2016–17, 95% of public and multinational businesses’ tax liabilities were paid on time, down 1 percentage point from last year and 98% were paid within 90 days of the due date, consistent with last year.

    At 30 June 2017, public and multinational businesses owed $0.7 billion in collectable tax debt. This accounted for slightly more than 3% of total collectable debt.

    How we are making it easier

    Informing the market of areas of concern

    The tax affairs of public and multinational businesses tend to be more complex due to the diversity and size of their multinational businesses. We are actively addressing multinational tax avoidance, a key element of the Tax Avoidance Taskforce.

    Preventing other taxpayers entering into tax avoidance schemes is a key element of our strategies and has led to a greater emphasis on the use of Taxpayer Alerts. These provide an early warning to taxpayers and their advisers of our concerns about new or emerging transactions, structures and arrangements that may represent a compliance risk.

    During 2016–17, we released a range of guidance products aimed at public and multinational businesses, including:

    • practical compliance guidelines on
      • the transfer pricing risk associated with centralised operating models involving procurement, marketing, sales and distribution functions
      • eligible exploration expenditure and the evidence required to substantiate the expenditure
       
    • a draft practical compliance guideline on the risks associated with cross-border related-party finance arrangements for comment and consultation to help clients
      • understand how we rate these risks
      • make an assessment of their risk rating
      • clarify to what extent they require greater assurance about their arrangements
       
    • an updated Tax risk management and governance review guide, published on 31 January 2017, to help large businesses reduce their tax risk by improving their tax governance and internal controls.

    Delivering contemporary and tailored services

    Multinationals and cross-border transactions

    The ATO had considerable success during 2016–17 in applying a stronger compliance framework that ensures tax paid in Australia by multinational companies truly reflects the economic value created here.

    In particular, we have made significant progress in implementing the multinational anti-avoidance law (MAAL), which took effect from 1 January 2016. In 2015–16, we identified 175 companies as potentially being in scope of the MAAL. This year, we identified a further 46 companies and are engaging with them. To date we have confirmed that:

    • MAAL does not apply to 109 companies
    • 75 companies are assessed as medium-to-high risk – we are continuing to work with these companies to mitigate their MAAL risk
    • 37 companies continued to be risk-assessed.

    Already, we are seeing an encouraging change, with clients engaging with the ATO in making changes to be compliant. As at 30 June 2017, 32 companies have restructured or intend to restructure their arrangements in response to the MAAL. They are changing their transfer pricing methodology and amounts to better reflect the value creation within Australia, recognising a taxable presence here by lodging tax returns and removing shell entities and long-term foreign agency arrangements. Already this has resulted in the return of more than $6.5 billion in sales per annum to the Australian tax base. These clients are also engaging with us on the application of GST to their new arrangements, with over $290 million in additional GST revenue received.

    Advance pricing arrangements

    Advance pricing arrangements (APAs) are agreements between the ATO and a taxpayer on the application of the arm's length principle to their dealings with international related parties. APAs provide a mechanism for managing and mitigating transfer pricing risk by giving certainty on a prospective basis.

    In 2016–17, we completed 16 APAs (6 bilateral and 10 unilateral). This was down compared to the 41 APAs we completed in 2015–16, when we processed a larger than average number of APAs on a project basis.

    At 30 June 2017, there were 114 applications in place and another 106 in progress, including 31 in the early engagement stage.

    Implementing the base erosion and profit shifting action plan

    We are working with Treasury to scope and consult on the remaining recommendations that have relevance for Australia from the Group of Twenty (G20) and items from the Organisation for Economic Co-operation and Development (OECD) action plan on base erosion and profit shifting. In particular, we have implemented the framework on compulsory spontaneous exchange of information and are well progressed in implementing country-by-country reporting.

    Justified Trust initiative

    Our Justified Trust initiative aims to give confidence that a particular taxpayer has paid the right amount of tax in Australia based on objective evidence. Achieving justified trust means that we are providing greater certainty for our clients and greater confidence for the Australian community that large businesses are paying the right amount of tax according to law. It also provides our clients with an opportunity to address any issues before we commence compliance activity with them.

    We perform detailed one-on-one reviews of the largest 100 public and multinational groups. Additional government funding under the Tax Avoidance Taskforce is enabling us to extend these detailed reviews and continue implementing our justified trust methodology in streamlined assurance engagements. In 2016–17, we commenced 90 streamlined assurance reviews of taxpayers, with a combined total income of $78 billion. Our engagement with taxpayers through streamlined assurance reviews has already resulted in 12 voluntary disclosures with a tax impact of over $24 million.

    This program will continue until June 2020 at which point we will have covered all of the Top 1,000 public and multinational groups in Australia.

    Our compliance program

    At the end of June, we had 98 audits under way covering 81 public and multinational businesses. There were 33 audits finalised at 30 June 2017, with total income tax liabilities raised in excess of $4 billion. We also collected $1.7 billion in income tax from public and multinational businesses in 2016–17. Our compliance program will continue in 2017–18, with a greater focus on specific international risks.

    Dispute resolution

    Corporate taxation is complex, even more so in application to the affairs of large corporate groups. This leads to differences in opinion between the ATO and taxpayers on how the law applies to particular arrangements. Sometimes a large corporate group will prefer to proceed to dispute rather than accept what they might see as an adverse audit outcome.

    As the nature of tax disputes has changed to a greater focus on transfer pricing, valuation and similar matters, we have adapted our approach to prevention and resolution to encompass more early engagement and alternative dispute resolution processes. See Resolving disputes for more information.

    Ensuring purposeful and respectful relationships

    Building international communities

    The ATO works closely with the Department of Foreign Affairs and Trade and the Treasury to help international communities improve their tax capability, particularly in Papua New Guinea and Indonesia. This includes targeted technical assistance, increasing collaboration, secondment of our people, and knowledge sharing with the respective tax authorities.

    We participate in the Organisation for Economic Co-operation and Development (OECD), contributing to key working parties, advocating Australia’s position through the ATO delegate to the OECD, and in our Commissioner’s leadership of key programs at the Forum on Tax Administration (FTA).

    Australia’s sponsorship of the Joint International Taskforce on Shared Intelligence and Collaboration (JITSIC) continues to influence the FTA strategic work program through a network of 37 countries working collaboratively to achieve shared taxpayer, industry or arrangement-specific outcomes.

    We lead a cross-jurisdictional initiative through the JITSIC network in response to the Panama Papers, in which JITSIC members have established a framework to allow for fast, effective and coordinated multilateral responses to any future data leaks. The unprecedented scale of data and intelligence exchanged globally, within established legal frameworks, has demonstrated the agility of the network in tackling issues.

    Based on legal instruments under the multilateral convention between the OECD and Council of Europe and various tax treaties, Australia was involved in two confidential Competent Authorities sessions. These sessions shared information on high-risk intermediaries that facilitate, enable and promote tax avoidance/evasion arrangements.

    In October 2016, we established a regional discussion on consumption tax through the Study Group on Asian Tax Administration and Research (SGATAR), which involved 22 representatives from 12 of the 17 SGATAR member jurisdictions. The action plan developed from this discussion included an agreement by members to share solutions, intelligence and knowledge on common issues facing tax administrators in the Asia–Pacific region.

    We continue to strengthen international cooperation for assistance in collections through the appropriate frameworks, such as mutual assistance treaties. At 30 June 2017, we had agreements in place with 11 countries and actively pursuing collection activities with international partners in 62 cases.

      Last modified: 30 Oct 2017QC 53656