Andrew Leigh (Fraser, Australian Labor Party, Shadow Assistant Treasurer) Share this | Link to this | Hansard source

There is a serious debate between the two major parties in Australian politics on how to handle multinational tax avoidance. We on this side of the House have put together a plan inspired by work in the OECD, costed by the Parliamentary Budget Office, which closes debt deduction loopholes and adds more than $7 billion to the budget bottom line over the course of the next decade. In office, under the leadership of Wayne Swan and David Bradbury, we passed tax transparency laws that see firms with a total income exceeding $100 million have their total income, taxable income and tax paid published by the ATO. I have moved a private member's bill in this House seek to have that happen sooner, but now the coalition are seeking to shut down tax transparency for around half of the firms affected.

While we have this debate over closing debt loopholes and ensuring tax transparency, we are also having a serious conversation over the Prime Minister's decision to locate a portion of his investments in a well-known tax haven, the Cayman Islands. Nobody begrudges the Prime Minister's personal wealth. He has worked hard for it, and made some investments that have paid off. But, like Mitt Romney, he has chosen to locate a significant portion of that wealth in the Cayman Islands. The Prime Minister has defended this, saying that he pays all relevant taxes in Australia.

But the key question that remains is whether or not the decision to invest in the Cayman Islands increased the income available to the Prime Minister compared to, for example, investing in Australian an vehicle. When investigations were carried out by the LA Times, ABC News and other publications in the United States, lawyers and tax experts there made the point that investing in the Caymans has a range of tax advantages: differential treatment of management fees; the ability to move dividend income into capital gains, and thereby enjoy a better rate of tax; the ability to defer tax paid until a time that is more advantageous for the taxpayer; and the Caymans almost unique use of structured investment vehicles, which are essentially unregulated banks. All of this led Washington DC tax lawyer Jack Blum to say such vehicles allow the investor:

… to avoid a whole series of small traps in the tax code that ordinary people would face if they paid tax on an onshore basis.

American tax expert Rebecca Wilkins said:

… primary advantage to setting those funds up in an offshore jurisdiction like the Cayman Islands or Bermuda is it helps the investors avoid tax.

Like Mitt Romney, the Prime Minister has said that his decision to invest in the Cayman Islands has not seen him pay less Australian tax. But it does seem passing curious; if one were looking to avoid conflicts of interest one might, for example, invest in real property in Australia, or invest in an Australian index fund that just takes a slice of the stock market. I think that if one of my constituents came upon a few extra dollars they would probably use them to pay down the mortgage. They would not for a moment think about a tax gimmick such as buying into the Bowery Opportunity Fund, a Cayman Island based vulture fund that requires a minimum of $1 million to buy in.

The Prime Minister is investing in the Cayman Islands, a jurisdiction which the tax commissioner in Australia has referred to as a tax haven. President Barack Obama has noted that one feature of the Caymans—a building called Ugland House, used by around 19,000 funds and businesses—is 'either the largest building in the world or the largest tax scam in the world.

The leadership taken by Australia at the G20 under Labor in tackling multinational tax avoidance is absolutely crucial. Australia needs to be leading the work on multinational tax avoidance in the OECD, in the G20 and here at home. These events should now prompt the Prime Minister to back Labor's tax transparency laws, not try to repeal them. He should be open to working with Labor on tackling hybrid mismatches and debt deductions. We need to work together to crack down on multinational tax avoidance.