Kevin Hogan (Page, National Party) Share this | Hansard source

I rise to speak on the non-amended bill that was originally introduced by the minister, the Treasury Laws Amendment (Combating Multinational Tax Avoidance) Bill 2017, and the Diverted Profits Tax Bill 2017. I think everyone—even those not necessarily au fait with finance or economics—certainly understands what multinational tax avoidance is about. It is pretty easy to intuitively understand that many companies around the world have activities in multiple countries around the world and, of those countries that they are active in or are participating in, those countries all have different taxes and different company tax rates that apply to their local jurisdiction.

It is obviously in the interest of companies that they lower their tax bills. And, as we know, some of them are diverting revenue or profits from one jurisdiction to another to lower their overall tax bill. So it is important that we do everything we can to make sure that that is not happening within our jurisdiction. If the money that they are making is made in Australia we want them to pay tax in Australia. This bill is going a long way towards recouping more multinational tax, which is obviously a good thing. As a government we provide many services, and those services have to be funded from somewhere and, if multinational companies are getting away with not paying their fair share of tax, that is obviously going to have to be made up for by the Australian taxpayer. So this is very, very important legislation.

The Diverted Profits Tax Bill 2017 forms a package of bills. It imposes a new diverted profits tax that is targeted at multinationals that enter into arrangements with their offshore related parties that basically—and we are coming down to how we measure it—lack economic substance. The Commissioner of Taxation will have the authority to have a look at these movements of cash and, if anything looks suspicious, will have the power to have a very close look at it. The bill imposes an upfront diverted profits tax liability payable on the amount of the diverted profits at a penalty rate of 40 per cent. So, if they are found to be diverting profits to another jurisdiction, we will charge them a penalty rate. This will have the effect of encouraging greater cooperation between multinationals and the ATO, and the ATO have said that this will reduce the length of disputes between the ATO and the multinationals.

As a government we introduced previous legislation in 2015 to make multinational companies pay their tax on Australian earnings. We did that to ensure a sustainable revenue base to deliver the services and supports that governments should provide. The previous law, the Multinational Anti-Avoidance Law, or MAAL, together with what we are doing now means that around $2 billion in tax is expected to be clawed back this financial year due to a crackdown on multinational tax avoidance. The tax commissioner has said:

Pleasingly, we are seeing positive changes in behaviour from taxpayers and their advisors. They are abandoning their contrived structures and restructuring to models whereby the sales are booked in Australia.

There have been reports that both Facebook and Google have changed structures in order to comply with our government's laws in response to the laws we introduced in 2015, and Facebook stopped booking its Australian revenue with its Irish office. In addition to the MAAL work, the ATO has also done around 100 audits of large public and multinational corporations that are underway, with 70 related to multinational corporations, in light of the legislation we introduced previously.

This new bill, the Treasury Laws Amendment (Combating Multinational Tax Avoidance) Bill 2017, will prevent multinationals shifting profits offshore. Through the bill we are expecting to raise $100 million extra revenue a year from 2018-19. The bill will also, as I mentioned previously, increase penalties for multinationals who do the wrong thing. The change will see the maximum penalty now 100 times more for large multinationals that fail to lodge tax documents on time, and the penalty for large multinationals that fail to comply with obligations will increase to over $½ million. We are also doubling the penalties for large multinationals where they make false or misleading statements to the ATO, and we are going to continue to apply pressure so that they pay the right amount. We need to be very vigilant on this, and we will be doing so.

I have explained the rationale for the diverted profits tax. It is an anti-avoidance measure to make sure that these companies that are operating in many different countries are paying the appropriate tax on the revenue they make in Australia—the measure within Australia's anti tax avoidance which will give the commissioner greater ability to determine the profits that have been diverted from an Australian taxpayer to an overseas associate. In making this determination the commissioner will consider whether the outcome from the arrangement reduces the taxpayer's global net liability by more than 20 per cent and whether the commissioner considers that the principal purpose of the arrangement is to reduce the Australian taxpayer's liability. We obviously have to get quite specific as to what determines whether we look into something or not.

The commissioner will not impose the diverted profits tax if the taxpayer can show that all the associates in the arrangements have economic substance. But once the commissioner determines that the profits are being diverted, the commissioner will, as I said earlier, be able to issue an assessment at a 40 per cent penalty rate of tax, and this will need to be paid within 21 days. It can be adjusted by mutual agreement during a 12-month review, but the taxpayer cannot appeal the assessment until the end of the review. We think this is really important, because sometimes the threat of these things changes behaviour, and earlier I gave an example of Facebook, which already, because of previous legislation and this legislation, has worked out that if it continues to do what it is doing then it will be slugged the penalty tax and therefore has already changed its behaviour. The DPT will encourage even greater compliance by multinationals with their obligations in Australia. This will encourage greater openness with the commissioner and allow for speedier resolution of disputes.

In regard to the rationale for increasing the penalties then obviously, again, companies are becoming more averse to doing what they are doing, because they know that if they are judged to be avoiding tax then the penalty will hit. So, from 1 July 2017 the increased administrative penalties that can be applied by the commissioner to a significant global entity—that is, one with annual global income of $1 billion or more—which fails to adhere to tax reporting obligations will be increased 100 times, where they fail to lodge tax documents on time or take reasonable care. This means the maximum administrative penalty for significant global entities that fail to comply will increase from a very small $5,250 to $525,000. Importantly, the penalties will also be doubled for these entities when they make false or misleading statements to the ATO.

The new penalty amounts are based on the 2016-17 MYEFO announcement that the value of the Commonwealth penalty unit will be increased from $180 to $210 with effect from 17 July. These measures also make a minor amendment to ensure that the administrative penalties apply as intended if a significant global entity does not lodge a general purpose financial statement as required under the taxation laws. Again, by increasing these penalties, the penalty amounts will be more commensurate with their turnover and act as an incentive for the these entities to take reasonable care when making statements to the ATO.

Obviously the rationale for strengthening the rules on transfer pricing—literally transferring the revenue from one place to another—is that Australia's transfer pricing legislation currently specifies that it is to be interpreted so as to best achieve consistency with the OECD's transfer guidelines for multinational enterprises and tax administrations, which was last updated in 2010. To incorporate the OECD's 2015 recommendations, the reference in Australia's legislation will be amended to include the OECD guidelines that were updated in 2015. Doing this will ensure that Australia's transfer pricing rules remain at international best practice and, importantly, are aligned with those of our major trading partners. Incorporating these OECD recommendations into our transfer pricing rules will also provide greater guidance to industry on the application of the arm's-length principle, particularly for cost-contribution arrangements and transactions involving intellectual property and hard-to-value intangibles. Obviously this gives these companies that are trading in many different areas and in many different countries consistency across those borders. The amendments will also clarify how the transfer pricing analysis should reflect the economic substance of the transaction rather than the contractual form of the enterprise.

The diverted profits tax will commence on 1 July. It is estimated that it will raise an extra $200 million in revenue over the forward estimates and, again, will reinforce our position as having some of the toughest laws in the world to combat corporate tax avoidance. Around $2 billion in tax is expected to be clawed back over the financial year under our crackdown. Since the establishment of the new laws the ATO has worked to identify 175 companies as potentially being in the scope of the previously introduced legislation, the MAAL. Of those companies that the ATO assessed, 69 were medium to high risk in breach of the MAAL, and they were placed under current audit; 17 are subject to a current risk assessment. So, I commend this original bill as introduced by the minister to the House.

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