• We have confidence in the tax compliance of large corporate groups

    Large corporate groups make a significant contribution to the Australian economy and play a critical role in the tax system. There are around 1,400 groups each with a turnover of more than $250 million in Australia. They are important to supporting community confidence in our tax system.

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    Tax performance

    The tax performance of large corporate groups matches their economic performance

    Tax collections from large corporate groups correlate to aggregate measures of corporate profitability over time, including corporate gross operating surplus. This correlation gives us some confidence in the level of tax compliance by large corporate groups.

    The tax payments of Australian publicly listed businesses generally track closely with their reported pre-tax profits. The tax-to-income ratio of majority foreign-owned large corporate groups is also on par with that of comparable Australian public companies.

    Recent fluctuations in corporate tax collections have been driven by a range of economic factors. This includes movements in commodity prices, in particular the iron ore price. These have led to changes in the profitability of Australia’s largest miners and their income tax payable.

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    Tax gap

    The large corporate groups income tax gap is similar to comparable jurisdictions and a relatively small proportion of the total corporate income tax base

    The tax gap is the difference between the tax payable according to law and the tax actually collected from taxpayers. The vast majority of tax due is paid voluntarily and audit activity collects some of the remainder. What is left uncollected is known as the net tax gap.

    In 2014–15, large corporate groups reported $41 billion in corporate income tax. The net tax gap is estimated at $2.5 billion, or 5.8% for this fiscal year.

    Our large corporate groups tax gap is similar to that of jurisdictions such as the United Kingdom (UK). The UK’s large business tax gapFootnote1 has been estimated at around 5–6% (2011–12 to 2014–15).

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    Initiatives under the Tax Avoidance Taskforce and capability and performance improvements are helping us to sustainably reduce the tax gap

    The large corporate groups income tax gap estimate of 5.8% reflects our historic strong administration and compares well globally. Our initiatives under the umbrella of the Taskforce are designed to sustainably reduce the large corporate groups income tax gap even further, primarily by improving the amount voluntarily paid, that is reducing the ‘gross’ tax gap.

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    The four pillars of compliance

    Full compliance with three of the four pillars of compliance has us focused on the ‘correct reporting’ pillar

    Under the Organisation for Economic Co-operation and Development (OECD) framework, there are ‘four pillars’ of tax compliance: registration, lodgment, correct reporting and payment.

    Large corporate groups have effectively full compliance with three of these four pillars:

    • registration – all large corporate groups are registered for tax purposes
    • lodgment – all active large companies lodge, albeit some late and requiring reminders
    • payment – large corporate groups generally make their tax payments on time. Any outstanding tax debt relates almost exclusively to disputed assessments.

    Our key focus area with large corporate groups is the correct reporting of their taxable income. Disputes are usually in 'grey' areas such as transfer pricing and the borderline between acceptable tax planning and tax avoidance.

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    Compliance results

    Our compliance results are a small portion of the income tax paid by large corporate groups

    Over the past five years, the additional income tax we have collected from large corporate groups through our compliance activity has been less than 6% of the aggregate income tax they paid voluntarily. In most cases, this activity has involved ‘reasonably arguable’ interpretations of tax law. This has seen limited penalties applied to large corporate groups subject to audit adjustments.

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    Footnote 1
    The HMRC’s corporation tax gap estimate for large businesses is derived from two methodologies: an established methodology exists for businesses managed by their Large Business Service and an experimental methodology used for businesses managed by HMRC’s Large and Complex unit.

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    Last modified: 11 Oct 2017QC 53274