Shayne Neumann (Blair, Australian Labor Party) Share this | Hansard source

The legendary US President Franklin Roosevelt said this:

Here is my principle: Taxes shall be levied according to ability to pay. That is the only American principle.

It's an Australian principle too. It's a fair principle. Taxes are levied according to the ability to pay. The legislation before the chamber today is about fairness, not just about revenue. It's about making corporate Australia pay their fair share of taxes. So I am pleased to speak on this particular bill, the Treasury Laws Amendment (Making Multinationals Pay Their Fair Share—Integrity and Transparency) Bill 2023, which is about transparency and integrity and making multinationals pay their fair share of tax.

Just as FDR, through his New Deal, saved American free enterprise, we need to make sure that the integrity of our taxation system is such that it saves free enterprise in this country and elsewhere. It's absolutely critical. Australians rightly expect that all taxpayers, from the largest multinationals to individuals, pay their fair share of tax. Our system of taxation, our system of government revenue, our system of government expenditure relies upon this.

It is said the legendary US Supreme Court Justice Oliver Wendell Holmes was often cited for that famous statement, 'Taxes are the price we pay for civilization.' That was nearly a century ago. FDR made the point on a number of occasions that some people, including some opposite, if you listen to the previous speech, think that to individuals civilisation comes at a discount. It doesn't. We all have to pay our fair share of tax. That's the reality.

In that country, the United States, they brought in corporate taxation back in the robber baron era of the 1890s as a response to the outrageous and excessive profits, treatment of workers and the failure to pay their fair share of taxation. Regrettably, the US Supreme Court struck down those efforts in 1898. They brought in a corporate taxation rate in the US in about 1913, but—can you believe it—it was a one per cent rate of tax. We brought our own corporate taxation in when Billy Hughes was Prime Minister in 1915.

He made the point—and it's not often that I quote a bloke who ended up ratting on the Labor Party!—that it was really a necessary way to raise income.

So, the main purpose of this legislation is about making sure corporate Australia and multinationals pay their fair share of tax. It's estimated that around the world hundreds of billions of dollars are lost because corporate shenanigans are undertaken by multinationals to create shell companies and make sure their profits are directed to areas where there is really no corporate presence—no office, no employees—but they are low-taxation jurisdictions. These multinationals make sure that excessive debts are put into areas where there is considered to be a higher rate of corporate tax and that profits are directed to the low-tax jurisdictions, to ensure that little or no tax is paid. This sort of excessive debt loading is thin capitalisation, and multinationals do this—and do it successfully.

Listening to those opposite, you would think they were the champions of taking action in this area. But in fact little was being done, and it was left to us, in government, to pass this type of legislation. One of the reasons the now Assistant Treasurer announced during the election campaign that we would do this was that nothing was being done by those opposite during their dithering 10 years in office. So it's been left to us, in government, to make sure that corporate Australia particularly pays their fair share of taxation.

And, as I said, it's not just about much-needed revenue; it's also about fairness, and that's why it's absolutely critical. We need to work through the OECD arrangements. We already have a thin-capitalisation system in this country, which goes back to 1987, when Bob Hawke was Prime Minister. Our current regime was introduced in 2001 and of course needs updating, because it's still contained in the Income Tax Assessment Act. It's designed to prevent multinationals from claiming excessive debt reductions to reduce their taxable income in this country. The rules operate in a pretty clear way. They disallow a portion of otherwise deductible interest expenses where the debt allocated to Australia exceeds certain limits in the safe-harbour arrangements, at 60 per cent.

So, this legislation is really important, because it moves the emphasis away from the current ratio of debt to equity and picks up the recommendation that the taxation be levied on earnings. And we work with the OECD arrangements to ensure that we have a situation whereby tax is linked to income, as opposed to the allowance of complex corporate subsidy arrangements and subsidiary aspects being undertaken to ensure that that debt is funnelled or passed off to low-tax jurisdiction. It's about tackling not tax avoidance but really tax evasion, and I think it improves coherence and our contribution to international tax rules and ensures a more transparent tax environment.

As I mentioned, these policies are grounded in the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting, or BEPS, which began in 2013. Working together within this inclusive arrangement, about 135 countries and jurisdictions are collaborating on the implementation of measures to tackle tax evasion, improving the coherence of international tax rules and ensuring a better tax environment. This bill, as I said, fulfils a commitment we made in the 2022 election campaign. We've got a record of standing on significant tax reforms in terms of multinational taxation and tax transparency. In fact, it was the then Assistant Treasurer David Bradbury who led Australia's contribution to the debate on base erosion and profit shifting at the time of the last Labor government and implemented key reforms in tax transparency, including the landmark amendments to the general anti-avoidance rule and modernisation of Australia's transfer pricing laws.

Of course, David went on to join the OECD in 2014. I was pleased to catch up with him in Paris last year, and I talked about the work he was undertaking in this area. He was part of a team that delivered the OECD/G20 base erosion and profit shifting project. David has contributed mightily to the OECD's work in securing a groundbreaking international tax agreement to address challenges arising from the digitisation of the economy.

More recently, Labor in opposition recognised that there was still work to be undertaken on improving tax transparency and on the failure of the previous coalition government in letting multinational companies off the hook on taxation. So we sought a mandate to undertake this work to improve the tax transparency of listed corporates, government tenderers and billion-dollar multinational companies, and we're committed to making sure that we deliver on this promise. This bill will bring into effect our commitments in the 2022 election campaign and also the commitments and undertakings we made in the October 2022 budget as part of our multinational tax integrity package to address tax loopholes exploited by those companies. This investment in tax compliance will improve the integrity, transparency, fairness and sustainability of our tax system, and we as a government are committed to doing this.

Schedule 1 of the bill amends the Corporations Act 2001 to introduce new reporting requirements for Australian public companies, both listed and unlisted, to disclose information about their subsidiaries in their annual reports. This reported information will ensure companies are upfront about how they structure their subsidiaries, including for tax purposes. Under the new tax transparency requirements that will be introduced from 1 July this year, public companies will need to disclose their subsidiaries and where they are based, large multinationals will need to disclose certain information on a country-by-country basis and their approach to tax, and tenderers for large government contracts will need to disclose their country of tax domicile. Improving transparency in this way is important to ensuring that the public is better informed of a multinational company's tax arrangements. These reforms will help to hold companies to account, particularly large corporate groups, on their corporate structures and whether they are operating with opaque or atypical tax arrangements. Given the global momentum towards ensuring that these firms pay their fair share of tax, it's in the public interest that shareholders have this kind of information. Ultimately, we hope this will drive behavioural change amongst large and highly profitable corporations about how they view their taxation obligations, make them more accountable to their shareholders and make fairer tax-planning strategies.

Schedule 2 is about revenue raising and thin capitalisation. Prior to the last election we pledged to close down the multinational tax loophole about debt dumping, as I explained earlier, and schedule 2 delivers on that commitment. These provisions amend our thin capitalisation rules to limit the amount of interest expenses that entities can deduct for tax purposes from 1 July this year. It is estimated that this tax integrity and revenue measure will gain about $720 million over the four years from this year. These amendments introduce earnings based interest-limitation rules for general class investors to replace the existing asset based rules, and there will be a new third-party debt test. The current safe harbour test lets an entity deduct all interest expenses where their total debt amount does not exceed 60 per cent of their total asset value. Under the new default fixed-ratio test, all interest expenses can be deducted where net interest expenses do not exceed 30 per cent of profits. That reflects this government's immediate priority to strengthen the thin capitalisation rules to stop excessive debt reduction and ensure that deductions are genuinely linked to economic activity and an entity's earnings and taxable income, rather than allowing deductions on falsified debt structures. This is a more robust approach to addressing the use of debt as a base erosion and profit shifting risk and is consistent with the OECD's best practice framework to limit debt related deductions based on earnings.

The bill reflects several technical changes proposed by industry under consultation to provide a better balance with commercial arrangements, including trust structures.

These arrangements and amendments strengthen our thin capitalisation rules. They will ensure multinationals pay an appropriate amount of tax in Australia while balancing tax settings. The measurements bill reflects several rounds of public consultation, as I've referred to, to balance the integrity of the system. There has been broad support for reforms from industry, unions and civil society groups. Treasury will continue to work with stakeholders to make sure the new rules operate as intended.

In response to concerns from some sections of the business community, the government will continue to engage with stakeholders in our commitment to introduce a public country-by-country reporting regime. Over the coming months we will consult further on appropriate levels in terms of reporting. This will build on refinements that are already being made to align our system with the European Union's public country-by-country regime. The government will continue to work alongside the ATO to create a system that is fair, transparent and consistent, and make sure the biggest companies are held to account. These commitments complement the government's ongoing engagement with the OECD's two-pillar global tax agreement, which includes a global 15 per cent minimum tax, ensuring some of the profits of the largest multinationals—particularly digital firms—are taxed where their products or services are sold.

Unlike those opposite, we won't allow multinationals to get off the hook when it comes to their tax obligations. The former coalition government was happy to praise the global efforts of the OECD and others, but took no meaningful steps to ensure that multinationals paid their fair share of tax in the countries in which they make their profits. Again, these commitments we are making are targeted and measured without imposing unnecessary burdens on genuine business activity. The government understands that businesses of all sizes make important contributions to the economy and we want to see businesses grow. Closing multinational tax loopholes will create an environment for products to flourish and productive firms to continue to grow, while improving our government services and corporate services, including government and corporate products.

We are going to improve public confidence in our tax system. I note the bill was referred to the Senate Economics Legislation Committee for an inquiry which will report back on 31 August, and most of those submissions seem supportive of this particular measure. I thank the Assistant Minister for Competition, Charities and Treasury—he has been an advocate for this for quite a long time, and I support him and commend him. I commend the legislation to the chamber.

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