Voluntary tax compliance for large market at ‘highest ever’, says ATO
Profit shifting remains a concern for the Tax Office but tax performance overall for the large market has improved, says the ATO Commissioner.
Commissioner of Taxation Rob Heferen said while Australia's tax system is highly susceptible to profit shifting, there has been an overall improvement in gross tax performance amongst large market entities.
Heferen said the Tax Avoidance Taskforce had played a significant role in driving this improvement, with the ATO securing more than $30.2 billion in additional tax revenue from multinational enterprises, and large public and private businesses.
The taskforce continues to focus on large corporate groups but will increase its focus on medium and and emerging large businesses, he said.
"In the large market we see this with the overall improvement in gross tax performance, where the measure of voluntary compliance has increased from 91 per cent in 2013–14 to 93.5 per cent in 2020–21," Heferen said.
"For historical context, it’s interesting to note that when the voluntary compliance rate was sitting at 91 per cent we saw community and political concern about the tax performance of large multinationals."
Heferen noted that since then there have been multiple Senate inquiries, the introduction of various base erosion and profit-shifting-related reforms, and the establishment of the Tax Avoidance Taskforce.
Current focus areas for the ATO
While programs such as justified trust have driven improvements in tax performance, Heferen said there is much more to do.
"Our company income tax rate means that the incentive for profit shifting out of Australia is significant. We need to remain vigilant to ensure that tax performance remains strong," he said.
The ATO said that global profit-shifting disputes continue to make up around 70 per cent of the audit book of work for public and multinational businesses.
International related party dealings released earlier this month reveal where some of the risk areas lie, Heferen said.
"The ATO's focus on the risk of ‘transfer mispricing’ and mischaracterisation of cross-border related party dealings is illustrated from one simple comparison," he said.
"Australia’s three biggest trading partners from a ‘real’ trade perspective are China (27 per cent), Japan (11 per cent) and USA (7 per cent).
"However, in terms of contractual dealings with related parties, Singapore, with its lower headline tax rate, is at 34 per cent, the USA is at 13 per cent and Japan 7 per cent. China is only 3 per cent."
Heferen said there will always be cases where some multinationals try to push the boundaries of their cross-border arrangements to minimise tax.
"This may happen either explicitly or implicitly within an organisation. This is why we have been open and transparent about our concerns and risk parameters. Products such as practical compliance guides and taxpayer alerts, allow taxpayers to make informed choices about their tax settings," he said.
Embedding these risk assessments in strong governance frameworks ensures that tax risk profiles are understood at the board level, said Heferen.
"The ATO’s attention on profit shifting has a well-understood focus on the corporate tax risks from multinationals mispricing goods or services," he said.
"Where multinationals choose to continue with risky behaviour, we have mature compliance programs to detect, assess and treat these risky behaviours with strong economic and legal expertise."
Heferen said the ATO will continue to challenge aggressive profit shifting and will litigate disputes to test legal principles in this space.
