Daniel Mulino (Fraser, Australian Labor Party) Share this | Hansard source

I'm pleased to rise today to speak in support of this bill, the Taxation (Multinational—Global and Domestic Minimum Tax) Bill 2024. I would note from the outset that is one of a package of three bills which together enact a 15 per cent global minimum tax and domestic minimum tax for multinational enterprises operating in Australia with an annual global revenue of 750 million euros or greater, which is approximately A$1.2 billion. There are other bills as part of this package which relate to capital thinning and greater transparency across jurisdictions.

I think it's important to set the context here, which is that multinationals have, in the post-World War II period, risen in importance in the global economy. On balance, I think that is a positive. It reflects increasingly sophisticated supply chains and increasingly integrated global economies. I think the rise of multinationals has reflected a broader trend towards greater sophistication, integration and specialisation in the global economy. This in turn has enhanced productivity growth. But, in terms of each economy's capacity to protect its tax base, it has led to domestic economies and national governments having to face up against companies increasingly able to shift profits and underlying profit-generating activities in ways that often aren't particularly transparent.

This occurs through a range of mechanisms. For example, very large multinational organisations can shift interest payments between different entities and different jurisdictions in a way that materially reduces their taxation burden. They can undertake transfer pricing in ways that arguably, in many instances, don't reflect the underlying economic activities being undertaken in different jurisdictions. We see this quite often when large multinational organisations pay very little tax in one jurisdiction—a jurisdiction with a high notional tax rate—and attribute substantially more economic activity to other jurisdictions, often jurisdictions which have a very low population base and very low overall economic activity but which have a more favourable tax treatment.

This practice is often undertaken in ways which are incredibly complicated and non-transparent, raising questions across the whole of the OECD—and, I would say, the global economy—about the ways in which we might try to counteract some of these measures, particularly the ones which are artificial and only exist to try to reduce the tax burden. It's becoming particularly difficult, though, in an era of digitalisation and an era where high-productivity companies—companies operating in the social media world, in the world of the internet—are increasingly able to make judgements and rulings, driven by taxation considerations, about which jurisdictions their economic activity is occurring in and attribute it accordingly.

There's often no particularly obviously way to attribute where the economic activity of these highly digital companies occurs. We see this, for example, with social media platforms and search engines. It might be that the activities are wholly or largely attributed to a particular jurisdiction because that's where the algorithm is deemed to operate, but that doesn't necessarily lead to a particularly sensible or satisfactory outcome in terms of that company paying taxation where its customers connect with it. I believe this comes down to a set of very tricky questions about how to value intellectual property and how to decide where a company's activities occur. It might be that there's a range of different people connecting with it but they're doing so through an entity that exists in a different jurisdiction altogether.

We are facing, I believe, an increasingly challenging environment in looking at taxation when it comes to highly productive multinational entities for which it's not at all obvious how to attribute activities or interactions between a company and a consumer to a particular jurisdiction. The base erosion and profit shifting program out of the OECD is one response to that problem. It's a program which has a whole series of initiatives falling under it, including minimum tax arrangements in a whole range of economies, and greater transparency. There are a whole range of measures aimed at an international tax regime where taxes are fairer and more transparent and fall more naturally in jurisdictions where the economic activity is occurring, and where there is less incentive for some jurisdictions to go out on a limb with extremely low tax rates to attract companies.

Profit shifting hurts Australia. It hurts many advanced economies. A lot of economic studies have shown profit shifting hurts developing countries the most. There have been a number of studies by the World Bank and a number of studies by the OECD showing profit shifting is bad for many national governments. Many developing countries struggle to lift their already vulnerable and fragile tax bases in the face of these kinds of activities. But Australia is not immune, and Australia is one of the OECD countries that, I would argue, can benefit from a more sensible and more sound international set of arrangements.

The BEPS actions have many components—minimum taxation arrangements and moving taxation arrangements across major OECD economies in a joint manner so that we are all moving together, but also taking into account the fact there are certain sectors where this is particularly a challenge. I mentioned digital companies. Intellectual property is very much an issue, with the difficulty of measuring the value of that but also the difficulty of attributing different actions to different jurisdictions.

These bills will provide for a global minimum tax that will enable Australia to apply a top-up tax on a residential multinational parent or subsidiary company where the group's income is taxed below 15 per cent overseas. It will also provide for a domestic minimum tax which will enable Australia to apply a top-up tax for any low-taxed domestic income before a foreign country would otherwise take that tax under the new rules.

The floor on tax competition offers Australia important benefits. First, it reduces the incentive for multinationals to shift profits away from Australia to low-tax jurisdictions. That is occurring at the moment in many instances, in situations where there is no reason for that profit shifting other than what can be described as an artificial mechanism to reduce tax. In many instances it has nothing to do with any kind of sound, rational or policy based attribution of the company's activities between jurisdictions. This will also improve the competitiveness of smaller domestic businesses in Australia, due to the reduced tax advantages of multinationals.

In addition to it being important in terms of supporting the government's tax base, it also reduces an unfair competitive disadvantage for smaller and medium local companies—many of whom might be trying to move up the productivity ladder, many of whom might be trying to become globally competitive themselves. That is extremely important in terms of both the government's tax take and the level playing field within our own economy.

Implementing a global and a domestic minimum tax will reduce the corporate tax rate differential between Australia and low-tax jurisdictions, making Australia a more attractive place in which to invest. This will give effect to the global anti-base erosion rules that have been set out by the OECD and agreed and finalised by the OECD inclusive framework, which is now a network of 145 member jurisdictions. I believe one of the key elements of this is that jurisdictions move together as much as possible on the key elements of this. Only by doing that, only by joint action, can we take away the incentive for countries to continue to undercut each other.

The government intends to finalise subordinate legislation in relation to these bills in the form of ministerial rules, which will be necessary for these bills to operate effectively. These rules will build upon the framework established by the bill, setting out various computational and administrative provisions necessary to give effect to the global and domestic minimum taxes. Enacting this bill is estimated to increase receipts by some $370 million over the five years from the 2022-23 financial year. It's a material amount of revenue. But as I said, in addition to protecting the government's revenue, there is an important levelling of the playing field with respect to how some multinationals are taxed, versus how domestically based companies are taxed. Many of those domestic companies themselves are trying to build more of a multinational profile. This is both about economic efficiency and about fairness.

The company tax rate, is really, in a sense, a fairly modern part of the modern economy. In Australia, our company tax rate was introduced in 1915, and it was introduced at a low rate back then. I think that the initial company tax rate in the United States might have been around one per cent. It increased in Australia in successive steps, and I think it's fair to say that it's been at around the 30 to 40 per cent level, or in the 40s, for most of the postwar period. But, of course, compliance with that nominal tax rate has changed at various points in time.

There are estimates that an increasing proportion of multinational profits has been shifted throughout that period, and, really, it's that compliance with the nominal rate that is critical. It's really in response to the fact that in Australia, but also in the US and in other major OECD countries, as important as the nominal rate is, in many sectors of the economy, compliance with that nominal rate has been falling off over time. That's why it's critical that we put in place minimum tax rates but that we also do that in conjunction with other OECD countries. This is an important step forward. It's one of a number of bills this government has put in place to ensure greater transparency, and to move forward our multinational tax treatment in alignment with our major trading partners.

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