Ensuring a fair Australia means knowing that every person that lives here, and every company that operates here, does their part in contributing to the public coffers. But it’s a common gripe amongst individual tax payers, who offer up between 30-50% of their yearly pay packet to the tax man, that large corporations often find a way to pay less tax than they do.
Locally, we’re definitely feeling the pinch. The latest Taxation Revenue figures from the Australian Bureau of Statistics shows that Canberrans were also subject to the highest percentage increase in taxation per person, compared to other States and Territories.
So when a 2016 Tax Transparency Report was released by the ATO, listing 679 companies that had more than $100 million in income, but paid no tax in the 2014-2015 Financial Year, many would see it as more than a little disturbing. And while a significant percentage of the companies are not Australian owned (i.e.: a subsidiary operates in Australia but tax is paid in other jurisdictions), the sheer fact that they’re operating here – using our networks and infrastructure and generating revenue from Australians – surely means they should be paying their fair share.
The government has been promising to plug many of the loop holes that exist for these companies for years, with guarantees made during election campaigns time and time again.
Recent initiatives, however, do indicate that they are cracking down on global tax avoidance by multinational groups – both locally, and as part of a global effort led by the G20 and OECD (Organisation for Economic Co-operation and Development).
Three initiatives include:
- Base Erosion and Profit Shifting (BEPS) Project: an inter-governmental initiative managed by the OECD that aims to tackle tax avoidance strategies which exploit gaps and mismatches in tax rules to artificially shift profits to low or no-tax locations;
- Multilateral Anti-Avoidance Law (MAAL): a local measure combating tax avoidance by multinational companies operating in Australia; and
- Diverted Profits Tax (DPT): another local measure designed to prevent the diversion of profits offshore.
Ged Stenhouse, National Head of Audit and Assurance at RSM Australia in Canberra, explains how these measures apply and whether they really will force large corporations to pay their fair share of tax.
“In all cases, the new measures apply only to subsidiaries of multinational groups with a global annual turnover of more than Euro 750 million under the BEPS project, and $1 Billion in Australia for MAAL and DPT.
“MAAL and DPT were originally announced in the 2015-2016 budget, as part of the Tax Laws Amendment Act 2015. The Act also introduced the concept of an SGE – or Significant Global Entity – to which these new laws will apply. A company is an SGE if it is a global parent entity with an annual global income of $1 billion or more, or a member of a group of entities where the global parent entity has an annual global income of $1 billion or more.
“The new measures are being integrated into the tax system right now, so SGEs will be required to lodge financial reports with the ATO, regardless of their size, and even if they’re under a certain class within ASIC that doesn’t require them to lodge accounts. There are no exceptions.
“It’s a step aimed at ensuring visibility, and it doesn’t stop locally. It’s part of a global effort to minimise tax avoidance.”
According to Ged, guidance material on exactly how the financial statements are to be prepared and submitted is still under review by the ATO. But failure to lodge penalties will be severe, with penalty rates increasing by 500 times.
Overall, he expects there will be a massive increase in the rate of tax penalties that apply to these large corporations, now deemed Significant Global Entities.
It will be interesting to see if and how these new measures work, and whether they will, in fact, lead to a fairer tax system for all.
What’s your opinion? Is this a step in the right direction?
For more information about SGEs, or any tax and accounting matter, please contact RSM on 6217 0300 or visit RSM Australia – Canberra office.
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