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  • The OECD four pillars of compliance

    A taxpayer’s compliance is determined based on the extent they meet the following obligations under the OECD four pillars of compliance:

    Registration

    As significant contributors to the Australian tax system, we're confident large corporate groups who should be registered in the system are registered. With sophisticated business operations of $250 million or more in revenue annually, these groups are well aware of their tax obligations.

    Lodgment

    Large corporate groups predominantly lodge on time. These businesses have significant internal capacity and capability to lodge, so failure to lodge is likely to be symptomatic of broader issues within the business.

    Of those that don’t lodge on time, many are late by less than one month and most are late by less than three months. We have specific engagement strategies for these entities and have already seen an improvement in the number of entities lodging on time. There have also been higher penalties for significant global entities (annual global income of $1 billion or more) who fail to lodge on time, since 1 July 2017.

    Occasionally we may find individual entities within a large corporate group not meeting their lodgment obligations. Often this is due to the entities being dormant or non-trading, which is not a revenue risk under ordinary circumstances.

    Large corporate groups – lodgment performance, 2017–18

    Image shows the lodgment performance of large corporate groups in 2017–18 as 88.1% on time, 9.7% late, 2.3% not yet lodged.

    Correct reporting

    Measuring assurance and confidence in tax consequences

    In 2014, we adopted tax assured as a performance measure and published first estimates for the 2015–16 year in our annual report for 2017–18. Tax assured helps us demonstrate our confidence in the tax system.

    Tax assured is based on the concept of justified trust. We achieve justified trust and consider tax to be assured when we have evidence that reported tax is complete and accurate. We collect evidence to assure tax from a range of sources including directly from taxpayers.

    Where we can't gather evidence to assure tax, we rely on our broader risk management approaches to provide us with confidence in tax reporting.

    Tax assured complements other measures, including tax gaps and total revenue effects. Together they provide insight into how well the tax and super systems are performing. We use this insight to assist Treasury with shaping the future design of the systems and our strategies for addressing potential non-compliance.

    See also:

    Preventative action

    We undertake a range of activities aimed at preventing non-compliance. We do this across the large corporate groups population generally, and through direct action with the largest taxpayers in this population. You can find out more in Population wide approaches to preventing non-compliance and how we engage with specific taxpayers in Active prevention: one-to-one.

    Our estimates of tax assured for the 2016–17 income year for the large corporate groups covered by our Top 100 and Top 1000 programs was $23 billion in income tax.

    See also:

    Corrective action

    Corrective action targets those cases where taxpayers seek to push the boundary of acceptable tax planning. We identify these cases based on intelligence, data analysis, and risk assessments.

    Where we suspect a particular arrangement is being used by multiple large corporate groups we address the potential non-compliance in a targeted and coordinated way. This includes investigating both taxpayers and advisers we suspect are involved. We also provide early warning to the market of our concerns, often in the form of a taxpayer alert.

    Results from our compliance activities

    Our compliance activities and the results we obtain act as a visible deterrent against large corporate groups choosing not to comply with their Australian tax obligations.

    The significant fluctuation in the outcomes of our corrective action each year reflects the characteristics of the large corporate groups population:

    • There are low levels of systemic tax avoidance, so we don’t have a regular program of audits on the same fact pattern leading to similar audit results across years.
    • The size of the taxpayers and their transactions is such that a single audit case may amount to significant sums in additional tax payable.
    • Complex transactions may be subject to multi-year investigations and subsequent litigation before the taxpayer pays additional taxes and penalties.
    Corrective action targeting large corporate groups income tax, 2012–13 to 2018–19

     

    2012–13
    $m

    2013–14
    $m

    2014–15
    $m

    2015–16
    $m

    2016–17
    $m

    2017–18

    $m

    2018–19

    $m

    Total debits (liabilities) (see Note 1)

    2,147

    1,602

    2,471

    1,354

    3,659

    3,699

    1,876

    Audit yield (cash) (see Note 2)

    1,852

    1,011

    1,685

    703

    1,332

    2,855

    1,136

    Note 1: Liabilities raised in a given year may relate to multiple years of assessments and include additional tax, penalties and interest.

    Note 2: Audit yield is actual cash collected (or estimated to have been collected) against liabilities raised (in the year and prior) and includes collections on tax, penalties and interest.

    The complexity inherent in the law and the business affairs of large corporate groups can lead to significant differences in interpretation of how the law applies in a given circumstance. Taxpayers can and do dispute amended assessments made by us, sometimes all the way to the courts. The result is not always in our favour. Sometimes we settle disputes for a lesser amount than originally assessed. This means the additional cash we collect from an audit doesn’t always equal the amount of additional tax liabilities we raised under the amended assessment.

    Observed behaviours

    Some large corporate groups may engage in tax minimisation or avoidance. But typically, large corporate groups are not reckless and do not evade tax. Where we see an incorrect application of the law, and reasonable care hasn’t been taken, we can apply a range of administrative penalties. These vary, depending on the behaviour involved.

    Analysis of culpability penalty rates imposed confirms a strong compliance culture among large corporate groups. We have applied a zero penalty rate in the majority of cases. This is because the large corporate taxpayer made a voluntary disclosure or, in our view, had a reasonably arguable position. Even where we have applied penalties, in the vast bulk of cases we considered there was, at most, a lack of reasonable care and not recklessness or fraud and evasion.

    Culpability penalty rates applied to large corporate groups, 2014–15 to 2017–18

    Only a very small proportion of cases have culpability penalty rates applied and those rates are most often only 25%. During the 2017–18 income year, 83% of cases resulted in a zero penalty rate, 9% of cases had a 10% penalty rate and 6% of cases had a 25% penalty rate.

    On-time payments

    The vast majority of large corporate groups generally pay their tax obligations on time, and almost all tax owing is paid within 365 days or within agreed upon timetables. As with lodgment obligations, our work managing debts of large corporate groups focuses on cooperative relationships. We also emphasise transparency, prevention before correction, early assurance and certainty for all parties. This approach is our starting position for working with all businesses. Most businesses work this way with us.

    Large corporate groups – payment times, 2017–18

    Image show payment times for large corporate groups in 2017–18 as 96.3% on time, 2.4% paid in 90 days, 0.3% paid in 365 days.

    Large corporate groups income tax debt is relatively small compared to the total corporate income tax reported. Similarly, the income tax value of debt owed by large corporate groups represents only a small percentage of their total tax paid on time, and the majority of this debt is disputed.

    Disputed debt covers tax outstanding that is subject to an objection with us, a review via the Administrative Appeals Tribunal or appeal to the Federal Court. We expect that in such a large and complex system we will have disputes. Our intention is to resolve disputes as early as possible, in a way that is fair and respectful.

    A very small amount of debt is owed by former large corporate groups that are now under some form of insolvency administration.

    Large corporate groups – debt as a proportion of corporate income tax, 2017–18

    Image shows debt as a proportion of corporate income tax for large corporate groups in 2017–18 as $51.6 billion company tax, 9.9% disputed, 0.1% collectable.

    Last modified: 12 Dec 2019QC 53309