David Bradbury (Lindsay, Australian Labor Party, Assistant Treasurer ) Share this | Link to this | Hansard source

Firstly, I would like to take the opportunity to thank all of those members who have contributed to this debate. The Tax Laws Amendment (Countering Tax Avoidance and Multinational Profit Shifting) Bill 2013 amends the income tax law to protect the integrity of Australia's income tax system and to secure a fair, competitive and sustainable tax base for the future of the nation. These reforms come forward at a time of unprecedented global recognition that base erosion and profit shifting must be addressed. The G20 finance ministers and central bank governors have acknowledged the importance of addressing base erosion and are working on a comprehensive plan to address base erosion and profit shifting. Similarly, this government is committed to taking steps where necessary to ensure the integrity and the sustainability of the tax system. These amendments demonstrate that commitment.

Schedule 1 amends part IVA of the Income Tax Assessment Act 1936. Part IVA is the income tax law's general anti-avoidance rule. Its proper operation is vital to protect the integrity of the income tax law, which is still overwhelmingly the single largest source of Commonwealth revenue. The principal role of part IVA is to counter arrangements that, when objectively viewed, are carried out with the sole or dominant purpose of securing a tax advantage. Broadly speaking, part IVA does this by exposing the substance or reality of the arrangements to the ordinary operation of the tax law. The proper role for the tax benefit test is to compare the tax consequences of what the taxpayer actually did with the tax consequences of a reasonable alternative that achieves substantively the same thing. It makes little sense in an anti-avoidance provision to allow the tax consequences of what the taxpayer has achieved to act as a shield against the operation of part IVA. In particular, taxpayers should not be able to avoid the normal tax consequences of what they have actually done by arguing that they would have done something completely different or, in fact, that they would have done nothing at all. These amendments ensure that part IVA remains effective in countering tax avoidance schemes. An effective general anti-avoidance rule ensures that the burden left by those who avoid their tax obligations does not unduly fall on those who are already contributing their fair share.

The government has consulted widely in developing amendments to correct the problems that came to light. Those consultations involved experts from academia, senior members of the legal profession and experienced tax practitioners. In addition, the draft amendments were released for public comment in November and December last year. Accordingly, the government is confident that this bill appropriately addresses the problems, protecting the integrity of the income tax law, and that it does so with no unnecessary interference with Australia's normal commercial activities.

Schedule 2 to the bill modernises Australia's transfer pricing rules in accordance with the government's announcement in November 2011. It provides a new and comprehensive transfer pricing regime that is aligned with internationally accepted principles. Cross-border related-party trade was valued at about $270 billion in 2009. That is approximately half of Australia's total annual trade flows and equivalent to about 20 per cent of our gross domestic product. Properly functioning transfer pricing rules are therefore critical to maintaining a healthy tax system so that the government can continue to deliver the public goods and services that Australians expect and require, like world-class health and education systems, a strong social safety net and public infrastructure.

At a time when the need for global cooperation to address transfer pricing has never been greater, these amendments align Australia's transfer pricing rules with the international best practice as set out by the OECD, as well as with the transfer pricing rules contained in Australia's tax treaties. Alignment with the international norms will improve integrity and efficiency as well as reduce compliance costs and uncertainty for taxpayers.

The bill provides a clear legal pathway to the use of the OECD guidance material in interpreting the rules, avoiding the need to get costly expert advice on whether such guidance may be used. The bill provides an efficient mechanism to update the relevant guidance material if and when international principles evolve. This ensures that Australia's rules can stay at the global forefront in the fight against profit shifting while maintaining appropriate parliamentary oversight. The new rules operate on a self-assessment basis which brings Australia's transfer pricing rules into line with the overall design of Australia's tax system. The previously unlimited time that the Commissioner of Taxation had to make a transfer pricing adjustment has now been reduced to seven years, striking an appropriate balance between providing taxpayers with certainty as to their tax affairs and providing the commissioner with the time required to conduct an audit.

The bill also links documentation with access to a reduction in administrative penalties. This approach allows taxpayers to risk-assess matters that could be the subject of administrative penalties and to prepare documentation accordingly. The proposed record keeping rules, including the nature of the documentation, are consistent with the commissioner's current approach and should be familiar to taxpayers. The government has engaged extensively with industry, corporate and community representatives. The important contributions of each of these groups have greatly assisted the design of these rules. I would like to thank them for their efforts.

The opposition have said that they will vote against this bill. I would like to take the opportunity to respond to a number of the comments that have been made in this debate, in particular by the member for North Sydney and the member for Dunkley. I make the observation that, whilst it does appear that those opposite are determined to vote against every single tax avoidance measure that this government brings into the parliament, collectively and cumulatively they now account for revenue protection measures that are greater than $10 billion. That is the revenue that has been protected or is a subject of measures to protect revenue under this bill and other bills that have come before it. Every time we have sought to close down these loopholes, we have had opposition and interference being run by the coalition.

I think the Australian people have to ask the question: why is it that every time there is a rort, a rip-off or a loophole, the coalition are in there to protect it? It is about time they joined with the government and took action to close down these loopholes and to make sure that the honest, fair, hardworking Australians and businesses that are out there paying their fair share do not get lumbered with an additional tax burden because others are shifting profits and eroding our tax base in the exercise.

Those opposite have suggested that there has been a lack of proper process in the way in which this bill has found its way into this place for debate. They pointed to the fact that no hearing was conducted by the House economics committee. But what they did not point out—and I think it might have been the member for Throsby who pointed this out in the debate—was that the only reason there was no hearing on this bill was because the coalition members of that committee were not prepared to turn up for a hearing. They could not be bothered to turn up for a hearing, so the government members of the committee decided there was no point in going ahead with the hearing because they were satisfied with the merits of the bill. On that basis no hearing was conducted. When it came into this place for debate, the member for North Sydney said, 'Well, this is such an important matter that it should have been the subject of a parliamentary hearing and in the absence of that hearing we cannot support it.' It sounds like a convenient excuse for a party determined to side with those that are seeking to shift profits and minimise their tax obligations.

Even subsequent to the member for North Sydney and member for Dunkley's contribution, this bill went off to a Senate committee, and it has been considered by the Senate economics committee. In the course of those considerations, given it was such an important, complex and technical bill and one that required the scrutiny of the opposition, I find it a little puzzling that only one member of the coalition turned up to those hearings: Senator Bushby—credit to him, a lack of credit to his colleagues. I think the lack of commitment to scrutinising these matters in hearing processes is further evidence that those opposite had already made up their minds on this bill before it came into the place. They point to questions of consultation and say there has not been sufficient consultation in relation to these measures. What a load of rubbish.

The transfer pricing reforms were announced in November—not November 2012 but November 2011. They have been the subject of consultation, discussion and round tables since the end of 2011. In relation to the Part IVA amendments, the announcement was made by the former Assistant Treasurer over a year ago in March 2012. So these matters have been the subject of discussion and consultation for well over a year. In relation to the Part IVA changes, in response to concerns by stakeholders, I established a special process of consultation, a process that involved a formal round table, drawing on experts from the academic area, tax practitioners in the field and also various peak body representatives of behalf of corporate taxpayers and others. We worked through a systematic process. We then had the amendments that were proposed reviewed by senior members of the bar, senior counsel. As a consequence of that we then released an exposure draft, as indeed we did for the transfer pricing reforms. We released exposure drafts in both cases. I thank those that contributed to the consultation process because the final form of this bill, of these measures, has greatly been improved as a result of those contributions. But never let it be said by those opposite that there has been no consultation. There has been considerable consultation, and the process has benefited from it.

More broadly on the substance of what is at stake here, cracking down on loopholes that are being the subject of aggressive tax minimisation strategies by multinationals to shift profits offshore, to load up debt into Australia and to seek to avoid their tax obligations is a matter that this government takes very seriously. We will chase those companies down every burrow of the tax laws to make sure that they do not get a free ride on the contributions of hard-working Australians, families, small businesses and other businesses that are paying their fair share.

The member for Dunkley and the member for North Sydney may not want to confront that fact. They may not believe that it is important, but I should say that there is at least one person on the other side that believes this is important, and that is the member for Wentworth. When a previous bill in relation to transfer pricing matters came before the parliament, the member for Wentworth stood up to be counted. He did not have his vote counted to support the proposition, but he did stand up and at least voice support for the government's agenda when it comes to tackling transfer pricing, profit shifting and base erosion activity. Speaking on a bill, the member for Wentworth previously said, 'We have to take this issue seriously because there is a tendency to ignore these issues until it is too late.' He went on to say that we cannot 'put the taxation of international transactions into the too-hard basket.' Full credit to him for supporting the agenda that this government has been pursuing in relation to the base erosion and profit shifting agenda.

I remind the House that in the budget announced by the Treasurer this week there is a wide ranging and comprehensive package—$4.2 billion worth of revenue measures—to protect the corporate tax base and to crack down on loopholes. It is a series of measures that show the international community that here in Australia we are to be taken seriously. We will do what is necessary with our laws to protect our revenue base and to set a clear example to those nations around the world that may be considering opting for various preferential regimes that undermine the efforts of global cooperation towards reducing base erosion. We are serious, we are cleaning up our act and we are making sure that we are cracking down on any loophole here in Australia, and we expect others to do the same.

One of the more peculiar contributions in this debate came from the member for North Sydney. For all of his huff and puff, he seems to be just a little confused about the measures that are contained in the bill. I note in particular that he took great delight in quoting from a speech that Justice Pagone of the Supreme Court of Victoria made. He used that speech to argue that business has to model every alternative use and every alternative tax scenario before it actually goes down a particular path. He was suggesting that Justice Pagone's comments were in relation to our measures. The only point that he did not advise the House of is that Justice Pagone gave his speech before our exposure draft had been released. Justice Pagone was not talking in relation to the measures that we are proposing; he was speaking of the operation of part IVA as it currently exists. We are seeking to change that, and the changes that are made by this bill to part IVA are, in fact, in part designed to address this problem by limiting the comparison of alternative postulates to other ways of achieving what the taxpayer did in fact achieve. (Time expired)

Ms Anna Burke (Speaker) Share this | Link to this | Hansard source

The question is that this bill be now read a second time.