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 1,795 groups, each with a turnover of more than $250 million in Australia. They are important in supporting community confidence in our tax system. See more about the demographics of large corporate groups.
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Tax performance
The tax performance of large corporate groups matches their economic performance
The tax payments of Australian publicly listed businesses generally track closely with their reported pre-tax profits. The trend in the tax-to-income ratio of majority foreign-owned large corporate groups is also similar to comparable Australian public companies in recent years.
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 difference between the tax payable according to law and tax actually collected from taxpayers is the tax gap. Most of tax due is paid voluntarily and we collect some of the remainder through audit activity. What is left uncollected is known as the net tax gap.
In 2019–20, large corporate groups reported approximately $59.4 billion in corporate income tax. We estimate the net tax gap at $2.6 billion, or 4.2% for this fiscal year. We estimate the gross tax gap at $4.6 billion, or 7.4%.
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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 4.2% reflects our strong administration and compares well globally.
Under the umbrella of the taskforce, we design our initiatives to sustainably reduce the tax gap even further. We do this primarily by improving the amount voluntarily paid – that is, by 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
- payment.
Large corporate groups have effectively full compliance with 3 of the 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 5 years, we have collected additional income tax from large corporate groups through our compliance activity. This has been less than 5% of the aggregate tax they paid voluntarily.
We have not raised any penalties due to factors including reasonable interpretation of the tax law. Where we have applied penalties, in most cases, we considered that there was lack of reasonable care at most, and not recklessness or intentional disregard.
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We have confidence in the tax compliance of large corporate groups, and collections show that their tax performance is matching their economic performance.