Corporate tax of large companies grew 20% in Australia but 1 in 3 doesn’t pay any

The largest companies operating in Australia have paid 20 percent more corporate tax combined in a year. The country has been investing in combating tax avoidance by large corporate entities.

Rio Tinto's Iron ore mine in the Pilbara region of Western Australia
Rio Tinto’s Iron ore mine in the Pilbara region of Western Australia. Rio Tinto is the second largest corporate tax payer in the country | © Rio Tinto

The Australian Taxation Office released on November 3 its annual report on corporate tax transparency. The amount of tax paid by large companies is the highest since the reporting started eight years ago.

In 2020-21, the 2,468 largest corporate entities operating in Australia paid a combined 68.6 billion Australian dollars (US$43.3 billion) in tax, 19.8% more than the previous year.

Among those large corporations, 1,376 are foreign-owned companies with an income of AU$100 million or more (US$65 million), 563 are Australian public entities with an income of AU$100 million or more, 529 are Australian-own resident private companies with an income of AU$200 million or more.

Australian public entities contributed the most (66 percent of corporate tax paid), followed by foreign-owned entities (23 percent), and Australian private corporations (11 percent).

The three largest corporate tax payers are mining companies: BHP (AU$7.3 billion), Rio Tinto (AU$6.2 billion) and Fortescue Metals (AU$5.8 billion). They notably benefited from high commodity prices like iron ore prices last year.

However, 738 of them, or 32 percent, paid no income tax. To the Australian Tax Office, “there are many genuine reasons why companies might pay no income tax.” Declaring losses may not always come from uncommercial or artificial arrangements.

Deputy Commissioner Rebecca Saint says that “we pay close attention to companies not paying tax. We hold those companies that report continual year-on-year losses to an additional layer of scrutiny. While it’s true some large entities paid no income tax, we’re seeing through our justified trust program that there are high levels of compliance by these entities, and taking decisive action where there’s not.”

The ATO claims Australia is one of the world’s leaders in combating tax avoidance of large corporate entities. It says Australia has some of the highest levels of tax compliance of large businesses in the world with 93% of tax paid voluntarily, and 96% after tax compliance activities.

It created a Tax Avoidance Taskforce few years ago. With about 75 million Australian dollars (US$47 million) of budget a year, the taskforce helped raise on average 3.4 billion Australian dollars (US$2.2 billion) of tax liabilities per year since 2016.

To further combat tax avoidance, the government of Australia recently announced it would increase investment to 275 million Australian dollars per annum on average over the next four years to expand the focus of the Taskforce. This will allow the agency to recruit 1,200 more people.

Last July, Rio Tinto agreed to settle almost 1 billion Australian dollars with the government for all its tax disputes. The ATO is also pursuing several cases related to the Diverted Profits Tax, known as the “Google Tax”, which aims at avoiding company arrangements to pay tax elsewhere than Australia for their economic activity on Australian soil. The first case is public and is against PepsiCo, which has appealed the assessments.

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