FAIR TAXATION AND FINANCIAL REPORTING: Why does AUSTRALIA require income tax disclosures beyond AASB 112?

In recent times, there has been an ongoing public debate about tax avoidance by large,

multinational companies worldwide leading to the OECD Base Erosion and Profit

Shifting project (OECD 2015) which was endorsed by the G20 governments, including

the Australian government. One of the key proposals resulting from the project is to

increase tax transparency (Ting 2014, paras 1-3). In 2013, the Australian legislator

amended the Taxation Administration Act 1953 requiring the Australian Taxation Office

(ATO) to disclose every year publicly the total income, taxable income and income tax

payable of corporate tax entities with a total income of $100 million or more. The first

ATO report for the financial year 2013-14 is expected to be released on the ATO

website in November/December 2015 (ATO 2015).

You now find yourself working in the financial reporting unit of a large company with

headquarters in Australia*. The CEO of your company has no accounting experience

and is quite confused about this new disclosure requirement. She/He was in the belief

that AASB 112 already requires your company to disclose taxable income and income

tax payable publicly in the financial reports.

*****Required*****:

The CEO asks you to write a brief technical report and to prepare a presentation of

your findings (5 minutes + 2 minutes for questions), both addressed to her/him. The

report should cover the following:

a. Summarise the current disclosure requirements of AASB 112 that may provide an

indication of the ‘ATO taxable income’ and the ‘ATO income tax payable’ which are

now to be publicly disclosed as explained above [Note: ‘income tax payable’ in the

ATO sense may be named differently in AASB 112; for part a. refer to paras 79,

80, 81 (c), and 84-86 only of AASB 112]. (15 marks)

b. Based on the income tax information as disclosed in the latest financial report of

your company, explain why the Australian legislator believes there is a need for the

additional ATO disclosures as explained above. (15 marks)

c. By using a suitable example of another company which already discloses tax

information beyond the AASB 112 requirements, provide recommendations how

your company could proactively respond to the additional ATO disclosures.

(10 marks)

* You need to select a suitable company by yourself. Apart from being incorporated in

Australia, your company must have a profit before income tax of at least $100m in

their consolidated financial statement for the financial year ending 2014. Since we

cannot know (yet) the total income 2013-14 as reported to the ATO, we assume that

these requirements ensure your company meets the tax disclosure threshold. These

requirements should also mean the company’s financial reports are audited, publicly

accessible and fully compliant with AASB (Tier 1; see week 1 topic).

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