During a Senate estimates hearing last month, Greens senator Peter Whish-Wilson had asked the ATO to reveal the aggregated income of the big four firms, with the tax office noting there was no legal obligation for the entities to provide consolidated financial statements.
Taking the questions on notice, the ATO has since responded, revealing the $7.6 billion income figure, alongside a $2 billion taxable income.
“It should be noted that the firms are not single entities, but are clusters of related entities, usually structured as a main partnership, with a main trust that provides services to the partnership and other related entities, and a mixture of other companies, partnerships and trusts,” said the ATO.
“Each entity is required to lodge an income tax return with the ATO, noting that partnerships and trusts do not pay tax themselves on their profits – rather the recipient of the distributions from the partnership and/or trust will pay tax.”
The ATO also said it was not possible to isolate the impact of the income of the firm on the tax payable of the partners as some of the income would be taxable in the hands of individuals and entities and the income of the partners from the firm will be comingled with income and deductions from other activities.
In response to a question on whether the ATO had the assurance that the firms were not shifting income or claiming incorrect deductions, the agency noted that its Top 320 program covered professional services firms such as the big four, giving them “a high degree of confidence that the big four partnerships are meeting their tax obligations”.
It also noted that the use of a service entity was an “establish and prevalent practice” within firms and that the Tax Office had taken the necessary steps, including one-on-one engagements, to ensure compliance with its guidance.
The ATO had previously suspended the application of the guidelines and Everett Assignment web material as of 14 December 2017 due to a variety of arrangements exhibiting high-risk factors not specifically addressed within the guidelines.
Consultation on the new guidelines has been ongoing, with the ATO yet to publish draft guidance.