Anne Stanley (Werriwa, Australian Labor Party) Share this | Hansard source

I rise to make my contribution to the Treasury Laws Amendment (Making Multinationals Pay Their Fair Share—Integrity and Transparency) Bill 2023. The purpose of the legislation is to make multinationals pay their fair share of taxation. This was a commitment that the Albanese Labor government took to the 2022 election, and it's a commitment that the government is fulfilling with this legislation. The bill implements measures announced in the October 2022-23 budget and forms part of the government's Multinational Tax Integrity Package.

Ensuring that multinational firms pay their fair level of taxation in Australia on profits made from Australian consumers is a principle of our government. This bill adopts the guidance of the Organisation for Economic Co-operation and Development to align debt deductions with economic activity—that is, earnings—and includes an Australian-specific approach for external debt in the form of a third-party debt test. There are two schedules to this bill.

Schedule 1, entitled 'Multinational tax transparency—disclosure of subsidiaries', introduces new reporting requirements. Australian public companies, both listed and unlisted, will be required to disclose information on the number of subsidiaries and their country of tax domicile. This will hold companies accountable, particularly the larger corporate groups. The measure will require them to be more transparent about their corporate structures and whether they are utilising complex and opaque tax arrangements for the purpose of avoiding their tax obligations in Australia, such as through the use of subsidiaries located in low-tax jurisdictions. This information will support more precise economic analysis and help inform whether tax laws are operating as intended in collecting the correct amount of revenue. Companies will disclose this information as part of their annual financial report, which will help reduce compliance burdens. The United Kingdom has a similar measure already in place. The measures contained in the bill are in line with international approaches. The new requirements are a step change to ensuring increased tax transparency and complement the ongoing work to implement a beneficial ownership register and public country-by-country reporting, on which the government is continuing to engage with stakeholders. The new requirements have an announced starting date of 1 July 2023.

Schedule 2, entitled 'Thin capitalisation', introduces a number of changes and is a revenue-raising measure. The schedule introduces measures to strengthen Australia's thin capitalisation rules to address risks to the domestic tax base posed by profit-shifting techniques used by global firms to avoid paying a fair level of taxation in Australia. It targets a known tax-planning arrangement by limiting multinational enterprises' debt deductions. The measures will strengthen Australia's thin capitalisation rules by limiting an entity's debt related deductions to 30 per cent of profits, using earnings before interest, taxes, depreciation and amortisation, or EBITDA, as the measure of profit. This new earnings based test will replace the current safe harbour test. The measures will allow debt deductions denied under the entity level EBITDA test—that is, interest expense amounts exceeding the 30 per cent EBITDA ratio—to be carried forward and claimed in a subsequent income year for up to 15 years. This will provide more flexibility for smaller entities with earnings volatility. In addition to this, the measures will allow an entity in a worldwide group to claim debt related deductions up to the level of the group's net interest expense as a share of earnings, which may exceed the 30 per cent EBITDA ratio. This new group ratio will replace the existing worldwide gearing ratio.

The bill retains an arm's length debt test, but only as a substitute test which will apply only to an entity's external, or third-party, debt, disallowing deductions for related party debt under this test. This is an Australian-specific test designed specifically for the infrastructure and property sectors to allow debt to be deducted with no earnings test. These sectors tend to be more heavily geared and, especially in the construction phase of a project, have minimal earnings. This test will address the criticism made by some that making multinationals pay their fair share of tax will harm investments of foreign capital in Australia or make it harder for Australian businesses to expand overseas. This is nonsense. The amendments are designed to support ongoing investment in Australia, particularly in the infrastructure and property sectors. They are also designed to minimise costs for stakeholders. As with schedule 1, these provisions have an announced starting date of 1 July 2023.

There has been extensive consultation in relation to these measures. This included public consultation on the design of each schedule via a consultation paper in late 2022 and public consultation on exposure draft legislation in March and April of this year. The government has continued to engage industry stakeholders on a targeted basis with respect to schedule 2, specifically in respect of the property and infrastructure sectors. Furthermore, these policies are grounded in the OECD/G20 inclusive framework on base erosion and profit shifting, which commenced in 2013. Over 135 countries and jurisdictions are collaborating on the implementation of the measures to tackle tax avoidance, improve coherence of international tax rules and ensure a more transparent tax environment. The shift to an earnings based approach to debit deductions ensures that deductions are tied directly to a firm's economic activity.

Most OECD countries—including the United Kingdom and United States, and many of the European Union—have already implemented this form of earnings based interest limitation rules. This bill will bring Australia into line with these other jurisdictions. Given the global momentum towards ensuring multinational firms pay an appropriate level of taxation, it is clearly in the public interest for the legislation to be implemented.

In the middle of a cost-of-living crisis and amid growing multinational profits, failing to take action is, at best, irresponsible and, at worst, utterly unconscionable. Companies like Google, Facebook and Apple make a substantial level of profit from Australian consumers. They also should contribute a fair share of tax. Australian workers and taxpayers are paying their fair share, especially those I represent in Werriwa. Global firms must also be compelled to pay their fair share. When large multinational companies devise strategies to minimise and avoid their tax obligations in Australia they leave less money to be spent on important services that the government provides. Multinationals avoiding paying tax leaves less to be spent on Medicare, continued subsidies for medicines, social security payments and other forms of assistance that many Australians need to rely upon.

This legislation will also level the playing field for Australian businesses, particularly small businesses. It will also increase the transparency of firms' tax obligations. I commend the bill to the House.

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