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Why Some Of Australia's Biggest Companies May Be Paying No Tax

The release of a federal tax report has reignited outrage over whether large companies are paying their fair share.

The Australian Tax Office's tax transparency figures, released on Thursday, provide an overview of 2100 corporations that operated in Australia in 2016-17 and had annual turnovers of more than $100 million.

They paid the government $45.7 billion in tax, $7.5 billion more than the previous year.

Commonwealth Bank was the country's largest taxpayer,  handing over approximately $3.9 billion, but up to 722 companies have not disclosed their tax payable.

This is commonly interpreted as companies paying zero tax -- which could well be the case.

But according to Roman Lanis,  Associate Professor from the Accounting Discipline Group at the University of Technology Sydney, this is not entirely accurate.

"There are absolutely a lot of companies on the list that have no disclosure for taxable income and tax payable, and this does raise red flags -- especially when there's a high total income," he told 10 daily.

"A lot of people assume those are zero, but that isn't correct."

"If there's missing data, they're not paying tax. But that doesn't mean tax is zero. It means there's a benefit that is being carried forward that the ATO doesn't disclose."

"We can't conclusively say that all of those are avoiding tax."

The ATO began publishing the list in 2013, after tax transparency laws passed by the then-Labor government.

According to Lanis, the list misses crucial information such as tax losses or how businesses use tax benefits to reduce their taxable incomes.

"The ATO tells us what that could be, but we need to look at the bigger picture," he said.

READ MORE: How Our Tax System Exacerbates Gender Inequality

Professor Helen Dodgson, from Curtin University Law School, agreed.

"This report can be a starting point, but it's too simplistic on its own," she told 10 daily.

"You need to know more about the way a company is operating to know whether or not the gap in income figures is genuine -- and whether or not is is normal to the industry -- before we get concerned."

(Brendon Thorne/Bloomberg)

So, why could large companies be paying no tax?

They've Had A Bad Year

There could be several factors that could affect the amount of taxable income and tax payable in a single year -- which is what makes analysing the ATO data difficult.

First, companies might be carrying forward losses from previous years.

"When a company has a series of bad years, and then a good year, they effectively recoup those losses in the good year," Hodgson said.

"You can see that when there is a big difference between their total income and their taxable income, meaning there are tax deductions of some sort."

They're Being Smart About The System

Hodgson said corporations involved in certain activities could also be entitled to concessional tax rates, such as research and development concessions.

According to the ATO, economic conditions, reinvestment into business, distribution of profits within a group, and tax deductions and offsets are all factors.

For example, 251 entities reported taxable income in 2016-17, but could deduct losses from the previous year against that profit, meaning no tax was payable.

They're Avoiding Tax

There are genuine reasons, and then there are companies who just shirk their tax obligations.

According to Hodgson, the biggest issue is a practise known as Base Erosion and Profit Shifting (BEPS) -- where companies move income to low-tax countries and debts to high-tax countries, to minimise how much they pay.

"There has been a lot of tightening around this, in Australia and the OECD... to close those loopholes," she said.

"That's not to say it has been fixed; but it is something that is being reviewed."

Internet giants such as Google, Facebook and Microsoft are tightening their books under new Australian anti-avoidance laws.

A separate report shows the tax gap -- the difference between what companies pay and what the ATO estimates they should  -- was 4.4 percent, down from 5.8 percent in 2014-15.

Treasurer Josh Frydenberg said the narrowing gap shows the Coalition's reforms were paying off, but Labor's Andrew Leigh told 10 daily the system should be fairer.

"While a Shorten Labor government would crack down on multinational tax avoidance, Scott Morrison's one-point economic plan has been an unaffordable tax cut for multinationals and big banks," he said.

"The Coalition didn't want everyone to see these numbers. They're only out because Labor changed the laws."

Lanis, too, wants the ATO to make additional disclosures revealing companies' tax losses carried forward, to analyse the "bigger picture".

Contact the author ebrancatisano@networkten.com.au