Business Taxation and Law Proposal Report - Australia - Semester 1

This report presents a proposal for encouraging domestic companies in Australia to adopt fiscally transparent policies for income tax purposes. The study explores the current tax approach, focusing on the importance of a company's tax status in determining tax liabilities. It reviews relevant literature, including the application of income tax and GST to domestic companies, the impact of tax treaties, and the significance of corporate tax transparency. The proposal suggests incorporating various elements to encourage corporate participation, such as providing tax benefits and addressing tax loopholes. The report recommends defining transparent and non-transparent entities clearly, making taxation rules easier to understand, and considering the impact of the proposal on overseas investors. It also suggests prescribing special tax rates based on company turnover and implementing exemption limits to reduce compliance costs. Furthermore, the proposal emphasizes the need for clear guidelines on profit allocation, tax treaty norms, and the tax treatment of transparent entities to ensure fairness and efficiency. The report concludes by recommending that the government make the rules for classification, and taxation system in such a way by which the overseas investing company does not affect adversely.

Business Taxation and Law

Table of Contents
Introduction................................................................................................................................3
Methodology..............................................................................................................................3
Literature review........................................................................................................................3
Proposal......................................................................................................................................5
Conclusion..................................................................................................................................8
Bibliography...............................................................................................................................9

Introduction
The tax status of an organization does have significant importance in taxation law. It is the
basis on which provisions relating to taxation are ascertained for calculating tax liability.
Present study relates to discussion relating to the proposal of transparent policy, i.e.
encouraging domestic companies to opt to be fiscally transparent for income tax purpose has
been discussed in present proposal. The present proposal provides details relating to variants
which should be incorporated in proposal along with the manner to develop proposal relating
to an ‘opted’ in fiscally transpired private company might look like.
Methodology
The present study is primarily based on secondary sources to provide proposal to regulatory
authorities of Australia. Systematic research has been done to evaluate current tax approach
for domestic companies and the scheme which government wants to implement. Authentic
sources have been considered for literature review, and the same has been supported by
proper citations.
Literature review
Taxable entities which are either incorporated in Australia or carry on business in Australia
(central management exists in Australia, or voting power is under control of Australian
resident shareholders) are considered as Australian resident for tax purpose. In accordance
with section 1.1.1 of ITAA 1997, a company is “a body corporate or an unincorporated
association or body of person other than partnership or joint venture”. An organization which
is covered under the definition of taxable entity is classified as an entity for Australian
income tax purpose whether mandatory or optional1. The principal taxes applicable to
domestic companies are income tax (including taxes on capital gains) and GST. A resident
company is liable for company income tax at a rate of 30%. A lower rate of 27.5% is also
applicable for companies having annual turnover less than specified limits. Assessable
income is calculated to ascertain taxable income for each year which is reduced by allowable
1Kirchler,and Hoelzl. "16 Tax Behaviour." (2018). 1(1) CENTRE FOR DECISION
RESEARCH, UNIVERSITY OF LEEDS, UK 255.

deductions in order to attain taxable income2. The Australian tax system is having a broad tax
treaty network which is followed by Organization for Economic Cooperation and
Development model treaty.
The main issue evolved relating to fiscal transparency is the income tax is that it is applied by
separate law as an individual income tax law and corporate income tax law3. In other words,
it can be stated that physical and legal person is taxed under same law but governed under
different norms, i.e. separate tax rates and separate schedules. Through ensuring corporate
taxpayers to pay off their fair share, public could be assured relating to essential services of
which Australian’s rely4. Even difference between tax which should have been collected but
was not collected, decreased to 4.4% or $1.8billion. The reason behind same was difference
in interpretation of complex provision relating to taxation. The tax office transparency culture
includes all companies with turnover of more than $100 million5. But the companies with
income of more than $5 billion represent only two percent of corporate transparency
population but liable of 57% or $26 billion of tax paid6. Thus, the transparent policy should
be formed in such manner so that it is easily acceptable as well as understand by the
domestically – incorporated entities. Further, it is necessary to add on few taxation benefits
with same so that more corporation could be encouraged to be part of it. Authorities require
2Stephen Phua,."Convergence in global tax compliance." (2015).12.Sing. J. Legal Stud. : 77.
3Liam Stanley and Hartman K. Todd. "Tax preferences, fiscal transparency, and the meaning
of welfare: An experimental study." (2018). 12 .Political Studies 66.4 : 830-850.
4L. Jeffrey Hoopes, Robinson Leslie, and Slemrod Joel."Public tax-return disclosure." (2018).
15.Journal of Accounting and Economics 66.1, 142-162.
5Shane Wright and ErykBagshaw.One in four of Australia's largest companies paid no tax
last year . (13th December 2018). <https://www.smh.com.au/business/the-economy/one-in-
four-of-australia-s-largest-companies-paid-no-tax-last-year-20181213-p50m0i.html>
6Shane Wright and ErykBagshaw.One in four of Australia's largest companies paid no tax
last year . (13th December 2018). <https://www.smh.com.au/business/the-economy/one-in-
four-of-australia-s-largest-companies-paid-no-tax-last-year-20181213-p50m0i.html>

emphasizing on closure of tax loopholes in order to increase the percentile of tax holders to
accept the new proposal. As main emphasis is on tax bracket in relation to individual
taxpayers, in same manner threshold limit is the main element in case of corporation7. Thus,
turnover taxes framework could be used in order to develop the new proposal. The authorities
are required to focus on tax arrangements which lead corporate to avoid paying taxes as well
as the tax loopholes in order to enhance the efficiency of new proposal.
Proposal
Overview
As per the taxation law, the eligibility of the company as a taxpayer plays a significant role.
Thus, through framing easy provisions, domestic companies could be motivated to accept
proposal of transparent policy. At the time of determination of corporate income tax, the
status of an entity is important. Further, by considering the viewpoint of shareholders or
members of the company, recognition of the company as taxable one will generally have the
impact that profit generated by the company will taxable in the hands of company instead of
the shareholders of company. As above explained in literature review, in order to encourage
taxpayers it is necessary to provide them advantages for accepting transparent proposal.
Above stated initiative could be one for same.However, in case transparent company, Income
or losses generated by company is allocated to the members of company. In Australia, the
concept of transparent company is growing significantly for enactment. The origin of the
transparent company is outside the company, but it has same features as the separate legal
entity. Further, the liability of the members is also limited8. However, the taxation rules on
transparent company are like general partnership firm. Therefore, the profit or loss of the
company is directly apportioned to the members of company.
7Sigrid Hemels,."Tax Incentives as a Creative Industries Policy Instrument." (2017). 14.Tax
Incentives for the Creative Industries. Springer, Australia.. 33-64.
8Lopo , Antonio Martinez. "Tax aggressiveness: a literature survey." (2017)15.Revista de
Educação e PesquisaemContabilidade 11, 151-167.

A general approach can be initiated by the regulated authorities in which taxation by which
income is taxed on the basis of owners rather than the level of the entity9. Another approach
which can be complied is partial flow-through treatment as entity, income which is
distributed to beneficiaries and remaining profits to be taxed on the basis of entity level.
Initially policies should be developed in a form that each organization is required to be
registered under to option of transparency taxation policy10. The partial approach can be
considered as more appropriate as a significant amount of income of all tax holders will be
computed on the basis of similar provision or norms. It could be a nominal amount of
percentage of tax on gross sales.It can be done through applying same provision so that issues
faced by tax holder relating to separate laws could be resolved.
Approaches and recommendations
It is important for the government to define properly, the transparent entities and non-
transparent entities for the taxation purpose.A company which pays off actual tax liability or
present true profit in books of accounts can be referred transpired in general manner. It is
necessary for government to define same with easy provision so that companies can ascertain
their specific status. Therefore, it is recommended to the government to make the rules for
classification by which certainty can be achieved in this aspect. Moreover, it is essential for
the government of Australia to make the taxation system in such a way by which the overseas
investing company does not affect adversely. The government should make the proposal in
such a manner which assists in enhancement of tax neutrality. For this, it is recommended
that government should prescribe the special rates as per the turnover of the company. By
this, the burden of tax payment on the small and medium-sized company will reduce. Further,
certain amount of exemption limit for the taxation is also proposed by the government, by
9Agustin Redonda and et al. "Tax expenditure and the treatment of tax incentives for
investment." (2019). 1 (1). Economics: The Open-Access, Open-Assessment E-
Journal 13.2019-12.
10Al-Maghrebi, Saleh Mohammed, Ahmad Riayati, and Palil Rizal Mohd. "Budget
Transparency and Tax Awareness towards Tax Compliance: A Conceptual
Approach." (2016) 11.Journal of Contemporary Business, Economics and Law of Australia
10.1

this any type of compliance cost would not be incurred by the company which satisfies the
criteria of exemption limit. In addition, government should find the ways by which
complexity should be reduced because the tax burden on profit lies with members of
company, and on the other hand, ownership of assets and other is attributable to the business.
Further, it has been observed that the compliance cost of taxation by transparent company is
more than any other form of company; therefore it is recommended that special rate tax
should be introduced which assist in reduction of cost so that public would like to adopt these
type of taxation system. Along with the above aspect, the government of country should also
prescribe the eligibility requirement of the transparent company. Further, the allocation of
profit or loss rules should also be prescribed properly, so that unnecessarypressure of tax on
the members of company get reduces. Further, attempt should be made by government to
provide advantage to the entities which agree to opt for transparency policy. Through this
manner it would be able to encourage more tax holders to be in favour of the policy. It is
necessary that the provision and norms relating to new proposal should be easily acceptable
as well as accessible. Acceptance and understanding can be referred as two core variants
relating to increasing the percentile of acceptance of new proposal. As tax holders are already
facing issues due to existing complex norms and provisions, thus it is necessary to focus on
the manner in which norms relating to new proposal will be applied.
Apart from the above aspect, it is recommended that government should properly prescribe
the tax treaty norms for the transparent entities. Further, for the application of tax treaty rule,
it is essential that whether the company will actually obtain the advantages of tax treaty and
for this government should properly define the eligibility status for the companies for
obtaining the benefit of tax treaty. Along with this, if the government is entered into the tax
treaty treatment with another country, then protection can also be provided in case if the laws
of two countries are not same. Since, in case of any discrepancy among the laws of two
countries, then it may significantly affect because company may not avail the advantages of
double taxation. Further, government should also consider the issues related with proper
attribution of the profits generated by the transparent company, as it plays a significant role in
practical situation. Further, it has been seen that, in case of transparent company, the tax is
levy on the member of company, as the income is allocated on them, but it is recommended
that government should make the rules in which tax is levy on the company itself instead of
members. By this rule, the burden of tax will not imposed on them. Along with this,
government can also implement the partial amount of distribution for the profit or losses. In

such case, members of the company have to pay only to some extent of tax amount, which
assists in reduction in the tax burden. Further, by considering the conceptual approach, it is
more reasonable that, company has to pay tax on the profits earned by it as it is considered as
separate legal entity. The government should also make easy rules for the computation of tax
liability, such as determination of tax on the basis of turnover. By this, companies encourage
to adopt the changes which are beneficial for the country as well as organizations.
Conclusion
By considering the above analysis, it has been drawn that the status of any company plays a
significant role in the imposition of taxation ruling. It has been observed that in case of
transparent company, the profit or loss in allocated to the members of the company rather
than the company itself. Above analysis shows the description regarding the proposal by the
government. It is recommended that government should reduce the complexity in the taxation
system of the transparent company. Since the allocation of profit or loss to members and the
ownership of company lies with company create the difficulty for the companies. Therefore,
by considering the above analysis, it is recommended that government should prescribe the
particular rate of taxation for the companies. Further, this rate may be based on the turnover
of company, which would be easy for compliance. Along with this, government may also
enter with tax treaty agreement with other companies. By this company can avail the benefit
of double taxation ruling, through which tax will not be paid by company or members twice
on the same income. Moreover, it is also recommended that the government should
implement the partial flow treatment, in which income is distributed

Bibliography
Al-Maghrebi,MohammedSaleh, Riayati Ahmad, and Mohd Rizal Palil. "Budget
Transparency and Tax Awareness towards Tax Compliance: A Conceptual
Approach." (2016) 11 Journal of Contemporary Business, Economics and Law of Australia
10.1 95-101.
Hemels, Sigrid. "Tax Incentives as a Creative Industries Policy Instrument." (2017). 14.Tax
Incentives for the Creative Industries.Springer, Australia.
Hoopes, Jeffrey L., Leslie Robinson, and Joel Slemrod."Public tax-return disclosure." (2018).
15.Journal of Accounting and Economics 66.1
Kirchler, Erich, and Erik Hoelzl."16 Tax Behaviour." (2018). 1(1) CENTRE FOR DECISION
RESEARCH, UNIVERSITY OF LEEDS, UK .
Martinez, Antonio Lopo. "Tax aggressiveness: a literature survey." (2017)15 Revista de
Educação e PesquisaemContabilidade 11
Phua, Stephen. "Convergence in global tax compliance." (2015).12.Sing. J. Legal Stud.
Redonda, Agustin, et al. "Tax expenditure and the treatment of tax incentives for
investment." (2019). 1 (1). Economics: The Open-Access, Open-Assessment E-
Journal 13.2019-12.
Stanley, Liam, and Todd K. Hartman. "Tax preferences, fiscal transparency, and the meaning
of welfare: An experimental study." Political Studies 66.4.
Wright., Shane., and BagshawEryk.. One in four of Australia's largest companies paid no tax
last year . (13th December 2018). <https://www.smh.com.au/business/the-economy/one-in-
four-of-australia-s-largest-companies-paid-no-tax-last-year-20181213-p50m0i.html>