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  • Findings report Top 1,000 (income) tax performance program

    We are publishing our updated findings from streamlined assurance reviews covering 799 taxpayers to help you understand how we apply the justified trust methodology to:

    • obtain greater assurance that large public and multinational taxpayers are paying the right amount of income tax, or
    • identify areas of tax risk for further action.

    We previously published a Top 1,000 Tax Performance Program (income tax) Findings Report outlining our findings as at March 2019. This Findings Report builds on the March 2019 Report with:

    • updated statistics encompassing reviews completed from the inception of the program to the end of June 2020
    • additional findings, and
    • comparisons to the statistics previously published for reviews completed to the end of January 2019.

    We aim to finalise the Top 1,000 tax performance program by December 2020 (the finalisation of reviews was delayed due to the impacts of COVID-19). A new Top 1,000 combined assurance program covering income tax and GST will commence later this year.

    See also:

    Top 1,000 tax performance program

    The Top 1,000 tax performance program (the program) was established in July 2016 to:

    • obtain greater assurance that large public and multinational economic groups are reporting the right amount of income tax, or
    • identify areas of tax risk for further action.

    The program covers public and multinational groups and large superannuation funds with annual turnover above $250 million. It does not cover groups that continuously engage with us through our Top 100 program.

    The Top 1,000 population:

    • consists of public and multinational businesses and super funds that have substantial economic activity related to Australia
    • is a large contributor to corporate income tax, excise, and petroleum resource rent tax (PRRT) collections
    • reported $26.3 billion or 32% of all corporate income tax for 2017–2018 paid by public and multinational businesses
    • includes some of the largest remitters of goods and services tax (GST).

    As the Top 1,000 can impact the health of our tax system, we engage with them on a periodic basis to manage their compliance and assure their tax performance.

    The Justified Trust program benefits Top 1,000 taxpayers, their shareholders, key stakeholders and the wider community. The program:

    • provides certainty about their tax outcomes and effectiveness of tax governance processes
    • ensures boards can be confident they are aware of and understand the tax profile of their organisations, and
    • provides an objective mechanism to understand how the tax profile of their organisation compares to their peers and others in the market.

    By disclosing their assurance ratings shareholders, key stakeholders and the community can gain insights and confidence about the Australian tax outcomes and contribution of the organisation.

    The Top 1,000 program covers a diverse range of groups in terms of their ownership, business models, industries and size. Where the economic group has more than one taxpayer, we usually review those taxpayers with turnover above $250 million. In appropriate circumstances we may review smaller taxpayers within the group. Where we identify areas of concern these are addressed through our Next Actions Program.

    Our approach

    The program applies a consistent, structured approach in our reviews. A dedicated program team supports the consistent application of this approach by our specialist assurance teams that are located across Australia.

    Our teams engage with each taxpayer using streamlined assurance reviews (reviews). Typically, a review will cover the last four income years.

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

    1. appropriate tax risk and governance frameworks exist and are applied in practice
    2. none of the specific tax risks we have flagged to the market are present
    3. the tax outcomes of atypical, new or large transactions are appropriate
    4. any misalignment between tax and accounting results is explainable and appropriate, and the right amount of tax on profit from Australia-linked business is being recognised in Australia.

    This paper outlines our findings for the four justified trust focus areas in relation to 799 reviews finalised by the end of June 2020. It will be updated as our coverage of large public and multinational groups continues to expand.

    We have published various guidance to help taxpayers prepare for their reviews, including:

    Combined assurance reviews

    We aim to finalise the Top 1,000 tax performance program by December 2020 (the finalisation of reviews was delayed due to the impacts of COVID-19). A new Top 1,000 assurance review program covering both income tax and GST will commence later this year. Where we review a taxpayer a second time, we expect to see that they have implemented recommendations from their first Top 1,000 review. We are looking for improvements in these second time reviews.

    The new program will provide:

    • an avenue for large corporates (and their boards) to gain certainty about their tax outcomes, and
    • an opportunity to improve assurance ratings obtained under the current program – we will review improvements and remediation activities undertaken following the first Top 1,000 review.

    Taxpayers are less likely to experience protracted reviews or next actions activities where they:

    • follow our guidance and any recommendations arising from their first Top 1,000 review, and
    • provide information requested in a timely manner.

    As we are taking a 'top up' approach, we will not seek the same level of information in the second Top 1,000 reviews as for the first Top 1,000 review unless there are significant changes in your business. We will continue to publish guidance to help taxpayers prepare for these reviews and obtain higher assurance ratings.

    Overall levels of assurance

    At the end of our review, we consider whether enough objective evidence has been obtained that would lead a reasonable person to conclude a taxpayer paid the right amount of Australian income tax according to the law. The overall level of assurance is based on an objective view of whether the taxpayer is considered to have paid the right amount of tax.

    Most taxpayers reviewed obtained an overall medium assurance rating. We set out in the streamlined tax assurance report (STAR) the steps for the taxpayer to take to obtain high assurance next time we review their tax affairs. We will seek to understand steps taken to address our recommendations through the new Top 1,000 combined assurance program (to the extent the matters are not otherwise reviewed as part of the Next Actions program).

    We will follow up taxpayers with overall low assurance ratings, or where we identified higher risk concerns during the review as part of our Next Actions Program. The Next Actions program can include specific or comprehensive reviews of high-risk areas and may also result in some matters being escalated directly to audit.

    Ratings

    We apply consistent rating categories when considering the overall level of assurance.

    High

    We obtained assurance that you paid the right amount of Australian income tax for the income years reviewed. This means we are unlikely to contact you again in relation to the income years reviewed unless something new comes to our attention.

    Medium

    We obtained assurance in relation to some but not all areas reviewed. For those areas not yet assured, further evidence and/or analysis will be required before we obtain assurance that you paid the right amount of Australian income tax.

    Low

    We have specific concerns around your compliance with the Australian income tax laws and the amount of Australian income tax paid for the income year(s) reviewed.

    The overall assurance ratings have not significantly changed since the March 2019 Findings Report (for reviews completed up to the end of January 2019). The reviews completed up to the end of January 2019 and June 2020 resulted in the following ratings:

    Overall Assurance Ratings, January 2019

    Donut graph depicts overall assurance ratings as at January 2019. Highlights that 31% attained high assurance, 52% attained medium assurance, 17% attained low assurance.

    Overall Assurance Ratings, June 2020

    Donut graph depicts overall assurance ratings as at June 2020. Highlights that 27% attained high assurance, 56% attained medium assurance, 17% attained low assurance.

    The proportion of different overall assurance ratings differed between various industries. The ratings received across the 6 key industries for the reviews completed up to the end of June 2020 are shown below.

    Overall assurance rating by industry as at June 2020

    Graph compares the overall assurance rating as at June 2020 broken down into 7 industry groups. Comparison highlights that there has been an improvement across all sectors.

    Note: The table shows the overall assurance ratings by the number of taxpayers for the following key industry groupings:

    • Services (SER)
    • Wholesaling (WHL)
    • Manufacturing (MFG)
    • Energy and Resources (ENR)
    • Banking, Finance and Investment (BFI)
    • APRA-Regulated Superannuation Funds (ASF)
    • all other non-grouped taxpayers.

    The Banking, Finance and Investment key industry grouping obtained the highest overall assurance ratings. This is a diverse grouping that includes taxpayers such as listed investment companies, credit unions and smaller domestic banks to global financial services groups such as foreign banks. 

    Our experience was that smaller domestic groups were often able to obtain higher assurance ratings. Groups with significant global operations were often able to only obtain medium levels of overall assurance, reflecting in part the high proportion of international-related party transactions.

    Where we have identified concerns, we have directed the taxpayer to our specific public guidance. We will seek to understand steps taken to address unassured areas through the new Top 1,000 combined assurance and the Next Actions programs.

    Most large APRA-regulated superannuation funds obtained an overall medium assurance rating. Assurance over investment activities relies on superannuation funds’ tax risk management and governance, due to the number and complexities of these investments, and outsourcing nature of the industry and size of funds under management. Funds that achieved higher overall ratings were likely to have less complexity in their operations and investments.

      Last modified: 02 Oct 2020QC 63840