Commonwealth Bank of Australia ACN 123 123 124
2 As Australia s largest corporate taxpayer 1, the Commonwealth Bank of Australia Group ( the Group ) is committed to being a responsible corporate taxpayer and to acting with the highest integrity in complying with all prevailing tax laws. The Group maintains transparent and collaborative relationships with all revenue authorities. This document details our approach to tax risk management together with tax information for the financial year ended 30 June 2017 and meets all of the requirements of the Tax Transparency. Our Approach to Tax Compliance and Continuous Disclosure Comply with all statutory obligations and provide full disclosure to revenue authorities. Reporting Regular reporting to the Board by the Head of Tax and external auditors. Our Approach To Tax Strong Tax Control Framework The Group adopts systems, processes, controls and technology to identify and manage tax risk. Conservative Taxpayer The Board mandates that the Group adopt a low level of tax risk. 1. Bloomberg July 2017, Australian Taxation Office December 2017
Global Income Tax Expense (A$m) 3 3992 3528 3606 Australia s Largest Taxpayer The Group is Australia s largest taxpayer and this contribution continues to grow in line with profits. FY15 FY16 FY17 Governance Statement Tax laws can be complex and open to interpretation, so to ensure we continue to do the right thing in relation to tax, we: Act with the highest integrity in complying with all prevailing tax laws. Maintain transparent and collaborative relationships with all revenue authorities. For our most significant revenue authority, the Australian Taxation Office (ATO), we have entered into an Annual Compliance Arrangement (see below). Only enter into transactions with clear business value, before taking into account any tax consequences. Approach to Revenue Authorities The Group is committed to complying with all global statutory tax obligations and providing full disclosure to revenue authorities in all jurisdictions in which it operates. The Commonwealth Bank of Australia has an Annual Compliance Arrangement with the ATO. The Annual Compliance Arrangement provides a compliance and risk management relationship framework to facilitate the interaction and cooperation between the parties, predicated on mutual trust, respect and transparency. Under this framework, both parties can raise compliance risks and other technical and administrative uncertainties and resolve issues in a constructive, efficient and expeditious manner. Risk Management Framework The Group has an embedded Risk Management Framework that enables the appropriate development and implementation of strategies, policies and procedures to manage its risks. The Risk Management Framework requires tax risks to be proactively managed as part of the day-to-day business decision making processes and for appropriate tax risk controls to be developed and maintained. Details of the Risk Management Framework are disclosed in the Group s 2017 Annual Report. Risk Management Governance The Board operates as the highest level of the Group s risk governance as specified in its Charter. Our Risk Appetite Statement articulates the type and degree of risk our Board is prepared to accept and the maximum level of risk within which we must operate for each type of risk. The Risk Committee (a sub-committee of the Board) oversees the Risk Management Framework and helps formulate the Group s risk appetite for consideration by the Board. The Board delegates the management of tax risks to the Audit Committee (a sub-committee of the Board) which is regularly updated on tax matters.
4 Group s Corporate Income Tax Expense We provide below a summary of the reconciliation of the accounting profit to income tax expense of the Group sourced from our 2017 Annual Report. A detailed reconciliation of the Group s accounting profit to income tax expense is provided in the tax note in our Annual Report. Reconciliation of Tax Expense to Current Taxes Payable COMMONWEALTH BANK OF AUSTRALIA GROUP FY17 FY16 Profit before income tax 13,944 12,849 2 Prima facie income tax at 30% 4,183 3,855 Non-temporary differences (191) (249) Note 1 Income tax expense 3,992 3,606 Note 2 Temporary differences 327 (128) Note 3 Other (343) (407) Note 4 Income taxes paid 3,976 3,071 Key Notes Note 1: The FY 2017 non-temporary differences include: NON-TEMPORARY DIFFERENCES Offshore tax rate differential (76) (a) Income tax under/(over) provided in previous years (66) (b) Tax adjustments referable to policyholder income 22 (c) Tax losses not previously brought to account (56) (d) Other (15) (e) Total (191) (a) Tax rates in overseas countries which are less than the 30 per cent in Australia including, New Zealand 28 per cent, United Kingdom 19 per cent (exclusive of bank levy), Singapore 17 per cent and Hong Kong 16.5 per cent. (b) Prior year adjustments as tax laws are complex and subject to interpretation, we sometimes need to adjust past year results for actual tax outcomes. (c) Adjustment for policyholder tax represents tax expense on investments and contributions on behalf of life insurance policyholders and not the Group. As such it is disclosed separately in our tax note. (d) Tax losses not previously brought to account during the year these losses were recognised as they are now probable of recovery. (e) Other includes the following key adjustments: Offshore Banking Unit under specific Australian tax rules which promote international financial services activities a limited range of eligible transactions with overseas customers are subject to an effective Australian tax rate of 10 per cent. Tax losses used in offshore locations this is where the Group can apply a tax loss made in an earlier year to current year profits in determining the tax liability offshore. Once all the tax losses are used, the income in that location will be subject to the local tax rate. Concessions in offshore jurisdictions e.g. New Zealand has no capital gains tax so any capital gains may be exempt from tax. 2. Comparative information has been restated to reflect change in accounting policy as detailed in 2017 Annual Report.
5 Note 2: We note the following in relation to income tax expense: Income tax expense is an accounting concept that measures the amount of tax which will be paid in relation to the accounting profits of the period. Our Annual Report includes the total income tax expense in relation to the domestic and worldwide operations of the Group. The majority of our revenue relates to Australia but we also have a significant presence in New Zealand and operations in Europe, Asia and US. It includes tax paid on behalf of policyholders. Note 3: The temporary differences for FY 2017 include: TEMPORARY DIFFERENCES Provisions (42) Financial instruments (38) Unearned income 127 Intangibles 141 Defined benefit superannuation 10 Lease financing 47 Other 82 Total 327 Note 4: Other As mentioned in Note 2 above, income tax expense is an accounting concept that measures the amount of tax which will be paid in relation to the accounting profits of the period. Income taxes paid represents actual net cash paid to revenue authorities during the year. This may be more or less than income tax expense because tax is paid on a basis that spans different accounting years. Corporate Tax Contribution The following table shows the effective tax rate for 2017: EFFECTIVE CORPORATE TAX RATE * GLOBAL AUSTRALIA 28.5% 29.4% * Policyholder tax is excluded from both profit before income tax and tax expense for the purpose of calculating the Group s effective tax rate as it is not incurred directly by the Group. Australian Tax Return Information The tax return information for the Australian tax consolidated group is as follows: AUSTRALIAN TAX CONSOLIDATED GROUP 2017 2016 Tax Payable in Australia (after offsets) 3,938 3,291 Australian Tax Consolidated Group Total Revenues 41,857 42,730 Australian Tax Consolidated Group Total Taxable Income 13,511 11,359 The ATO publishes the above information annually.
6 These figures will differ from the figures disclosed in the Group s Annual Report for the following reasons: The Group s Annual Report includes foreign entities and non-100 per cent owned entities. For the purposes of income taxation, the Australian Tax Consolidated Group is a subset of the Group which excludes foreign entities and non-100 per cent owned entities. Temporary differences as explained above. Concessional tax treatment for certain income e.g. certain policyholder superannuation income and retirement savings account income is taxed at the concessional tax rate of 15 per cent. Policyholder income. Tax payable includes credit adjustments for tax already paid offshore on income that is also taxable in Australia, and franking credits in respect of franked dividends received both in respect of policyholder income and the Group s own investments. These legislative provisions are designed to prevent double taxation. International Related Party Dealings The Group has an international presence through majority ownership of foreign retail banks, international banking investments, life insurance operations, banking branches in major international financial services hubs and an international funds management business. The Australian business has dealings with the related international businesses which are conducted following the arm s length principle. The key international related party dealings for the Group which have a material impact on the Group s Australian taxable income are: KEY INTERNATIONAL RELATED PARTY DEALING DESCRIPTION SIGNIFICANT JURISDICTIONS Loans Derivative arrangements Dividends The Australian business has loans to/from offshore CBA branches and subsidiaries. The Australian business has derivative arrangements (including, swaps, options, FX and commodity contracts) with offshore CBA branches and subsidiaries. The Australian business owns subsidiaries in other countries from which it receives dividends. United Kingdom, United States of America, Singapore, Japan, Hong Kong, New Zealand, China, India, Malta, South Africa. New Zealand, United Kingdom, United States of America, Hong Kong, Singapore, Japan. New Zealand, Hong Kong, United Kingdom, China, Malta, Indonesia, Vietnam. The Group maintains contemporaneous documentation supporting the pricing of related party dealings which are conducted in accordance with the arm s length principle.