Multinationals are fighting back against a proposal by the Federal Government's tax advisory board to increase transparency, arguing political leaders first need to define what a tax haven is.

Key points: The government's tax advisory board has asked whether greater detail about a company's tax disputes should be revealed

The government's tax advisory board has asked whether greater detail about a company's tax disputes should be revealed Business argues that detailed tax information could be misleading, but community groups suggest reporting should be mandatory

Business argues that detailed tax information could be misleading, but community groups suggest reporting should be mandatory The move comes as tax authorities and global investors back moves to have greater tax transparency

A submission by KPMG, one of the big four accounting firms which advises Australian companies and multinationals on their tax structures, also suggests that a proposal to divulge whether a company is at the top of the Australian Taxation Office (ATO) list of the nation's most risky taxpayers, would serve no useful purpose.

The Federal Government's tax advisory body, the Board of Taxation, has asked whether there should be changes to the Tax Transparency Code introduced by former treasurer Joe Hockey in the 2015 federal budget.

The code is voluntary, and aims to give Australians a more detailed picture of a company's tax affairs, by allowing companies with more than $100 million annual turnover to divulge greater tax information in their annual reports, financial reports and/or websites.

The code applies for both Australian-listed businesses and foreign multinationals that do business in Australia, but a number of the tech giants including Apple, Facebook and Microsoft, have not signed up.

Critics argue the code, as it stands, gives little useful information.

The Tax Justice Network (TJN), a coalition of community groups and NGOs that have long argued for greater tax transparency, suggests voluntary disclosures under the code allow multinationals to "continue to hide behind a veil of secrecy over their tax affairs".

It wants the Government to instead make it mandatory for companies to give more detailed tax information, including listing every entity in a company, how much tax it pays, and where those taxes flow.

Define a no-tax jurisdiction

KPMG said the Government must first define what it constitutes as a "no- or low-tax" jurisdiction, before requiring companies to disclose details about their subsidiaries and where taxes ultimately flow.

In its submission to the Board of Tax, KPMG said its corporate clients had raised concerns about changes to the code, including the disclosure of Australian Taxation Office (ATO) compliance activities against them and ongoing tax disputes.

The ATO uses various risk ratings — ranging from highest to lowest risk — to decide which companies it targets every year with reviews and/or audits.

KPMG said disclosing these risk ratings would be "potentially misleading and of little value to the public in understanding a signatory's actual compliance with its tax obligations".

It also noted that ATO risk ratings on specific issues can include wording such as, "we have decided not to devote further resources to the matter (at this time)".

Such wording, if disclosed to the public, "could easily create the wrong impression of the ATO's diligence in administering the law, and of taxpayers' compliance with their obligation", the firm said.

Recent Treasury consultation has raised the possibility that signing the Code may become a de facto requirement for companies that bid for certain Federal Government contracts. KPMG suggests postponing finalising its proposals until after a decision on that is made.

Code of no value says TJN

But the Tax Justice Network's Mark Zirnsak is urging the Board to go even further in its bid to make multinationals more transparent, and suggests that mandatory reporting of detailed tax information should instead be introduced.

TJN's submission said disclosures under the voluntary code did not allow the community to understand if a company's profits were taxed where economic value was created.

"This is contrary to what has largely already been a mandatory measure in the EU for financial institutions," Mr Zirnsak said.

It was also problematic that there was no requirement to verify the information in the reports and no penalties for companies making false or misleading reports.

"This results, understandably, in a high degree of scepticism about the value of the code in sorting out which companies are fully compliant with their tax obligations, and those that seek to aggressively minimise their tax with measures that may be illegal if tested in a court of law," Mr Zirnsak said.

Some mining companies and industry bodies want to report payments for raw materials in the form of royalties as tax payments.

Sorry, this audio has expired Tax transparency: Government must hold companies accountable

But Mr Zirnsak argued that payments a mining company makes to the owner of the mineral deposit — in this case the Government — to purchase raw materials, was not a tax.

The Board of Tax's consultation paper noted most tax transparency reports are based on an accounting consolidated group, while the ATO tax data published every year is disclosed for individual taxpayer entities. It asks whether there needs to be greater explanation of taxes paid by each entity.

More scrutiny of digital giants

The push for greater transparency comes as regulators overseas increase scrutiny on multinationals, including leading digital giants accused of not paying enough tax.

The Global Reporting Initiative (GRI) which aims to get companies to give more detailed financial information relating to issues such as climate change, now wants multinationals to publicly report tax payments and economic activity on a country-by-country basis.

The OECD's plan to fight multinational profit shifting, known as Base Erosion & Profit Shifting (BEPS), allows tax authorities around the world to collect such information, but the data is not publicly revealed.

NGOs have long argued that the data should be made public, and since then some governments overseas have introduced mandatory reporting, such as for financial institutions in the European Union and for extractive companies in the UK, EU, Canada and Norway.

Centre for International Corporate Tax Accountability & Research (CICTAR) principal analyst Jason Ward said investors that collectively manage assets worth in excess of $US11 trillion ($15.5 trillion) globally have thrown their support behind the GRI's tax transparency proposal.

This includes groups such as the Australian Council of Superannuation Investors (ASCI), as well as some of the world's largest investment funds including Legal & General Investment Management.

"Tax transparency will not stop tax avoidance, but public knowledge of how much money is stashed in tax havens — and by which companies — may create enough public pressure and awareness to change domestic and global tax rules that permit large scale tax avoidance," Mr Ward said.