By Vicca Chartered Accountants

The Board of Taxation (the Board) is conducting a post-implementation review of the Tax Transparency Code (the TTC) in an effort to continue with its mandate to increase transparency about the tax affairs of businesses operating in Australia provides benefits to both businesses and the wider community.

The Board is seeking views on the proposed changes to the TTC as set out in this Consultation Paper. Submissions can be made until 26 March 2019.

In brief the TTC disclosure is divided into two parts.

  • Large businesses' which should adopt Part A and Part B of the TTC. 'Large businesses' are defined as businesses with aggregated TTC Australian turnover of AUD 500 million or more.
  • 'Medium businesses' which should adopt Part A of the TTC. 'Medium businesses' are defined as businesses with aggregated TTC Australian turnover of at least AUD 100 million but less than AUD 500 million.

A summary of its application to 'Medium businesses' and 'Large businesses' follows.

Part A – Medium and Large Businesses

1. Businesses should disclose a reconciliation of accounting profit to income tax expense, and from income tax expense to income tax payable on accounting profit and income tax paid during the relevant period.

2. The reconciliation should identify material temporary or non temporary differences

3. Businesses should disclose an Australian accounting effective tax rate (ETR) and a global ETR for the worldwide accounting consolidated group calculated based on company tax expense.

4. Businesses making TTC disclosures outside of general purpose financial statements should provide a 'basis of preparation' statement for TTC disclosures, outlining the basis on which the disclosures have been prepared and any assurance processes undertaken for the TTC disclosures.

5. Business should provide a reconciliation of the data published by the ATO under the mandatory corporate tax transparency measures (in particular, total income, and tax paid) to disclosures in tax transparency reports (in particular, accounting profit).

Part B – Large Businesses Only

1. Business should provide information on the business's 'tax policy' or 'tax strategy' including:

  • whether the business has a formal tax policy and it's content;
  • its approach to risk management and governance arrangements, including the level of oversight by the Board and processes to carry out risk assessments on significant transactions;
  • attitude towards tax planning, including the:
    o accepted level of risk in relation to taxation;
    o approach to engagement with the ATO.

2. Business should disclose the following information in relation to their tax contribution:

  • Australian corporate income tax paid; and
  • other Australian taxes and imposts paid to Government, for example Petroleum Resources Rent Tax, royalties, excises, payroll taxes, stamp duties, fringe benefits tax and state taxes.

3. Businesses should provide a qualitative disclosure of key categories of dealings with offshore related parties which have a material impact on the business's Australian taxable income, including the nature of those dealings and the country in which the related party is located.

  • Specifically, businesses should outline the top three dealings (by amount) between the Australian business and offshore related parties and provide sufficient information to enable stakeholders to understand how these arrangements fit in with the broader business and the country in which the related party is located.
  • Large businesses with no material international related party dealings should state this in their TTC disclosures.

How Should the TTC be Disclosed

Where a business is required to adopt only Part A of the TTC ('medium businesses') the content can be displayed either as an improved tax disclosure in the business's Australian general purpose financial reports or via publication of a 'taxes paid' report (or similar) or another document.

If a business is required to adopt Part A and Part B of the TTC ('large businesses') the content can be displayed either wholly within a 'taxes paid' report (or similar), or Part A can be displayed in general purpose financial statements and Part B displayed in a 'taxes paid' report (or similar).

Where a 'taxes paid' report is separate from the financial statements is likely to be more accessible to general users of the TTC This report could be a stand alone report or could be included in a broader corporate social responsibility report or any integrated reporting initiative.

Closing comments

The ATO maintains a central website that links to all publicly issued reports. Following publication of information in accordance with the TTC, businesses are asked to notify the ATO each year by emailing ttc@ato.gov.au and providing an electronic link.

Notwithstanding that the Tax Transparency Code (the TTC) compliance is voluntary, the Government expects all responsible large and medium businesses operating in Australia to adopt the Tax Transparency Code (the TTC).

Submitted by Noé Vicca, Vicca Chartered Accountants, Australia.
Phone: +61 7 3221 9444 or email noe@viccaca.com