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.

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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