Joe Hockey (North Sydney, Liberal Party, Shadow Treasurer) Share this | Hansard source

I do wonder how Treasury determined that schedule 1 to this bill 'is expected to prevent the loss of over $1 billion a year'. It is a nice round number: a billion dollars. It has a whiff of convenience to it, don't you think? We were of course denied an opportunity to ask Treasury officials for an explanation. The government controlled committee did not hold a hearing. The Treasury later put in an undated submission just before the bill came into this place. So it looks as though a government that does not want to be held to public hearings in relation to one of its bills has something to hide. They are doing it on the media, they are doing it on so many things, just like in the dying days of the Whitlam government. It is just a repeat. Everything has a political agenda.

I welcome integrity measures, especially when it comes to taxation. The fact that they do not want to have hearings suggests to me that there is another agenda. The coalition will vigorously pursue these matters in the Senate committee inquiry into the bill. So we are going to try in the Senate, and if the Greens are true to their word they will support a full inquiry in the Senate.

Building up the jurisprudence around fundamental parts of a taxation system can take many years. It was 13 years before the High Court delivered its first judgement on part IVA, in the Peabody case. If the amendments to be made by schedule 1 are passed then there will be a period, probably extending over a number of years, before there is a settled judicial view as to their correct application. Uncertainty is the enemy of investor confidence, of business confidence and of consumer confidence.

Even for the experts these amendments are not easy to interpret, and their application is not predictable. Last year the Inspector General of Taxation reviewed the ATO's management of litigation and found that the ATO's success rate before the courts was 56 per cent in 2009-10, 47 per cent the year after and 45 per cent to May the year after that.

The Joint Committee of Public Accounts and Audit also had questions for the ATO regarding their litigation success rate—that is, the actual litigation. I do not think that includes all the assessments the ATO issues and then intimidates people into settling. The commissioner acknowledged—the previous commissioner, I would imagine—to the JCPAA that the ATO success rate was still very positive in terms of numbers. But he had concerns about the court's approach to the general anti-avoidance provisions. So it was all the fault of the courts.

The inspector general went on to note that some industry stakeholders held the view that the reason for the ATO's losses on general anti-avoidance-rule cases may be due to the ATO's poor case selection of matters they considered appropriate to litigate. Stakeholders also informed the inspector general that they had concerns about whether officers internal to the organisation could objectively review the facts and evidence in a case to determine, independently of the compliance section, whether the matter should be settled, defended or appealed.

This is a matter that I have raised on previous occasions, and I sense that a lack of objectivity in decision making inside the ATO is starting to have a significant impact on tax policy. The poor decisions about which cases to litigate, which have led to losses in court, are now driving the government's legislative agenda. And unfortunately there will be a cost imposed on a large number of taxpayers who must comply with a new general anti-avoidance rule.

I cannot fathom how the Treasurer can possibly justify the statement in the explanatory memorandum to this bill that the compliance-cost impact of the amendment will be low. Where do they get this from? The Law Council do not agree. They see the schedule as thrusting additional costs onto taxpayers—red tape:

The consequence of legislating this Bill will be to create significant difficulties, for ordinary taxpayers, small businesses and large corporations (both Australian and foreign) in understanding their tax obligations.

Who says it is low? On what basis do they say that the regulatory impact is low? Who writes this? And where is their accountability? How much have they consulted with businesses big and small, who are drowning under red tape? Yet the suggestion is that the regulatory impact is low.

Justice Pagone of the Supreme Court of Victoria, an author of a leading work about part IVA, has explained how onerous a new approach to the general anti-avoidance rule would be for taxpayers, since the onus of proof rests on them:

The question about what needs to be established arises in the context of the legal burden of proof falling upon the taxpayer to disprove what would have happened or might reasonably have been expected if the scheme had not been entered into or carried out. …

The ability of the Commissioner to rely upon something which did not happen, would not have happened, but which nonetheless might reasonably be expected to happen, may be difficult for taxpayers to disprove.

Do you reckon? Does the Assistant Treasurer understand this legislation? Can he get his mind around it? This is saying that business needs to start to model every alternative use, every alternative tax scenario, before it actually goes down this path—don't just get on with the job of doing your business but consider this impact on your business if you went down a different path, and prepare yourself. And the advice is that the regulatory impact is low.

Finally, the amendments' proposed starting date of 16 November 2012 must be changed. Where did they get 16 November from? This bill is different from the draft version that was released on 16 November last year. The changes made by the bill should not begin before royal assent. This is typical of Labor. They want to regulate yesterday; they introduce the bill now. And they say, 'All this is applying.' What is applying? 'Oh, well, the bill.' What bill? We haven't got a bill. It is like media; the process is no different. You guys are a shambles. But the problem is that the taxpayers are paying the price. This is not the way to govern a country; it is just not. How could anyone plan anything on a bill that has not been passed, has not even been debated and yet is meant to apply from 16 November last year?

I do not know what is going on here. If there is a change of government in September, the mountain of hard work will just get higher and higher to try and get back some certainty, stability and predictability into government. For crying out loud! I have never seen anything like it. I said that this is like the dying days of the Whitlam government. If Gough Whitlam had not been sacked, this is what it would have looked like—exactly this: a shemozzle appealing to every union official; a shemozzle all about protecting the leader. There is no good policy here. It is bad policy. What is more, it is incompetent and malicious.

Schedule 2 of this bill inserts new subdivisions into the Income Tax Assessment Act as well as the Tax Administration Act that the government says will modernise transfer pricing rules. Our transfer pricing rules have been rarely amended and they have largely stood the test of time. Last year, the government sought to make retrospective changes to the transfer pricing law that took effect from 1 July 2004. Typical. The bill sought to retrospectively amend legislation to include transfer pricing articles within Australian tax treaties. It also sought to clarify the interaction between transfer pricing and thin capitalisation rules, which had previously only been dealt with through administrative arrangements.

The coalition opposes retrospective tax changes as a matter of principle. That is why we oppose the bill. How can anyone get on with the job of living their daily life, complying with the law as it stands, when along will come Labor in the future to introduce laws that say they broke the law today? That is why the Liberal Party is, in principle, always going to oppose retrospective changes. We understand that retrospective legislation can change the substance of transactions struck between taxpayers who have made every effort to comply with the prevailing law at the time of the agreement. It can expose taxpayers to penalties in circumstances in which taxpayers could not possibly have taken steps at the earlier time to mitigate the potential for penalties to be imposed. It may change a taxpayer's tax profile, which in turn can materially impact the financial viability of investment decisions and, of course, the pricing of those decisions.

Most importantly, the retrospective application of the change will heighten Australia's level of perceived sovereign risk. 'We have trashed everything else so let's give sovereign risk a go,' says Labor. At the time, the government refused to answer questions around the quantity of revenue at stake. It was only after questioning at Senate budget estimates last year and a subsequent response to a question on notice that the ATO advised that there was $1.9 billion of primary tax in dispute in relation to transfer pricing issues for audits current at the time.

We find ourselves in a very similar position today. We have a bill before the House dealing with significant changes to important legislation that has not been given due process in this parliament and has not been given proper scrutiny. But Labor wants to ram it through. It does not have any regard or respect for taxpayers. That is why we are going to pursue it in the Senate.

The bill before the House seeks to replace the existing transfer pricing rules in division 13 by inserting these into three subdivisions in the Income Tax Act 1997—companies, branches of companies, and trusts and partnerships. It also inserts a subdivision into the Tax Administration Act in relation to record keeping and penalties that may be applied by the commissioner. The amendments within this schedule align with the internationally consistent transfer pricing approaches as set out by the OECD. These amendments apply to both tax treaty and non tax treaty cases. These amendments also contain specific rules relating to transfer pricing documentation.

These new rules are self-executing—that is, taxpayers will now apply the new transfer pricing laws on a self-assessment basis. The commissioner may challenge a taxpayer's calculated tax result, to which the taxpayer may then respond. To the extent that taxpayers may apply these complex rules when they did not previously, an increase in compliance costs is likely.

The complex and costly compliance rules impose a much greater requirement to keep contemporaneous documentation on small and medium business impacted by the de minimis thresholds that apply to the bill—more red tape. The de minimis threshold at which entities need to apply these complex and costly compliance rules at face value appear to be too low relative to the revenue risk. My colleague the member for Dunkley has raised this issue as well. I am not sure if he is speaking on this bill.

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