Response to specific consultation questions
What should be taken into account in determining what is a ‘satisfactory tax record’?
The Discussion Paper makes clear that the information included in the statement will be based on information held in ATO systems including declarations provided by the businesses in question. In that event full use of that information should made. For example, where the business has been a respondent in ATO initiated proceedings relating to alleged tax contraventions or where court orders have been made against the business in relation to tax –related contraventions, this information should be included. This will allow the relevant Government agency to interrogate the information further in order to satisfy themselves that these proceedings do not present a commercial risk or do not otherwise render the business unsuitable for Commonwealth funded work. ATO enforcement activities such as non-compliance with a direction notice, repeated instances of direction notices, administrative penalties, prosecution and conviction on tax matters would all render a business’s tax record unsatisfactory. Other matters such as non-payment or underpayment of employee wages and entitlements should also disqualify an entity from being considered to have a satisfactory tax record. Additionally, and noting the success of the system in those industries in which the Taxable Reporting Payments System operates, information held by the ATO in relation to the tax history of the business as disclosed by the TPRS should be fully utilised in assessing the ‘satisfactory’ nature of the business’s tax record. That might include verified under-declaration of income disclosed through the TPRS, failure to register and disclose reportable payments and re-assessments and back-payments made as a result of the operation of the TPRS.
What could objectively be considered to be a ‘satisfactory’ tax record and an ‘unsatisfactory’ tax record?
Factors that indicate an unsatisfactory tax record could include adverse orders in tax –related proceedings, director disqualifications, garnishee notices, non-compliance with or repeated directions notices, failure to register for relevant tax obligations, timeliness of remittances, failure to remit, filing of false or misleading information, misuse of ABNs either by the business itself or employees misclassified as contractors and improperly using ABNs, whether the business has entered into undertakings with the ATO, whether director penalty notices have been issued, whether directors have been associated with a company that has experienced an insolvency event and is the subject of an adverse administrator’s report arising from that event. Non-compliance with monitoring systems such as SuperStream, Single Touch Payroll and the TPRS should also be considered to render a business’ tax record unsatisfactory.
What things should be taken into account if the tax history is not perfect but should not prevent a satisfactory tax record statement being issued?
Rather than a satisfactory statement being issued for those with ‘imperfect’ tax records, a qualified statement could be issued which identifies the nature of and the reason for the qualification which would allow the tendering agency to require the business to provide further information to allow them to be satisfied that the business was in fact a suitable tenderer or potential beneficiary of a government contract. Transparency around previous non-compliance, repayment of all taxes and employee entitlements from previous incursions, and evidence of proactive engagement with the ATO and the relevant union to ensure that all tax and employee liabilities are being met should all be considered as factors in allowing even a qualified statement.
What length of time should be taken into account in the Statement of Tax Record?
At least the minimum 5-year period for which businesses are required to retain tax records.
Should large businesses with a turnover of $100 million or more be required to show evidence that they have adopted the Tax Transparency Code?
Yes. As it now stands a significant number of large corporations, many of whom appear (based on ATO Tax Transparency reports) to regularly pay zero corporate tax year on year, have failed to sign up to the Tax Transparency Code. In order to ensure that the public can be confident that major contracts are only awarded to companies with a demonstrable commitment to tax transparency, the adoption of the TTC by large companies should be a prerequisite for Commonwealth procurement.
What arrangements should apply to sub-contractors?
Smaller sub-contractors often pose an even greater risk than those in a direct contractual relationship with the government tendering agency. For this reason there needs to be stringent application of the Statement of Tax Record measures to those further down the supply chain. There should be a time limit imposed on those directly tendering or contracting with the Commonwealth to provide Statements from those further down the supply chain to the procurement officer of the government agency. Procurement agencies should retain a register of contractors in the supply chain and periodically audit their contractors to ensure that Statements have been provided for all contractors in the supply chain. Additionally, companies’ Statements of Tax Record should include serious incidences of tax fraud by any sub-contractors engaged during the past five years. This will compel companies that receive public funds to assume responsibility for their own supply chains. In addition, tax avoidance that occurs on a Government contract by a sub-contractor that is not directly contracted to the Government should appear on the Statement of Tax Record of the lead contractor.