Senate

Revised Explanatory Memorandum

(Circulated by the authority of the Deputy Prime Minister and Treasurer, the Hon Wayne Swan MP)

Improving the transparency of Australia's corporate tax system

Outline of chapter

3.1 Schedule 5 to this Bill amends the Taxation Administration Act 1953 (TAA 1953) to:

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require the Commissioner of Taxation (Commissioner) to publish limited information about the tax affairs of large corporate taxpayers;

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allow for the publication of certain aggregate tax information irrespective of whether the publication, in conjunction with publicly available information, may be reasonably capable of being attributed to a particular taxpayer (other than a natural person); and

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allow for enhanced information sharing between Government agencies in relation to decisions under the Foreign Acquisitions and Takeovers Act 1975 and Australia's Foreign Investment Policy.

3.2 Unless otherwise noted, all legislative references in this Chapter are to the TAA 1953.

Context of amendments

3.3 A fair, competitive and sustainable tax system is critical for the future prosperity of the nation. Australia's tax system raises the revenue that Government requires to provide the quality public goods and services needed by the community.

3.4 Tax systems that rely on voluntary compliance require strong public confidence. If the community feels that the tax system is not fair, there could be a reduction in voluntary compliance. Ultimately, this could cause a loss of confidence and undermine the tax system's sustainability.

3.5 The apparent ease with which some large corporate and multinational entities can shift taxable profits and erode a country's tax base is a shared concern for the Group of Twenty (G20) and most Organisation for Economic Co-operation and Development countries.

3.6 The first objective of these amendments is to discourage large corporate tax entities from engaging in aggressive tax avoidance practices.

3.7 The second objective of these amendments is to provide more information to inform public debate about tax policy, particularly in relation to the corporate tax system.

3.8 The third objective is to enable better public disclosure of aggregate tax revenue collections, even when the identity of particular taxpayers (other than natural persons) could potentially be deduced. This may arise, for example, where the number of taxpayers paying tax under a particular published head of revenue is small, so one taxpayer may be able to deduce information about another from an aggregate figure.

3.9 The fourth objective is to allow improved sharing of relevant tax information between Government agencies. The amendments will ensure that the Department of the Treasury (Treasury) is better placed to consider the tax implications of applications under the Foreign Acquisitions and Takeovers Act 1975 and Australia's Foreign Investment Policy.

3.10 The Government is committed to maintaining the confidentiality of taxpayer information of natural persons. The amendments contain express protections for natural persons.

The current taxpayer confidentiality framework

3.11 Subject to a limited range of exceptions, the TAA 1953 makes it an offence for any taxation officer (including the Commissioner) to disclose protected information (section 355-25 of Schedule 1). This offence carries a penalty of up to two years imprisonment.

3.12 Protected information is defined in subsection 355-30(1) of Schedule 1 to mean information that:

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was disclosed or obtained under or for the purposes of a law that was a taxation law (other than the Tax Agent Services Act 2009 ) when the information was disclosed or obtained; and

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relates to the affairs of an entity; and

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identifies, or is reasonably capable of being used to identify, the entity.

Summary of new law

3.13 Schedule 5 contains three measures designed to improve the transparency of Australia's business tax system.

3.14 The first of these measures imposes a duty on the Commissioner to publish certain information obtained from the tax returns of those corporate tax entities that return a total income of $100 million or more for an income year.

3.15 The Commissioner will also have a separate duty to publish the final annual amount of an entity's annual Minerals Resource Rent Tax (MRRT) or Petroleum Resource Rent Tax (PRRT) payable (if any) as reported by the entity, regardless of its total income. MRRT, however, does not become payable until the miner's 'group mining profit' exceeds $75 million for an MRRT year.

3.16 The second measure amends the taxpayer confidentiality provisions to ensure that the Commonwealth can publish aggregate tax collection information for the purposes of fulfilling its financial reporting obligations. An exception is included to maintain the confidentiality of protected information that could be reasonably capable of identifying an individual (natural person).

3.17 The third measure is to enhance information sharing between Government agencies. The amendments ensure that it is not an offence for a taxation officer to disclose confidential taxpayer information to the Treasury for the purposes of decision making by the Treasurer, or an authorised officer, in relation to a decision under the Foreign Acquisitions and Takeovers Act 1975 or Australia's Foreign Investment Policy.

Comparison of key features of new law and current law

Detailed explanation of new law

Publication of tax information relating to large corporate taxpayers

3.18 Schedule 5 amends the TAA 1953 to create a duty on the Commissioner to publish limited tax return information of corporate tax entities with total incomes of $100 million or more in an income year.

3.19 'Corporate tax entity' is defined in section 950-115 of the Income Tax Assessment Act 1997 (ITAA 1997) and includes all taxpayers treated as corporations for tax purposes. These taxpayers include companies, corporate unit trusts, public trading trusts and corporate limited partnerships.

3.20 The amendments will not apply to corporate tax entities that do not lodge company tax returns. In the case of consolidated groups and multiple entry consolidated groups, the information published will be that reported by the head company in its tax return.

3.21 Specifically, for a corporate tax entity with a reported total income for the year of $100 million or more, the Commissioner will be required to publish the entity's:

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name and ABN;

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total income;

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taxable income; and

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tax payable;

as reported in its company tax return.

[Schedule 5, item 1, section 3C ]

3.22 For any entity with MRRT payable in an MRRT year, or PRRT payable in a year of tax, the Commissioner will be required to publish the entity's ABN and name, as well as the amount of MRRT and/or PRRT payable as reported in its returns. [Schedule 5, item 1, sections 3D and 3E ].

Source of information

3.23 In determining whether the Commissioner is required to publish information about a specific taxpayer, the Commissioner can only have regard to the information that the taxpayer has reported to the Commissioner in its relevant tax return. [Schedule 5, item 1, subsections 3C(1 ), 3D(1) and 3E(1)]

3.24 Furthermore, the amendments require the Commissioner to publish only amounts that the taxpayer reports in its tax returns. [Schedule 5, item 1, subsections 3C(3 ), 3D(3) and 3E(3)]

3.25 The Commissioner is not permitted to substitute his or her own assessment of a taxpayer's tax information for the purposes of applying the income or tax thresholds, or in determining the figures to be published.

Example 3.31

A42 Pty Ltd lodges a company income tax return that includes a self-assessment of total income of $110 million and a taxable income of $50 million. Subsequently, the Commissioner issues an assessment notice to A42 Pty Ltd that denies a number of the company's deductions and results in an assessment of taxable income totalling $75 million. Notwithstanding this assessment, the Commissioner is required to publish A42 Pty Ltd's taxable income as $50 million as reported by the taxpayer.

3.26 The Commissioner, however, may verify a taxpayer's identity, including its name and ABN, before publication to ensure that the correct taxpayer is identified. [Schedule 5, item 1, paragraphs 3C(3)(a ), 3D(3)(a) and 3E(3)(a)]

3.27 Sourcing information from tax returns ensures that the amendments do not impose direct compliance costs on taxpayers, and that the potential for errors and disputed publications is minimised. The administrative burden on the Australian Taxation Office (ATO) is also reduced.

Explanation of information published - company income tax

3.28 An entity's name and ABN are to be published to identify each entity with published information. [Schedule 5, item 1, paragraph 3C(3)(a)]

3.29 'Total income' is not defined in the tax law; it is based on accounting concepts, and refers to gross income. 'Total income' is currently reported at item 6(S) in the company tax return. The Commissioner will only publish income tax information of those taxpayers that report total income of $100 million or more in an income year. [Schedule 5, item 1, paragraph 3C(3)(b)]

3.30 'Taxable income' refers to the amount a taxpayer returns as its assessable income less deductions. Corporate tax entities currently report their taxable income or net income at item 7(T) in the company tax return. Corporate unit trusts and public trading trusts currently report their 'net income' at item 7(T). The Commissioner will publish the reported taxable income or net income (if any) of these entities if they report a total income of $100 million or more. [Schedule 5, item 1, paragraph 3C(3)(c)]

3.31 For an entity with a tax loss, the Commissioner will not publish the quantum of the loss. [Schedule 5, item 1, paragraph 3C(3)(c)]

3.32 'Income tax payable' refers to the amount a taxpayer returns as its income tax liability (if any) for the income year after applying the relevant tax rate to its taxable income and applying available tax offsets. Pay as You Go instalments do not affect the income tax payable amount but rather count as a prepayment against the tax payable liability. [Schedule 5, item 1, paragraph 3C(3)(d)]

Example 3.32

There are three corporate tax entities (A1 Ltd, B1 Ltd and C1 Ltd) that each have a total income of $100 million or more in the 2013-14 income year, and a fourth company (Z Ltd) that has a total income of $80 million in the same income year.

The Commissioner will make the following information publicly available in relation to that income year.

Name	ABN	Total income	Taxable income	Income tax
A1 Ltd	10 234 567 890	$500,000,000	$200,000,000	$60,000,000
B1 Ltd	97 876 543 210	$300,000,000	$150,000,000	$40,000,000
C1 Ltd	10 293 847 756	$120,000,000	?	?

Note that C1 Ltd is reported as not having a taxable income. This could be because it has either a nil taxable income or is in a tax loss position. Note also that Z Ltd is not reported as it does not have total income of $100 million or more.

Explanation of information published - MRRT and PRRT

3.33 The Commissioner will be required to publish tax information about entities with an amount of MRRT or PRRT payable in a given MRRT year or year of tax (respectively). The Commissioner is required to publish this information regardless of the total income of the entity. [Schedule 5, item 1, sections 3D and 3E ]

3.34 MRRT does not become payable until the miner's 'group mining profit' exceeds $75 million for an MRRT year. MRRT years are the same as financial years unless an entity has a substituted accounting period for income tax purposes. The PRRT, however, has a fixed 'year of tax' that aligns to the financial year.

3.35 An amount of MRRT or PRRT payable is the amount an entity reports in its MRRT or PRRT returns.

Example 3.33

There are two entities (A2 Ltd and B2 Ltd) that each have an amount of MRRT payable for the 2013-14 MRRT year.

The Commissioner will make the following information publicly available in relation to that MRRT year.

Name	ABN	MRRT Payable
A2 Ltd	84 545 109 742	$20,000,000
B2 Ltd	65 743 079 112	$5,000,000

Timing and form of publication

3.36 The Commissioner must publish this information as soon as practicable after the end of the income year, MRRT year, or year of tax (as appropriate). The amendments do not prescribe a period within which the Commissioner must publish the information, allowing a flexible approach that accommodates organisational capabilities and priorities. [Schedule 5, item 1, subsections 3C(2 ), 3D(2) and 3E(2)]

3.37 It is envisaged that the Commissioner will publish one annual report encompassing all relevant taxpayers, and including all the information affecting income tax, MRRT and PRRT. This would likely be released several months after the date for the lodgement of the final company income tax returns for an income year. The Commissioner may give advance public notice of his or her intention to make the publication at a particular time.

3.38 Many companies operate under substituted accounting periods for tax purposes. This means that some companies' income years do not align with the standard 1 July to 30 June financial year.

3.39 Some taxpayers may not be required to lodge returns for the 2013-14 income year until July 2013. The first publication, therefore, could occur in late 2015 and would cover all company income tax returns for the 2013-14 income year, and the equivalent MRRT year and PRRT year of tax.

3.40 However, the exact form of these publications will be left to the Commissioner. It could, for example, be published on the ATO's website. The Commissioner may include a range of general explanatory details to provide context for the published data.

Correction of errors

3.41 Provision for the correction of errors is an important safeguard in these amendments.

3.42 The amendments allow the Commissioner to correct errors that are made in a publication in two circumstances: where the Commissioner has made an error, and on the initiative of the relevant taxpayer.

3.43 Where the Commissioner has made an error, he or she has power to publish a correction. The correction must be made from the information the taxpayer has returned. [Schedule 5, item 1, subsections 3C(6 ), 3D(6) and 3E(6)]

3.44 The Commissioner may also make information publicly available that corrects an error that the taxpayer has brought to the Commissioner's attention. This may cover a range of circumstances where a taxpayer makes a further, special or amended tax return. [Schedule 5, item 1, subsections 3C(4 )-( 5 ), 3D(4 )-( 5) and 3E(4 )-( 5)]

3.45 The Commissioner may not substitute, for the purposes of these amendments, his or her own assessment about an entity's tax affairs for the information the entity has returned.

3.46 The Commissioner has a discretion in deciding whether to publish a correction, including a discretion as to the time and form of the publication.

Interaction with taxpayer confidentiality provisions

3.47 Imposing a statutory duty on the Commissioner to publish this information will ensure that the publications do not contravene the existing taxpayer confidentiality provisions. This is because the publications will fall within an existing exception (in subsection 355-50(1) of Schedule 1) for disclosures in the performance of a taxation officer's duties. [Schedule 5, items 3 and 4, note to section 355-50 of Schedule 1 ]

Publishing aggregate collections for each Commonwealth tax.

3.48 Schedule 5 amends Schedule 1 to the TAA 1953 to create exceptions to the taxpayer confidentiality offence provisions for disclosure or on-disclosure of periodic aggregate tax information.

3.49 The objective of this proposal is to enable better public disclosure of aggregate tax revenue collections, even when the identity of particular entities is apparent or could potentially be deduced. This may arise, for example, where the number of taxpayers paying tax under a particular published head of revenue is small, so one taxpayer may be able to deduce information about another from an aggregate figure.

3.50 The amendments ensure that the offence provisions do not apply if the information is periodic aggregate tax information , which is defined to include actual or estimated collections and assessments of a specific tax, excise duty or customs duty over a period. Collections and assessments include amounts such as interest and penalties imposed in relation to a tax or duty. [Schedule 5, item 2, paragraph 355-47(2)(a) of Schedule 1 ]

3.51 The first exception ensures that the offence provision in section 355-25 of Schedule 1 to the TAA 1953, which makes it an offence for a taxation officer to make a record of or otherwise disclose protected information, does not apply if the information recorded or disclosed is 'periodic aggregate tax information'. [Schedule 5, item 2, subsection 355-47(1) of Schedule 1 ]

3.52 The second exception ensures that the offence provision in section 355-155 to Schedule 1, which makes it an offence for an entity to on-disclose information which was only received through another exception to the tax confidentiality provisions, does not apply if the information recorded or disclosed is 'periodic aggregate tax information'. [Schedule 5, item 6, section 355-172 of Schedule 1 ]

3.53 The definition of 'periodic aggregate tax information' refers to a tax imposed under a particular Act, to reflect the constitutional requirement that laws imposing taxes may only impose one tax. This is a convenient way to distinguish taxes.

3.54 The definition of 'periodic aggregate tax information' recognises that excise and customs duties are under no such constitutional requirement and a law may impose multiple excise or customs duties. For this reason, the meanings of 'duties of excise' and 'duties of customs' are intended to share their constitutional meaning.

3.55 The meaning of a 'type' of duty is intended to be broad enough to allow publications to distinguish between duties imposed on different goods and duties imposed at differing rates, such as those listed in the Schedule to the Excise Tariff Act 1921 .

3.56 These amendments ensure that aggregate information about the amounts collected or assessed by the Commissioner under a particular Act, or in respect of a type of duty, can be published. They also ensure the offence provisions do not preclude the publication of forecasts of the amount of a tax or duty to be collected or assessed, or of policy costings in respect of a tax or type of duty.

3.57 These amendments will ensure, for example, that the Government is not restricted from publishing aggregate tax figures for its financial reporting purposes.

Ensuring that no individual's tax affairs are made public

3.58 Aggregate information that is capable of identifying an individual (natural person) taxpayer will continue to be protected information and will not be able to be published under the amendments. This ensures that individuals' privacy is not infringed. [Schedule 5, item 2, paragraph 355-47(2)(b) of Schedule 1 ]

Example 3.34

Lower Ltd and Larger Ltd are listed companies and the only entities subject to paying an excise on beer in April 2014. This is public knowledge. Disclosing the aggregate amount of beer excise collected in April 2014 is reasonably capable of identifying the amount of excise paid by each company, at least to the other company and potentially more broadly based on public data on market shares. Nevertheless, the information may be disclosed, for example, for publication in the Government's financial reports.

If Larger Ltd exits the beer industry in December 2014, leaving Lower Ltd as the sole entity subject to the beer excise, it would still be possible to publish the total amount of excise collected or assessed in April 2015.

Example 3.35

Further to Example 3.34, Aaron purchases Lower Ltd's beer business as a going concern in April 2015, operating it as a sole trader. If the Government published the amount of beer excise collected in July 2015, the information is reasonably capable of being attributed to Aaron. The amendments do not permit the disclosure of the aggregate amount of beer excise collected in this period. The amount of beer excise collected, however, may be aggregated into a broader revenue head, such as alcohol excise, that could be disclosed.

Enhanced information sharing between Government agencies

3.59 These amendments extend the existing information sharing arrangements between the ATO and the Treasury with respect to foreign acquisition and investment decisions affecting Australia.

3.60 This is achieved by amending the current exception to the taxpayer confidentiality provisions for disclosures to the Treasury for the purpose of briefing the Treasurer in relation to a decision under the Foreign Acquisitions and Takeovers Act 1975 - this is provided at item 7 in table 3 to subsection 355-65(4).

3.61 The amendment ensures that taxation officers can disclose confidential taxpayer information for the purpose of briefing the Treasurer or an authorised Treasury officer, in relation to a decision that may be made under the Foreign Acquisitions and Takeovers Act 1975 or in accordance with Australia's Foreign Investment Policy. [Schedule 5, item 5, subsection 355-65(4)]

3.62 Before this amendment, such information could only be disclosed for the purposes of briefing the Treasurer (but not an authorised Treasury officer) in relation to decisions made under the Foreign Acquisitions and Takeovers Act 1975 only, and not Australia's Foreign Investment Policy.

3.63 The amendment enhances the ability of the Government to assess the national interest implications of foreign investment proposals by allowing more detailed information on the impact a proposal may have on Australia's revenue base, to be disclosed.

3.64 However, such information can only be used to assess the national interest implications of a foreign investment proposal. The information must not be used or disclosed for other purposes, or otherwise provided to the public.

Application and transitional provisions

3.65 All of the amendments in Schedule 5 commence on Royal Assent.

3.66 However, the amendments concerning the publication of tax information relating to large corporate taxpayers and entities with resource rent tax liabilities apply from either (as appropriate): the 2013-14 income year, the 2013-14 MRRT year, or the year of tax starting on 1 July 2013. [Schedule 5, subitem 8(1)]

3.67 The amendments will apply to entities with substituted accounting periods for income tax and MRRT purposes as if the entities operated on an accounting period aligned to the financial year. Information returned with respect to a substituted accounting period in lieu of a financial year will be treated as a return for that financial year.

3.68 The amendments concerning the enhanced information sharing between Government agencies apply to records and disclosures made on or after Royal Assent, irrespective of when the information was obtained. [Schedule 5, subitem 8(2)]

Consequential amendments

3.69 Consequential amendments amend the notes to subsection 355-50(1) of Schedule 1 to the TAA 1953. [Schedule 5, items 3 and 4, note to section 355-50 of Schedule 1 ]

STATEMENT OF COMPATIBILITY WITH HUMAN RIGHTS

Prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011

Tax secrecy and transparency

3.70 Schedule 5 to this Bill is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011 .

Publication of tax information relating to large corporate taxpayers

3.71 Item 1 of Schedule 5 amends the Taxation Administration Act 1953 (TAA 1953) to require the Commissioner to make limited information about the tax affairs of large corporate taxpayers public.

3.72 As these amendments apply only to companies and other non-individual entities, they do not engage any human rights.

Publishing aggregate collections for each Commonwealth tax

3.73 Items 2 and 6 of Schedule 5 amend the TAA 1953 to ensure that aggregate information about the amounts collected or assessed by the Commissioner under a particular Act, or in respect of a type of duty of excise, is not protected information.

3.74 However, this does not apply if the information is capable of being used to identify an individual (natural person). By ensuring that personal information about individuals cannot be discerned from this information, these amendments recognise the importance of affording privacy to individuals' personal affairs. As such, these amendments promote the prohibition on interference with privacy under article 17 of the International Covenant on Civil and Political Rights .

Enhanced information sharing between Government agencies

3.75 Item 5 of Schedule 5 extends an exception to the taxpayer confidentiality provisions to enhance information sharing between Government agencies.

3.76 The extended exception will ensure that a taxation officer does not commit an offence in providing the Secretary of the Treasury with taxpayer information in relation to a decision the Treasurer may make in accordance with Australia's Foreign Investment Policy, or by an authorised Treasury officer making a decision under either the Foreign Acquisitions and Takeovers Act 1975 or in accordance with Australia's Foreign Investment Policy.

3.77 Taxpayers affected by disclosures made under the current foreign investment exception are generally not individuals. Nevertheless, there may be some individual taxpayers whose information may be disclosed to the Secretary under the amendments. Therefore, the amendment may engage the prohibition on interference with privacy under article 17 of the International Covenant on Civil and Political Rights .

3.78 The effect of the amendment is to increase the situations in which a taxation officer can disclose information to the Secretary. However, such information can only be used by the Secretary to assess the national interest implications of a foreign investment proposal. The information must not be used or disclosed for other purposes, or provided to the public.

3.79 The amendment enhances the ability of the Government to assess the national interest implications of foreign investment proposals by allowing more detailed information on the impact a proposal may have on Australia's revenue base to be disclosed.

3.80 Accordingly, any interference with a person's right not to be subject to arbitrary or unlawful interference with their private life is reasonable, necessary and proportionate when considered against the very important national interest objective.

Conclusion

3.81 Schedule 5 engages the prohibition on interference with privacy, but does so in a reasonable, necessary and proportionate way. This Schedule also (separately) promotes the prohibition on interference with privacy, but does not engage any other rights or freedoms. As such, this Schedule is compatible with human rights.

Assistant Treasurer, the Hon David Bradbury