The Australian Taxation Office has unveiled a new method for dealing with Australia’s largest companies, with plans to audit 30% of Australia’s 1,300 biggest firms every year, with a view to weeding out the biggest tax risks.
The ATO, which defines a large company as having over $250 million in revenue or having a prominent position in the Australian market, has released a new compliance guide for large businesses that explains how the ATO plans to divide this sector into four distinct target areas.
At the top of the hit list are those seen as being at high risk of non-compliance (about 18 of the 1,300 companies), followed by the medium-sized risk companies (375 companies) and lower risk taxpayers (843 companies). A fourth group contains Australia’s biggest taxpayers (64 companies).
The high-risk companies can expect regular reviews and constant monitoring; while other companies can expect to be the subject of regular reviews, although the ATO has been quick to point out that just 5.5% of these reviews proceeds to audits.
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Risk assessments will examine the past compliance behaviour of large businesses, their tax risk management governance, intelligence from industry sources, government agencies and overseas tax regulators, and the impact of new taxes on particular companies.
ATO commissioner Michael D’Ascenzo says the Tax Office may also consider whether it will also more closely scrutinise companies who use tax advisers with records of compliance issues.
“We are currently considering including more prominently aggressive tax advisors and tax managers as one element in our risk rating and sharing this aspect of our risk rating with senior management in the large business.”
D’Ascenzo says every large company is run “through a set of risk filters several times a year to ascertain whether a business may have a potential material compliance risk” and says that for the companies who pay the most tax, the ATO’s approach is “to use near real time continuous monitoring stance in relation to compliance matters”.
But he also called for companies to work more closely and be more responsive to ATO requests for information to help develop a better “mutual trust” between the tax man and the big end of town.
D’Ascenzo argues that this will led to speedier resolution of any potential tax problems.
“As an example of what not to do, we recently had a situation where a company took a drip-feed approach to our request for information. Getting this information dragged on for 18 months and proved costly for everyone involved, particularly for the large business who had a new and expensive advisor on board for the duration.”
“When we finally received the full facts, we were able to confirm quickly that there were no problems with their practices and everything had been fine all along. I wonder what the Board’s reaction was when they found out about the delays at their end and the associated costs in time and resources.”
The ATO releases it annual economy-wide compliance guide in early August.