2024 ATO annual report: a focus on large and multinational taxpayers

The ATO’s Annual Report, released on 31 October 2024, reveals the new Commissioner of Taxation’s priorities: a focus on large and multinational taxpayers.

Following an increase in tax compliance across small businesses, yet a decrease in compliance by large corporate groups, the ATO has announced that multinationals are a ‘key focus area’. With several recent multinational disputes being taken to court, the ATO has demonstrated its willingness to litigate tax disputes. The pendulum has swung in favour of the ATO taking firmer action on what it sees as a possible trend towards non-compliance by larger corporates. This may mean that tax disputes are less likely to be settled confidentially, and we are likely to see an influx of tax litigation arising from unresolved audits and objections.

Key insights from the ATO’s 2024 Annual Report

The Australian Taxation Office (ATO) has identified a decrease in tax compliance across large corporate groups, and has announced multinational tax performance as a ‘key focus area’. This follows complex legislative changes this year and further announcements to reduce existing concessions available to foreign resident investors and multinational groups.

The ATO also intends to take firmer action sooner where taxpayers fail to meet their obligations. Despite this, it has recently suffered significant court losses, with $600 million being refunded to taxpayers following their success during the objection and litigation stages.

At the same time, the ATO saw an improvement in small business tax compliance, which it otherwise considers consistently responsible for the largest portion of unpaid tax in Australia.

Based on this, the ATO is likely to prioritise Tax Avoidance Taskforce funding and resources to large audits and litigation in the large corporate and multinational markets. Significant audits and litigation will be used not only to clarify the law and test legal principles, but to send a message to these groups (and the broader public) to ensure compliance.

The ATO’s Annual Report in detail

On 31 October 2024, Commissioner of Taxation Rob Heferen, who was appointed on 1 March 2024, released his first annual report for the ATO. The annual report includes a review of the ATO’s performance over the 12 months to 30 June 2024 and the ATO’s priorities going forward.

Similar to the ATO’s last annual report, a key focus area continues to be recovering tax debts. The report says that ‘[p]aying tax is not optional’, and the ATO will take a ‘progressively firmer approach’ towards those not meeting their obligations.[1] This comes as no surprise, with the ATO previously releasing similar statements.

A focus on multinationals and large corporate groups

However, a specific new ‘key focus area’ for the ATO is multinational tax performance.[2] Whilst multinational tax matters have generally been a priority for the ATO and the federal government over several years, the ATO has now elevated this as a key priority. This also aligns with government priorities. For example, this year the government provided details of its proposal to expand the foreign resident capital gains tax regime and increase reporting requirements for foreign vendors, whilst also reducing the ability of multinational groups to deduct interest expenses.

Despite these changes, according to the report, the ATO estimates the ‘tax gap’, being the difference in what the ATO collects from taxpayers and what they estimate would have been collected if every taxpayer were fully compliant with the law, for large corporate groups has increased to $3.65 billion. A similar trend occurred last year after remaining largely steady for three years. Further, revenue collected by the ATO’s Tax Avoidance Taskforce has decreased by $1.9 billion year on year. This is despite the ATO’s estimate of the overall net tax gap increasing in nominal terms to $44.5 billion.

Accordingly, we can see an early pattern where the ATO’s audit performance has decreased, and the amount of unpaid tax has increased. We expect the ATO will seek to reverse this through the Tax Avoidance Taskforce programs. This taskforce is the ATO’s largest audit taskforce and is currently funded until 2026. The taskforce’s key priority areas and programs include:

• domestic and international private equity (which is a new focus area);
  
  
• the diverted profits tax;
  
  
• transfer pricing;
  
  
• withholding tax;
  
  
• intangibles;
  
  
• foreign investment;
  
  
• other international arrangements involving both public and private groups;
  
  
• advisers (including the use of legal professional privilege); and
  
  
• the ongoing Top 100, Top 500 and Top 1000 programs.

In this space, the Commissioner highlights his multinational achievements over the past year to include:

• removing more than $45 billion of past and future interest deductions for related party finance arrangements from the tax system; and
  
  
• the ATO developing advice and consulting on the thin capitalisation amendments.

Despite these achievements, the ATO has not been significantly successful in litigation this year. In relation to Part IVA matters alone (which the ATO seeks to apply against some of the most egregious arrangements), the ATO has currently lost four of the five cases at court in 2024. Such losses have contributed to the ATO being required to refund $600 million to taxpayers from litigation and objections over the past two years.[3]

However, the Commissioner asserts that the ATO is ‘well-resourced to address priority tax risks as we seek to sustain multinational and large taxpayer performance’. This is already playing out in the courts, such as in:

• PepsiCo where the Commissioner is currently seeking special leave to appeal to the High Court; and
  
  
• Oracle, which is currently before the Federal Court.

Other ATO priorities

Small business tax performance also remains a key focus area for the ATO. Whilst the ATO considers small businesses represent the largest proportion of taxpayers that fail to comply with their tax obligations, the latest statistics indicate that the ATO’s efforts to improve this are succeeding. Despite this, the ATO said that small businesses remain the largest group of taxpayers which do not comply with their tax obligations, with an estimated net shortfall of $17.65 billion (compared to large corporate groups at $3.65 billion).

Where businesses continue to delay or otherwise not pay their debts, the ATO intends to issue director penalty notices and garnishees more quickly. Director penalty notices are significant and impose debts on directors personally in relation to certain unpaid corporate liabilities.

Finally, despite the ATO’s continued focus on debt collection, its overall debt book expanded by 5.2% over the year to $52.8 billion. This, however, represents an improvement on the prior year, where debt increased at a much higher rate of 12%.

A full list of the ATO’s priorities across both the 2022-23 and 2023-24 annual reports is provided below.

The ATO’s new, continued and dropped key focus areas between 2022-23 and 2023-24

New focus areas in 2023-24

• Multinational tax performance
  
  
• Superannuation guarantee integrity
  
  
• Protecting the system and clients against fraud

Common or similar focus areas across 2022-23 and 2023-24

• Improve small business tax performance
  
  
• Address collectable debt
  
  
• Manage cybersecurity
  
  
• Modernising business registry services
  
  
• Continue to invest in data and digital

Prior focus areas dropped in 2023-24

• Expand the use of Single Touch Payroll data
  
  
• Transition to new data centre

^{[1] ATO Annual Report 2023-24, page II.}

^{[2] ATO Annual Report 2023-24, page 16.}

^{[3] The $600 million relates to “significant refunds” only: ATO Annual Report, page 130.}