ATO not getting complacent, despite high corporate tax compliance rates

At the August CPA Tax Forum, ATO deputy commissioner Rebecca Saint celebrated Australia’s relatively low tax gap for large corporations, at 6.8 per cent on lodgment and 4.1 per cent after ATO compliance activity in 2021-22.

While ATO celebrated these high compliance rates, it noted that it would continue to keep resourcing high to deter “opportunistic behaviour.”

“'We know that large businesses are responsive to our engagement, as demonstrated in the improvement in the large corporate groups tax gap,” she said.

“Similarly, our model shows that if we were to reduce our resources by half, we would expect to see more opportunistic behaviour by some public groups and an increase in errors.”

The ATO said corporate tax transparency remained a high priority for the Australian government, including the publication of corporate reporting information.

“We see transparency not just as a regulatory requirement but as a powerful tool for building trust. It strengthens the integrity of our tax system and boosts confidence across the board, benefiting all Australians,” Saint said.

At the same time, Saint said the ATO was committed to supporting tax certainty for large companies and contributing to international efforts to minimise double taxation.

She also noted that the ATO faced practical resourcing constraints, meaning that bespoke engagement could not be provided for every taxpayer. In some circumstances, other avenues, including public rulings and litigation, could be used to resolve areas of uncertainty.

“Our resources are not infinite, and the complexity and volume of transactions across the system mean we simply cannot provide bespoke engagement for every taxpayer,” she said.

“Litigation is a valid and sometimes essential resolution strategy, and plays a vital role in setting precedent, shaping the tax system and providing transparency and clarity for all taxpayers and the ATO.”

Saint added that profit shifting would remain a focus area for the ATO. New legislation, including public country-by-country reporting and thin capitalisation rules, is among some recent measures to boost corporate tax transparency and reduce profit shifting.

“Profit shifting disputes continue to dominate our audit program, comprising roughly 70% of our activity,” Saint said.

“Mischaracterisation of arrangements, business models and global value chains is an increasing area of focus and dispute.”

She said that the ATO recognised the burden that regulatory changes had imposed on large entities, and said that work would be done to limit duplication across reporting forms, while ensuring that monitoring capability was not compromised.

“We recognise the broad reporting impost on corporates at this time (particularly with Pillar Two, Public country-by-country reporting and thin cap changes also underway) and have implemented a 'provide it once' principle in our forms,” she said.

“However, we recognise that more can be done, and we will seek to work with corporates to understand where opportunities to limit duplication across reporting forms might exist whilst not undermining our important monitoring and risk detection capability.”