One third of large Australian companies pay zero tax despite fat profits

Australian companies pay zero tax ATO
Of the 2,214 companies covered in the Australian Taxation Office's transparency report for 2017-18, a total of 710 didn't pay any tax.

A bombshell report by the Australian Taxation Office has revealed one-third of the nation’s largest companies pay zero tax despite generating healthy profits.

A government crackdown in 2016 – known as the multinational anti-avoidance law, which included forcing technology multinationals to admit they do business in Australia – has seemingly had little impact on the situation, with approximately 32% of big companies still paying no tax in the 2017-18 financial year.

The startling figures were published in the ATO’s fifth annual report on corporate tax transparency released this week, which provides insights into the operation of the country’s corporate tax system and the tax affairs of its largest companies.

It covers more than 2200 Australian and foreign-owned entities with reported incomes above $100 million.

Importantly, it shows that more than 1500 (or 68%) paid a combined total income tax of $52.3 billion for the period, while more than 730 didn’t have a tax liability.

Tax-free reporting

The transparency report lists companies according to their total and taxable revenue as well as the amount of tax actually paid.

Sydney Airport reportedly paid no tax on a 2017-18 revenue of more than $1.5 billion.

By comparison, Perth, Adelaide, Melbourne and Brisbane airports paid a 30% tax rate on revenues of $1 billion or less for the same period, after recording taxable profits.

Despite a total income of $9.2 billion, US-based energy giant ExxonMobil paid no Australian income tax for the third period in a row – $8.4 billion in 2016-17 and $6.7 billion in 2015-16 were also tax-free.

Exxon last paid company tax in Australia in 2013.

Last year, the company confirmed it would be unlikely to pay Australian company tax for eight years due to investments in offshore production and low oil prices.

ExxonMobil Australia chairman Richard Owen told a March senate committee inquiry into corporate tax avoidance that around $21 billion worth of investments in its Bass Strait and WA joint ventures meant the subsidiary would not have a taxable income until 2021.

Exxon’s Australian tax affairs have faced close scrutiny since a 2017 investigation by UK-based Tax Justice Network exposed a web of foreign subsidiaries designed for tax avoidance.

Zero tax existence

Paying minimal or zero tax can be a result of companies making a loss, claiming losses or concessions from previous years or having projects in start-up phase.

Companies are also able to carry forward losses to offset tax payable in the future – in other words, when a company makes a big loss, it will not pay tax in future years until the loss is fully recouped.

This is reflected in the transparency report, with some high-profile companies – such as ExxonMobil – paying tax again after a number of years of not paying tax.

According to the ATO, the practice of paying minimal or zero tax dragged the 2017-18 average tax rate down to 18.5%.

But deputy commissioner Rebecca Saint said the number of large companies indulging in a zero tax existence is starting to decline.

“Over the five years to 2018, all industry segments reported growth in the number of reporting companies, total income, taxable income and tax payable,” she said.

“The positive trend we are now observing is that many companies have ceased generating accounting losses and are now offsetting profits by utilising losses from prior years.”

Companies consistently reporting sustained losses raised a red flag.

“The community should be reassured that we closely scrutinise the tax affairs of the largest companies,” she said.

“We have a robust compliance program with specialist tax teams engaging directly with large companies to ensure they meet their obligations [and] we take firm action where we see tax avoidance.”

Tax avoidance law

The multinational anti-avoidance law was designed to prohibit significant entities with global revenues of over $1 billion from entering into “complex, contrived and artificial” schemes to avoid paying tax in Australia.

It was rolled out in 2016 to ensure these companies pay their fair share of tax on profits earned in Australia instead of booking their revenue offshore.

At March 2018, the ATO had identified 38 large companies which had brought, or will be bringing, their sales to Australian customers onshore in response to the new law.

The agency said more than $7 billion of sales income was booked in Australia during 2017-18 as a result of companies such as Facebook, Apple and Google restructuring their operations in response to the tougher laws.