Tax Brief. 16 April ATO Disclosure of Taxpayer Information. Background

Transcription

1 Tax Brief 16 April 2013 ATO Disclosure of Taxpayer Information Treasury has released a Discussion Paper outlining three measures to implement the Assistant Treasurer s announcement in February that the government would amend the law to allow the disclosure of information about the tax affairs of large taxpayers. This Tax Brief explains the proposals, who will be affected and how the measures are likely to work. Background In February 2013, the Assistant Treasurer announced the Government s intention to take measures to improve the transparency of Australia s business tax system. This announcement followed his speech in November 2012 criticising the tax compliance practices of multinational enterprises, singling out several companies in the IT industry. It was expected that the February announcement would lead to some type of public disclosure of the amount of tax paid in Australia by multinational enterprises formed or operating in Australia, but the announcement offered little detail of who would be affected and what information would be divulged. On 3 April 2013, Australia s Treasury released a Discussion Paper, Improving the Transparency of Australia s Business Tax System ( the Paper ) outlining three steps to give effect to the February announcement. The Paper contains the measure that had been expected and two less momentous proposals. The project continues to be firmly embedded in the current campaign by the government focussed on corporate compliance practices. The Press Release accompanying the release of the Paper says it is part of a project to prevent profit shifting, close loopholes and protect the integrity of our tax base and the Paper continues this theme. The Paper notes that tax systems that rely on voluntary compliance and this in turn requires strong public confidence. The government is concerned that this confidence is being undermined: The apparent ease with which some large corporate entities can shift taxable profits and erode a country s tax base is shaping up as a shared concern for the G20 and most OECD countries.

2 Publishing information drawn from tax returns Under the first of the measures in the Paper, the Australian revenue authorities would be authorised to publish each year information taken from the tax returns of: companies with income of $100 million or more; and companies liable to pay any amount of Minerals Resource Rent Tax or Petroleum Resource Rent Tax that is, companies involved in the extraction of coal, iron ore, oil and gas. The particular items of information to be published would be: the company s name and Australian Business Number; the company s total income (a gross receipts concept which includes amounts that are exempt from tax or enjoy other concessional treatment); and the company s taxable income and the amount of tax payable (meaning presumably just the Australian tax payable). For companies brought into this regime because they are liable to MRRT or PRRT, the ATO will report the name, ABN and amount of MRRT or PRRT payable. The Paper says it should be possible for the ATO to collect all of this information from the current tax return and so should involve no additional compliance costs for companies. Placing the obligation to publish the relevant information on the ATO, rather than taxpayers, has the same effect. The disclosures would commence with the information reported in tax returns of the next income year ie, information reported in returns filed in December Protecting the release of indicative information The second proposal in the Paper will amend the tax legislation to protect the publication of aggregate revenue data where, it so happens, the identity of particular taxpayers could be guessed from that information. For example, if there were few companies liable to a particular tax, and one player dominated the industry, it might be possible to deduce how much tax that entity paid from the aggregate data, even if the data did not identify the particular taxpayer by name. The proposal will allow the current practice of publishing aggregate revenue data in the current form to continue, and will remove the possibility that doing so will involve officials in a breach of existing secrecy obligations. 2 ATO Disclosure of Taxpayer Information

3 Greater information sharing within government The third measure involves adjusting the current information sharing arrangements between agencies of the Australian government. Under current law, the ATO is permitted to share information with a number of law enforcement and regulatory agencies. The proposal is to allow tax information to be provided by the ATO to the Treasury for the purposes of the FIRB rules which regulate foreign investment in Australia. Some comments The design of this project in this way limiting it to information already in the hands of the ATO suggests that one of the government s objective is mobilising public opinion. The ATO already has the information that is to be released, and is apparently not going to seek any new information from taxpayers. Rather, the government wants that information put in the public domain. It seems reasonable to believe the government hopes that doing this will elicit a public reaction useful to the government s ends. A second goal is presumably to provide government Ministers and other bureaucrats with information that the ATO is not able to deliver in quite this form. It also seems clear that the process has been designed to be outside the control of affected taxpayers. The ATO will decide whether a company s income exceeds a relevant threshold, and then disclose the mandated information, no doubt in the way that its systems can most easily handle. It is not possible to predict whether the $100m threshold and the ATO s decisions on how to present the data will mean the tax information of any company or group is swamped by a mountain of other records, or instead is aggregated into a single, very prominent record. There is no discussion in the Paper about taxpayer protections the ability of taxpayers to prevent unauthorised disclosures, to have information withdrawn where it should not have been divulged or to have it corrected where it is erroneous. The mandated disclosure regime is obviously the key measure in the Paper. There are some interesting aspects to ponder. Trusts and stapled entities. First, the measure only applies to companies and to trusts which are taxed as companies (including a trust which has elected to be the head entity of a consolidated group). Given how much of Australia s commercial landscape is dominated by trusts, a very large segment of the Australian economy will fall outside these rules. It will likely make stapled structures seem even more attractive. Entities with international operations. Secondly, the Paper is also silent about how these reports will be presented for entities that operate cross-border. Two features of the current design the measure will not require any new information to be provided to the ATO, and the information to be revealed will come from 3 ATO Disclosure of Taxpayer Information

4 existing corporate tax returns filed with the ATO mean that much information about activities occurring offshore will not be revealed. The irony is that limiting the information in this way will tend to obscure one of the main problems that the government apparently wants to see divulged whether profits are being shifted out of Australia into offshore entities. For example, where a non-resident operates in Australia via a branch rather than a subsidiary, one assumes that the reporting will be limited just to revenue, taxable income and tax regarded as connected to the Australian branch. That is all the information the ATO can observe from tax returns. Where a non-resident operates in Australia via a subsidiary, the position of the subsidiary will be reported under this process. But where dividends, interest, royalties and distributions from managed investment trusts are made to nonresidents, the non-resident will typically not file a tax return because the income is subject to a final flat-rate withholding at source on the gross payment. The ATO will have an Annual Report from resident payers providing information about these kinds of payments leaving Australia and the amount of withholding tax collected, but the Paper does not suggest that these kinds of payments will be disclosed. For Australian entities with substantial operations offshore, revealing just the Australian tax payable will likely present a picture that appears unpalatable. Australian companies are typically exempt from tax on the profits of foreign branches, dividends from foreign subsidiaries and sales of foreign subsidiaries and so their ratio of tax to income will be low evidence of nothing more objectionable than having foreign operations! Consolidating and sub-dividing entities. Thirdly, the Paper completely ignores the consolidation rules. It is not clear whether these rules are to be applied to the group as a single reporting entity, or to the subsidiary companies individually. The taxable income of trusts which are subsidiary members of consolidated groups will presumably be reported in either case as part of the income of the unitholders or as part of the income of the consolidated group. The inverse question will arise for entities liable to MRRT and PRRT. These taxes are imposed on a project basis usually the site covered by a particular exploration or extraction licence so that a single company will typically have to report and pay tax on several distinct extraction projects. It is not clear whether these individual returns will be aggregated to show the total amount of resource taxes being paid by the company. A similar issue will arise for insurance companies or resident banks with OBUs where different classes of income of a single company are taxed at different rates. For life insurance companies, given that stand-alone superannuation funds are not subject to reporting at all, for consistency, income in the complying superannuation / FHSA class and the tax payable on that class should not be disclosed. Similarly, the exempt pension and annuity business of life insurance companies should be excluded. 4 ATO Disclosure of Taxpayer Information

5 A slightly different issue will arise for much of the premium income received by life insurance companies. In many cases, premiums represent just a transfer of capital from the hands of one entity (typically, a superannuation fund) to another placing the funds under the management of the life insurance company. Tax law recognises this fact by removing these amounts from the taxable income of the life insurance company. Insisting that this amount be disclosed as income of the life insurance company will only add to confusion. Unanswered questions. There is clearly still a lot of work to be done before this policy is finalised, and it is inevitable that the eventual legislation will contain new detail on issues not yet explored in the Paper. Areas to watch include, which amounts are counted in determining the threshold of $100m of income, which taxes are covered (for example, untainting tax, deficit deferral tax or over-franking tax), likely anti-avoidance rules against company-splitting in order to bring the members of a (non-consolidated) group under the $100m threshold, possible protections for ATO officials who get things wrong, and so on. Reporting just income. Under this plan, the stark comparison being presented to the public is between (i) an entity s gross receipts and (ii) the amount of taxable income earned and tax paid. A discrepancy between the two will be triggered by things as innocuous as paying wages or interest, claiming depreciation or capital allowances, and earning foreign-source income. Explaining the data. And at the end of the day, it is hard to see that this proposal in its current form will result in the disclosure of information that presents a meaningful picture that can be fairly evaluated by the public, the government or even the better informed parts of financial press. It will, however, probably mean time and effort for affected taxpayers who will need to take active steps to prevent (or remedy) the misrepresentation of their circumstances. Affected companies may well decide they have to enter the public forum and interpret the data for the public to explain what it actually reveals. Next steps The first of the steps in the Paper will likely be contentious. All the steps will require legislative amendment in order to overcome the current secrecy obligations and so there will need to be a debate in the Parliament. The Opposition parties have yet to declare a position on these measures. Treasury is seeking comments on the proposals in the Paper by 24 April ATO Disclosure of Taxpayer Information

6 For further information, please contact Sydney James Pettigrew phone Tim Kyle tim.kyle@gf.com.au phone Melbourne Perth Toby Eggleston toby.eggleston@gf.com.au phone Nick Heggart nick.heggart@gf.com.au phone G&F document ID _7.docx These notes are in summary form designed to alert clients to tax developments of general interest. They are not comprehensive, they are not offered as advice and should not be used to formulate business or other fiscal decisions. Liability limited by a scheme approved under Professional Standards Legislation Greenwoods & Freehills Pty Limited (ABN ) Sydney Level 39 MLC Centre Martin Place Sydney NSW 2000 Australia Ph , Fax Melbourne 101 Collins Street, Melbourne VIC 3000, Australia Ph Fax Perth QV.1 Building, 250 St Georges Terrace, Perth WA 6000, Australia Ph Fax ATO Disclosure of Taxpayer Information