Voluntary Tax Transparency Code Report

 

Introduction

Kubota Australia Pty Ltd (Kubota Australia) is Australia’s leading supplier of agriculture, construction and power equipment, operating in Australia for over 40 years. It is part of the global Kubota Group of companies.

Since its foundation in 1890, the Kubota Group has delivered a variety of products that contribute to people’s lives and society, including iron water pipes for the development of modern waterworks, and agricultural machinery to increase food production and save labour. Today, the world faces many challenges in the areas of food, water and the environment, which are indispensable for human beings. The Kubota Group believes that its mission is to comprehensively solve the problems of food, water and the environment through its superior products, technologies and services, thereby continuing to support the future of the earth and humanity.

This report provides an overview of Kubota Australia’s tax strategy, governance and tax contributions made to Australian State and Commonwealth governments. The information provided in this Report is released on a voluntary basis in accordance with the recommendations and guidelines contained in the Board of Taxation’s Voluntary Tax Transparency Code (the Code).

Kubota Australia has chosen to voluntarily disclose this information, which is consistent with the Australian Government’s efforts to promote tax transparency. Kubota Australia has made this commitment to transparency because it believes it is important that companies help build trust in society by being transparent about how and where they pay taxes.

John O’Reilly

General Manager Finance and Administration

Kubota Australia Pty Ltd

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Part A Disclosures

The Part A Disclosures required of Kubota Australia by the Code are:

  • a reconciliation of the accounting profit to income tax expense;
  • a reconciliation from income tax expense to current year income tax payable; and
  • Kubota Australia and Kubota Group’s effective tax rates.

Kubota Australia published its tax disclosures in Note 13 of its 2016 and 2017 Financial Report’s. The tax reconciliations in Note 13 form the basis of Kubota Australia’ Part A disclosures for the Code (particularly reflected in response to question 1 below).

 

1. Reconciliation of accounting profit to income tax expense

Reconciliation of accounting profit to income tax expense
31 Dec 2017
AUD
$000
31 Dec 2016
AUD
$000
Profit before income tax
33,352
21,516
Tax at the Australian tax rate of 30%
10,006
6,455
Increase/ (decrease) in income tax expense due to:
- Entertainment and subscriptions (permanent non-deductible expenses)
23
5
- Adjustment for Transfer Pricing Advanced Pricing Arrangement
nil
73
(Tax credits)/ (rebates)/ (offsets)
nil
nil
Under/Overs - Adjustment to prior year for provisions
51
nil
Income tax expense
10,080
6,533

 

2. Reconciliation from income tax expense to current year income tax payable

Reconciliation.from income tax expense to current year income tax payable
31 Dec 2017
AUD
$000
31 Dec 2016
AUD
$000
Income tax expense
10,080
6,533
Movements in temporary differences
2,135
1,266
Adjustment for permanent differences
nil
34
Adjustment for Transfer Pricing Advanced Pricing Arrangement
nil
(73)
Adjustment to prior year under/ overs for provisions
(51)
nil
Income tax paid
12,164
7,760

Income tax expense is different to income tax payable, as income tax expense (an accounting concept) reflects amounts of accounting income which are assessable for tax / amounts of accounting expenditure which are deductible for tax, irrespective of when that assessment or deduction arises. Income tax payable reflects amounts which are assessable or deductible in the current year, which does not always align with the timing for these amounts being recognised in the income statement.

 

3. Accounting effective company tax rates for Kubota Australia and Kubota Group

Effective tax rates
31 Dec 2017
(%)
31 Dec 2016
(%)
Kubota Australian ETR
30.22
30.36
Kubota Group ETR
32.84
28.71

The above effective tax rates (ETRs) have been calculated as income tax expense divided by accounting profit for the Australian Kubota accounting consolidated group and the global Kubota accounting consolidated group.

The 2016 and 2017 Australian ETRs are 30.36% and 30.22% respectively. This reflects the impact of permanent adjustments in respect of non-deductible entertainment and subscriptions which increase the ETR above the headline Australian income tax rate of 30%.
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PART B Disclosures

Part B of the Code prescribes minimum disclosure standards in relation to Kubota Australia’s:

  • tax policy, strategy and governance;
  • total tax contributions;
  • international related party dealings.

 

4. Approach to tax strategy and governance

Kubota Australia is committed to achieving the highest standards in the areas of corporate governance and business conduct and its tax responsibilities are in line with this commitment. Kubota Australia has established a group Tax Governance Framework governing its tax strategy, which was reviewed and approved by the Board in 2017. It strongly believes in tax governance and has taken various actions to ensure that it follows best practice both on governance and transactional data.

Actions taken by Kubota Australia on “best practice” tax governance

  • A Tax Governance Framework document has been prepared and endorsed by the Board and is operational across Kubota Australia. The responsibilities imposed under the framework are carried out by experienced professionals who also draw on the use of external advisors.
  • Kubota Australia has implemented appropriate internal controls at a Board and managerial level in relation to the identification and management of tax risk, and a framework for escalation of tax matters from business units to the Kubota Australia Board as necessary.
  • Kubota Australia has engaged external advisors to undertake separate corporate income tax, GST and Fringe Benefits Tax operational assessments. The results of these assessments indicated that Kubota Australia operates within a robust, clearly defined control environment.
  • Kubota Australia dedicates appropriate resources to managing its tax obligations, and has always been able to meet ATO compliance obligations and requests within the timeframes granted. The ATO has previously rated Kubota Australia as a low risk taxpayer under its risk-categorisation framework.

 

5. Total tax contribution summary

The table below provides an overview of all the Australian Federal and State taxes paid and collected by Kubota Australia Pty Ltd in the 31 December 2017 income year (with comparatives to the 31 December 2016 year).

Tax Contribution Summary
31 Dec 2017
%000
31 Dec 2016
%000
Income tax
12,164
7,760
Fringe Benefits Tax
178
350
Insurance duties - Workcover
195
201
Customs duties
653
743
Land Tax
64
84
Payroll tax
674
686
Local property tax
79
88
GST (net of recoveries)
34,967
29,537
Stamp duty
-
54
Superannuation guarantee charge
1,290
1,102



6. Information about international related party dealings

Kubota Australia Pty Ltd engages in various dealings with international related parties. Kubota Australia discloses these dealings at Note 29 of its Financial Report. Material dealings during the year included:

  • Purchases of goods from related parties located in Japan, Korea, Thailand, United States of America, Germany, France, Norway and Spain.
  • Payment of a fee for management services received from a related party in Japan.

Kubota Australia Pty Ltd and its related parties regularly review their transfer pricing policies to ensure their international related party dealings are conducted in accordance with the arm’s length principle.

Kubota Australia has entered into a bilateral advanced pricing arrangement (BAPA) with the Australian Taxation Office (ATO) and the National Tax Agency (NTA) in Japan. The BAPA covers the purchase of goods from Kubota Corporation (KBT), a related party in Japan.


7. ATO public tax transparency disclosures

Australia’s public tax transparency laws require the ATO to publish specific tax return information of public companies and foreign-owned companies with total income of $100 million or more, and Australian-owned private companies with total income of $200 million or more.
The ATO published data for the 2015-16 income year in December 2017. This would have included the following information in relation to Kubota Australia Pty Ltd based on its lodged income tax return for the year ended 31 December 2015:

Total income
$299,175,842
Taxable income
$13,221,661
Tax payable
$3,966,498

The 31 December 2015 information disclosed was subject to further amendment as a result of an amendment request lodged with, and approved by the ATO. As a result of the amendment request Kubota Australia’s taxable income reduced by $372,640 to $12,849,021 and tax payable reduced by $111,792 to $3,854,706.