The ABC’s chief economic correspondent, Emma Alberici, could have avoided a discreditable ‘analysis’ of corporate tax transparency data (“the CTT data”), had she simply given proper regard to the ATO’s own disclaimer on its use. In fact, the ATO Statement on Corporate Tax (“the ATO Statement”), as subtly referenced at the foot of her report, warned against “a disproportionate focus on the number of groups which paid either no tax or a small amount of tax relative to gross income.”
The ATO Statement reminds the uninitiated that the CTT data must be read with an understanding that:
- “corporate income tax is payable on profits, not gross income;
- profits for tax purposes are closely linked to realised earnings, not paper earnings;
- in any given year a significant percentage of even the largest companies make losses, not just for tax purposes, but also for accounting purposes; and
- it reflects the tax returns as lodged, and does not reflect subsequent ATO compliance activity.”
For, the ATO knows the CTT data alone would be incomprehensible without a company’s internal accounts or the working papers from which its taxable income was calculated. As such, a review of the CTT data in isolation could only lead to mistake and misunderstanding.
Yet, despite the explicit guidance on interpreting the CTT data, the ABC engaged in little more than a data-sorting exercise, before taking aim at those companies conspicuously at the top of their excel spreadsheet.
The foremost folly in the ABC’s analysis was the failure to delineate between accounting profit and taxable income. Accounting profit is gleaned from a company’s financial statements, prepared by financial accountants in accordance with Australian Accounting Standards. For large companies, those financial statements are independently audited to give assurance to their contents, before being reported to the market.
Taxable income on the other hand, is calculated by tax professionals (usually with qualifications in accounting and/or law) within the framework of the Australian income tax legislation; a different calculation by a different set of rules. As such, accounting profit typically differs from taxable income, to which the ATO Statement provided sufficient explanation.
Testing the boundaries of logical reason, Alberici queried “the entirely legitimate use of Australia’s tax laws” which allow companies “to offset those losses against future profits indefinitely.” Respectfully, any tax system in which its participants are legitimately using its laws, should be lauded. And indisputably, a tax system which prevents companies from offsetting tax losses against taxable income, would likely experience a marked increase in business failures, liquidations, bankruptcies, unemployment and all the social ills which follow.
It’s difficult to accept Alberici’s report as a constructive critique on tax policy when she writes of investment banks, “ten years after the GFC which they helped create,” or disingenuously of CEO Alan Joyce, that his tenure at Qantas coincides with its non-taxable position over a comparable period. Alberici’s report was appreciably little more than a thinly-veiled swipe at the Turnbull government and the private sector, rather than a reasoned analysis of accounting and law.
The ABC’s analysis was futile in that the CTT data had already been tested and scrutinised by those best qualified to do so – the ATO. We know this because it’s mentioned in the ATO Statement that “while information included in the corporate tax transparency report may be new to the community, it’s not new to the ATO.” And in reporting the analysis in such a sensationalist way, Alberici grossly underestimates the capabilities of the ATO itself, whose audit and compliance teams are themselves stacked with chartered accountants, CPAs, lawyers, finance professionals and other suitably qualified tax professionals, many of whom in fact hail from the private sector, Tax Commissioner Chris Jordan being a key example.
The report also lacked appreciation of those cases of genuine tax controversy with the largest companies, which ultimately end up in court. Such cases are 50/50 cases at best, and the ATO does not always win. Moreover, the consequences of losing can involve more than just economic loss to the government. As such, good relations between parties play an integral role in having settlement discussions and avoiding the inherent risks and consequences of litigation. Political propaganda or smear campaigns are simply not the way of the ATO, whose successful policy of collaboration, consultation & co-design, has dominated its practice over the past few decades.
Alberici’s report has inaccurately put corporate taxpayers under a cloud of public mistrust for the sake of political point-scoring, and in doing so, has threatened to undermine decades of critical diplomacy between the ATO and some of Australia’s largest companies.
By Gamini Jayasinghe