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Really, do 31% of big companies pay no tax?

Peter Switzer
9 November 2023

Every year the Tax Office tells us the number of big companies that pay no tax. For 2021-22, the number was a whopping 831 out of 2,713 put under the tax-paying microscope. But don’t get too mad about this because the actual tax paid by big companies increased!

While I reckon all of us hate tax dodgers (some even dislike miners), the spike in tax paid from this group of big companies skyrocketed, thanks to big profits from oil producers and iron ore companies. This revelation partly explains why 831 big companies paid no tax.

You see, a company gets a ‘nil tax to pay’ notification if they’ve made a loss, and companies whose share prices slump big time are often loss-making ones. Other companies might be able to claim tax offsets that turn a profit into a loss. This could come about for investing in research that provides a company with government incentives that reduce the overall tax bill, and they end up with an effective tax refund.

To be accurate, the 2,713 companies paid $83.8 billion in tax, which was up $15.2 billion from the previous year, which abc.net.au says was “…up 22 per cent from the previous year, and almost 50 per cent higher than two years ago.”

Higher commodity prices helped that rise in the tax collected from big companies and ATO Deputy Commissioner Rebecca Saint put the importance of mining into perspective: “In fact, the mining sector paid more tax in 2021-22 than the total tax from all sectors in each of the first three years of…reporting” Ms. Saint said.

However, in trying to understand why 831 companies paid no tax, it’s important to recall what happened across 2021 and 2022.

Generally, there was a strong economic recovery post-COVID. While this saw tax collections rise, not all companies have coped as well as others following the lockdowns and the surge in imported prices for goods used in building and manufacturing. Meanwhile, some companies make money out of owning office blocks, which hasn’t been a great business since Covid hit town.

Also, some companies are in big investment phases hoping to hit paydirt with some ground-breaking discovery. And then there are multinationals who can be experts at tax dodging, thanks to their smart accountants and lawyers. As the ABC points out: “Since the Tax Avoidance Taskforce was set up by then-treasurer Joe Hockey in 2016, the government had collected $27.7 billion in additional tax revenue from multinational enterprises, and large public and private businesses. In the 2022-2023 year, the ATO said it secured a record $6.4 billion of tax revenue from public and multinational businesses alone.”

By the way, not all nil taxpayers should be seen as sneaky tax evaders, though 139 companies have had their tax bills raised in financial year 2022-23 and have had to fork out $2.6 billion!

Some companies are upfront with the ATO and ask for Advanced Pricing Agreements (APAs), which is an agreement between the agency and the company about future taxes they’re expected to pay and based on what terms. Losses don’t have to mean a company is dodgy, though $2.3 billion worth of assessments is still in dispute from 2022. The ATO told the ABC that “about $1.9 billion remains in dispute covering 16 different taxpayers”.

That said, maybe the big news is that overall companies are better at paying tax than we might think. Here’s the ABC again: “The ATO also estimates what it calls a tax gap — that is, the estimated difference between what the agency expects to collect and the amount that would have been collected if every taxpayer was fully compliant with the law — and claims that this is very low.”

The net income tax gap for large corporate groups is about 4.2% or $3 billion in 2020-21, the ATO said.

What is interesting is that when looking at the big company list of 2,713 taxpayers who need to be watched carefully by the ATO, it has 1,496 coming from foreign countries, which often use tricks like pushing up costs on products and costs that they buy from businesses inside the foreign-owned conglomerate. This reduces their profits and taxes in countries like Australia and raises overall profits for the big company, which they pay in a low-tax country such as Ireland. Joe Hockey’s hit squad innovation for tax-dodging multinationals looks like it was a great idea, and you don’t often get good ideas out of politicians.

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