Multinational corporations funneling profits through tax havens and low tax jurisdictions is "a significant cause for concern", Assistant Minister for Competition, Charities and Treasury Andrew Leigh has said.
Commenting on Australian Taxation Office figures showing 831 major companies did not pay tax in 2021-22, Dr Leigh said that while firms may have legitimate reasons for not paying revenue to the government, "we are also concerned when multinationals are availing themselves of tax lurks that are not available to local businesses".
"When you look at some of the academic evidence of the growth in the share of profits flowing through tax havens and low tax jurisdictions, it is significant cause for concern," he said.
The ATO's annual Corporate Tax Transparency Report, which covers public companies reporting $100 million or more of annual income and private firms with in excess of $200 million income, shows that of 2713 entities that reported in 2021-22, almost a third did not pay tax.
The tax office said this proportion of non-taxpayers was similar to data showing that each year between 20 and 30 per cent of ASX 500 companies reported a net loss to shareholders.
Under current rules, a firm is not required to pay tax when it reports a loss, it claims tax deductions or offsets at least equal to the tax otherwise payable or deducts losses from prior years against the current year profit.
Of the firms that did not pay tax, the ATO said more than half were part of a group in which at least one entity paid tax, while 8 per cent reported a loss, 5 per cent claimed deductions that exceeded their liabilities, 6 per cent claimed against losses from a previous year and 1 per cent claimed offsets like research and development investments.
Dr Leigh said there "may be legitimate reasons" for firms not paying tax but the government was cracking down on loopholes being exploited by companies to dodge or lower their tax obligations.
He said the government has proposed legislation banning companies from setting up a subsidiary in a low-tax jurisdiction which then makes a loan to the Australian parent. Under current tax rules, the interest paid on the loan is then claimed as a tax deduction by the parent company.
"That's not an arrangement that's available to your typical Australian small business looking to export into the region," the assistant minister said. "If we don't close it down, those small businesses are competing with one hand tied behind their backs."
The ATO said it collected $83.8 billion of revenue from the large companies included in the tax transparency report, almost 54 per cent of which came from operators in services, retail and wholesale sector. Another 11 per cent came from banking and finance and 10 per cent from mining and energy.
The tax office reported that it secured an additional $3.16 billion of revenue under tax dispute settlements reached with 251 companies last financial year, almost all of which came from publicly listed firms and multinational corporations.
It said the final settled sums amounted to 56 per cent of the original payments sought by the ATO but the terms of the settlements would deliver an extra $1.5 billion of revenue in future years.
The settled disputes predominantly involved transfer pricing and tax structuring.
Dr Leigh said the government had provided the ATO with an additional $200 million to crack down on tax avoidance but admitted that "the tax office is only as good as the laws they've got in front of them".
"That's why the government is improving transparency and closing loopholes," he said.