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Australia: Income “tax gap” estimate, large corporate groups

Australia: Income “tax gap” estimate

The Australian Taxation Office (ATO) has released an updated estimate of the income “tax gap” of large corporate groups for each financial year from 2010–11 to 2016–17. The restated figures show a downward trend for the past four years, which some believe may indicate that legislative changes are having an effect on reducing the incidence of diverging views of the law.


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According to the ATO, the large corporate groups’ income tax gap is the difference between (1) the total amount of income tax collected from large corporate groups and (2) the amount the ATO estimated would have been collected if every one of these taxpayers was fully compliant with the tax law. The large corporate groups included in the data are those with gross income exceeding $250 million* in a financial year (approximately 1,500 large corporate groups).

*$ = Australian dollar

The reason for the gap, according to the ATO, is differences in interpretation in complex areas of the law such as:

  • Transfer pricing
  • Treatment of offshore income and the use of controlled foreign companies
  • Business restructures
  • Debt-equity tax arbitrage

According to the ATO, the net income tax gap has been consistently decreasing over the past four years, from 5.2% in 2013-14 to 4.0% in 2016-17. The ATO noted that a range of legislative reforms and operational changes coincide with these changes including:

  • Enhancements made to the general anti-avoidance rule and transfer pricing provisions
  • The adoption of transparency measures
  • The expansion of the justified trust program

Read an October 2019 report prepared by the KPMG member firm in Australia

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