Major corporations and multinational companies are dodging up to $3.5 billion in company tax every year, according to new figures released by the Australian Taxation Office (ATO) on October 11. After audit checks by the ATO, this figure could be reduced to $2.5 billion.
The ATO report covers about 1400 corporate groups with gross incomes of more than $250 million each. This is the first time the ATO has released specific figures about the "corporate tax gap", which measures the difference between the total amount of tax collected in Australia and the amount due under full compliance with the current tax laws.
In 2014–15, big corporations reported $1.5 trillion in gross income and paid about $41 billion in tax. The ATO estimated that after audit activity, the net income tax gap for these companies was about $2.5 billion, or 5.8% of tax payable.
However, Oxfam Australia's Economic Policy Advisor Joy Kyriacou said $2.5 billion was a conservative estimate. "The ATO can only report on what large companies are bound to tell it, not on taxes which multinationals are dodging through legal tax avoidance," she said.
Kyriacou added that the ATO figures for Australia do not capture the more than US$100 billion that multinationals are estimated to be ripping out of developing countries every year by avoiding taxes.
ATO Deputy Commissioner, Public Groups, Jeremy Hirschhorn said the biggest driver of the corporate tax gap was "primarily transfer mis-pricing." This occurs when multinational corporations transfer profits internally from higher to lower taxing countries to avoid overall company tax.
Over recent years, the ATO has chosen to make deals with big businesses rather than take them to court. In the 2014–15 financial year, there was a $3 billion reduction in the amount of the tax bills issued by the ATO to 81 large companies, and the amount of tax eventually received after deals were made.
The "Big Australian," BHP, is preparing to challenge a tax bill from the ATO of $1 billion over transactions routed through its Singapore marketing hub. But overall, the ATO is taking the soft line of negotiating with the multinational giants, rather than confronting them.
Critics argue that the agency is losing billions of dollars in revenue by these deals, and by not choosing to audit many large companies at all.
The ATO's annual list of company tax data shows more than a third of large public and private companies paid no tax in 2014–15, with 36% reporting zero tax payable. Remarkably, the ATO said the majority of large companies are honest in their tax liability reporting.
Meanwhile, the federal government and business leaders are bleating about wanting to cut the company tax rate, especially after US President Donald Trump threatened to reduce US corporate tax rates from 35% to 20%.
These latest ATO figures underline the need to raise the company tax rate and give greater powers and direction to the ATO to fully enforce the existing 30% rate in Australia on the corporate tax dodgers.