Brian Mitchell (Lyons, Australian Labor Party) Share this | Hansard source

The Albanese government, during the 2022 election campaign, made a strong commitment to ensuring that multinationals pay their fair share of tax. This pledge is founded upon the principles of the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting initiated in 2013. As part of this collaborative effort, more than 135 countries and jurisdictions are working together to tackle tax avoidance, enhance international tax rules coherence, and foster a more transparent tax environment.

The first schedule of the Treasury Laws Amendment (Making Multinationals Pay Their Fair Share—Integrity and Transparency) Bill 2023 focuses on improving multinational tax transparency by introducing new reporting requirements for Australian public companies, both listed and unlisted. This mandate will require disclosure of crucial information, including the number of subsidiaries a company possesses and their country of tax domicile. This measure is a vital step towards holding corporations accountable, particularly larger corporate groups, by compelling them to be transparent about their corporate structures and whether they are employing opaque tax arrangements such as utilising subsidiaries located in low-tax jurisdictions. In short, we are demanding, on behalf of Australian taxpayers, signposts through the legal mazes these corporations have built. By doing so we aim to make better-informed economic analysis and ensure that as a government we can collect the right amount—the fair amount—of revenue. This information will be disclosed as part of the company's annual financial reports, thereby reducing compliance burdens.

Similar approaches have already been implemented successfully in other countries, such as the UK. The implementation of schedule 1 represents a significant stride towards increasing the accountability of Australian public companies, listed and unlisted, with regard to their subsidiaries and tax domicile. By mandating the disclosure of this information, we are empowering the public, investors and regulatory authorities to gain a clearer understanding of corporate structures and tax arrangements. Transparent corporate structures are essential for fostering both public and investor confidence and ensuring that companies are operating in a fair and responsible manner.

By revealing subsidiary information, we can identify potential tax avoidance or profit shifting, bolstering our ability to collect the right and fair amount of revenue. This increased transparency will enable better economic analysis, and that helps us make better informed decisions regarding policies and improving the coherence of international tax rules. This measure reduces compliance burdens for companies as it is aligned with international best practices. Countries like the UK have already adopted similar measures, showcasing their effectiveness and practicality in promoting corporate transparency.

This schedule is the result of extensive stakeholder consultations conducted in August 2022 and April 2023. It reflects the inputs and concerns of various entities, ensuring a more balanced approach to addressing tax transparency issues. In conjunction with other initiatives, such as the beneficial ownership register and public country-by-country reporting, this measure demonstrates our commitment to enhancing tax transparency and combatting tax evasion.

Schedule 2 provides a critical measure designed to strengthen Australia's thin capitalisation rules and address potential risks to the domestic tax base arising from the use of debt deductions as a base erosion or profit-shifting technique. The approach taken aligns with the Organisation for Economic Co-operation and Development's guidance—now run by that well-known socialist Mathias Cormann—which advocates for debt deductions to be linked to economic activity. This is achieved through the implementation of entity-level earnings before interest, taxes, depreciation and amortisation or an EBITDA test limiting debt related reductions to 30 per cent of profits. This new earnings based test replaces the existing safe harbour test.

In recognition of the unique characteristics of certain industries, such as the infrastructure and property sectors, an Australian-specific approach has been developed. The third-party debt test allows entities in these sectors to claim debt related deductions without an earnings test, providing them with more flexibility during the construction phase of projects where earnings may be minimal. To maintain fairness and align with international efforts, the proposed thin capitalisation amendments will bring Australia in line with many OECD countries that have already implemented earnings based interest-limitation rules. Such rules have been adopted by the UK, the US and most of the EU.

Schedule 2 constitutes a crucial measure designed to address tax planning practices, utilised by multinational enterprises through excessive debt deductions. By limiting MNEs' debt deductions and aligning them with economic activity, we aim to ensure these corporations contribute their fair share of taxes and level the playing field for Australian businesses.

The entity-level EBITDA test, capping debt related deductions at 30 per cent of products, is a robust approach to curbing base erosion and profit-shifting techniques. By basing deductions on earnings, we prevent MNEs from manipulating their debt levels to minimise tax obligations. This alignment with OECD guidance and international best practices reinforces Australia's commitment to global efforts in addressing tax integrity risks. Furthermore, the measure allows for any debt deduction denied under the EBITDA test to be carried forward and claimed in subsequent income years, up to 15 years. This provision provides flexibility for smaller entities facing earnings volatility, ensuring they can maintain a stable financial position whilst still adhering to the debt deduction limits.

In addition to the entity-level test, an Australian-specific approach for external debt, known as the third-party debt test, has been developed to support ongoing investment, particularly in the infrastructure and property sectors. By allowing entities in these sectors to claim debt related deductions without an earnings test, we aim to promote investment and development in projects that contribute to Australia's economic growth. It's important to note that this measure does not apply to financial entities and authorised deposit-taking institutions. We have taken into consideration the unique nature of these entities and their relevance to the broader financial system, aligning Australia with global efforts of most OECD countries, including the UK, US and EU, which have already implemented earnings based interest limitation rules. By adopting similar rules, we are harmonising our tax system with international standards and reinforcing our commitment to combating tax avoidance practices globally. While we acknowledge that some sectors such as infrastructure and property have sought exemptions from these changes, it is essential to address potential base erosion risks across all sectors to maintain the integrity of our tax system.

At its core, this bill is about fairness. It's about ensuring Australian workers don't bear an unfair tax burden. We are happy for multinationals to operate in Australia and make stonking profits, but we want them paying their fair share of tax and not manufacturing legal labyrinths to escape those obligations. United States Senator and former presidential candidate Elizabeth Warren has a terrific quote that I'd like to read. She said of the US:

There is nobody in this country who got rich on his own. Nobody. You built a factory out there? Good for you. But I want to be clear: You moved your goods to market on the roads the rest of us paid for. You hired workers the rest of us paid to educate. You were safe in your factory because of police forces and fire forces that the rest of us paid for. You didn't have to worry that marauding bands would come and seize everything at your factory …

Now look, you built a factory and it turned into something terrific, or a great idea? God bless! Keep a big hunk of it. But part of the underlying social contract is you take a hunk of that and pay forward for the next kid who comes along.

I think that's a terrific quote that really comes to the heart of what a fair taxation system is all about. What Senator Warren is saying is simple: you have a right to build your empire, and we support the entrepreneurship, the innovation and the drive that people have when they want to build their businesses. No-one wants to take that away. But, when you utilise public roads and transport goods to market, police services to provide protection and security to the town you are based in, and doctors and nurses when you need medical attention, you too should pay your fair share of tax because your fair share of tax helps build the infrastructure and the social fabric that enables that wealth creation in the first place.

Australia is the land of opportunity, and you have the right to make your money, but we need to make sure Australia remains the land of opportunity for this generation and generations to come. That's why we need a fairer tax system, and that's what this bill will ensure. The Australian government understands the importance of foreign capital and investment in stimulating economic growth. These measures are essential to ensuring companies operate on a level playing field. A transparent and equitable tax system ultimately fosters investor confidence in Australia's economic stability and contributes to long-term, sustainable growth that benefits us all. Stakeholder consultation has been integral to the development of these legislative proposals. I won't pretend there's no opposition to this; of course there are some multinationals out there that would like to hold on to every dollar they are currently making and don't want to pay more tax. I get it. But we're here to create a fairer tax system for all.

The Australian government has engaged with various entities in multiple rounds of discussions and considered feedback to shape the final legislation. While complex changes require careful consideration, we believe the introduced measures strike the right balance between transparency and practicality. The global 15 per cent minimum tax is a significant step towards curbing tax avoidance. Our measures align with these global efforts and strengthen our commitment to promoting fair and transparent tax practices worldwide. By actively participating in the OECD/G20 Inclusive Framework, we contribute to the progress towards a more equitable international tax environment. The loopholes are closing for companies that try to evade their obligations.

These legislative proposals before the House are both a fulfilment of the Labor government's election commitment and a fundamental step towards fostering a fairer and more equitable tax system. Schedule 1 enhances multinational tax transparency while schedule 2 strengthens Australia's thin capitalisation rules. By working within the framework of the OECD/G20 Inclusive Framework we are aligning our efforts with more than 135 countries and jurisdictions to address tax avoidance and promote a transparent tax environment.

Debate interrupted.

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