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

I rise to speak on the International Tax Agreements Amendment Bill 2016 and move:

That all the words after 'That' be omitted with a view to substituting the following words:

'whilst not declining to give the bill a second reading, the House calls on the Government to explain why it has failed to close tax loopholes and increase transparency in Australia.'

This bill ratifies the recently renegotiated Australia-Germany tax treaty. Its purpose is to eliminate double taxation with respect to taxes on income and capital and to update certain definitions, including the definition of 'permanent establishment'. In supporting this bill, Labor is relying on assurances provided by Treasury to the Joint Standing Committee on Treaties on 29 February 2016 that nothing in the agreement prevents either Australia or Germany from enacting domestic laws relating to tax evasion or tax avoidance.

I note that the bill comes at a cost, with the estimated cost over the forward estimates being $125 million. I note, too, Labor's disappointment that submissions to the Treasury's consultation process were not made public. But I do note that this is a bill whose passage has been recommended by the Joint Standing Committee on Treaties. The bill includes a strengthened definition of 'permanent establishment', and it is an agreement that will benefit intellectual property exporters, primarily German companies, and intellectual property importers, primarily Australian companies.

We on this side of the House appreciate any improvement that is made to the definitions in our tax laws to better catch profit shifting. But in supporting this bill we note that the government have consistently squibbed the opportunity to act on multinational tax avoidance. We have seen from this government a promise to reduce the safe harbour levels and the thin capitalisation rules in the 2016 budget. We know that they were coming close to changing those thin capitalisation rules—even briefing out to journalists that the 2016 budget would crack down on thin capitalisation—but at the last moment they pulled the measure from the budget.

One thing they forgot to do, though, was to remove the definition of 'thin capitalisation' from the budget papers. The budget papers include an orphan definition. The term 'thin capitalisation' is defined but does not actually appear in the budget. There could be no more clear sign that this government yielded to special interest pressure in backing down on closing loopholes on multinational profit shifting.

We on this side of the House have a strong package on multinational tax avoidance. We are committed to changing the way in which debt deduction rules operate by applying a worldwide gearing ratio. This is a rule which is consistent—not an arbitrary threshold—has strong economics to defend it, is good equity policy and adds to the budget bottom line.

This government has asked the tax office to do more extensive audits, but at the same time it has sacked tax office staff. There are now thousands fewer full-time, permanent tax office staff than there were at the time the coalition won office. While this government has called for greater tax transparency in the press, in parliament it has refused to support Labor legislation that would require greater tax transparency from private firms. This government talks about tax transparency, but its actions on tax transparency have been to raise the publication threshold for ATO tax data from $100 million to $200 million. That deal that it did last December with the Greens took two-thirds of private companies out of the tax transparency net.

Labor are committed to budget repair that is fair and, in the process of this, we are committed to ensuring that multinationals pay their fair share. You cannot support small businesses in this country if, at the same time, you are backing tax loopholes that are only accessible to multibillion-dollar firms. Labor have led the way on tax transparency; Labor will continue to lead the way on multinational profit shifting. While we have had the Minister for Revenue and Financial Services saying in April this year, 'There needs to be a registry of beneficial ownership in our country,' Australians are still waiting for the registry of beneficial ownership. We have now heard that Minister O'Dwyer is not committed but is 'exploring options' for a register of beneficial ownership. Again, that is a step back from the tax transparency Australians demand.

Australians look at this government and they see a government that is pretty tough when it comes to taking on the most vulnerable in Australia—people with disabilities, the young and jobless, and pensioners—but is pretty weak when it comes to taking on the big end of town. Sure, we support the modest measures in this bill, but we call for significant action by Australia on cracking down on multinational tax avoidance.

Ross Vasta (Bonner, Liberal Party) Share this | Link to this | Hansard source

Is the amendment seconded?

Tony Zappia (Makin, Australian Labor Party, Shadow Parliamentary Secretary for Manufacturing) Share this | Link to this | Hansard source

I second the amendment.

Ross Vasta (Bonner, Liberal Party) Share this | Link to this | Hansard source

The original question was that this bill be now read a second time. To this the honourable member for Fenner has moved as an amendment that all words after 'That' be omitted with a view to substituting other words. If it suits the House, I will state the question in the form that the amendment be agreed to. The question now is that the amendment be agreed to.

Wayne Swan (Lilley, Australian Labor Party) Share this | Link to this | Hansard source

This is a very important bill. It includes treaty provisions which form part of the OECD BEPS process—that is the base erosion and profit-shifting project. No project could be more important to Australia's future prosperity than one that deals with eliminating multinational tax evasion. It was work I and G20 finance ministers started in 2013, and it shows the importance of international cooperation and how essential that is if we are to deal with the scourge of multinational tax evasion.

Over the last decade this evasion has been increasingly facilitated by tax havens and also by tax shields. As the European decision to slug Apple with a $13 billion bill shows, tax havens facilitate epic rent seeking. We have all heard about trickle-down economics, but it has an older and uglier brother: the straight rip-off where companies refuse to play by the rules and their cronies simply look the other way. Last year, as a result of Labor's tax transparency legislation, tax office data revealed that one in three private companies in Australia paid no tax and one in four public corporate entities operating in Australia paid no tax. In addition, half of the foreign companies operating in Australia had no taxable income, while 56 millionaires paid no income tax.

In the Senate inquiry into tax evasion, some of Australia's largest global companies were exposed for using aggressive transfer-pricing activities, costing the public billions of dollars in revenue. When global and respected companies operate in this cavalier way, it compromises the integrity of the social contract and green lights others to follow in their tax-avoiding footsteps. In tax discussions there is a conventional distinction between legal tax avoidance and illegal tax evasion. The reality is there is a spectrum.

Today I want to discuss the behaviour of one company: BHP. Their behaviour leads me to believe they have operated at the evasion end of the spectrum for over a decade. The evidence against BHP is damning. In this period they have ramped up their Singapore marketing hub to camouflage aggressive transfer pricing, costing Australian taxpayers well over $1 billion.

Earlier this year I spoke in the parliament about BHP's use of Singapore as a tax shield. In response on 17 February the chief financial officer of BHP wrote to me claiming his company was a leader in the global business community on tax transparency. He claimed BHP had met its tax obligations in full, notwithstanding its use of the Singapore tax shield, which at that stage had resulted in a bill from the Australian Taxation Office of nearly $1 billion.

Seven months later, on 22 September, the full extent of BHP's deceptive and dishonest conduct was revealed in the Australian Financial Review. BHP finally admitted that the tax liability for their controversial Singapore marketing hub had hit close to $1.4 billion. The Australian Financial Review was reporting from their economic contribution report and their annual report. Without any hint of shame in the Financial Review that day, their chief financial officer, Mr Beaven, described this tax office bill as being a dispute over valuation rather than tax evasion.

Transfer pricing is exploited when a company sells a product between two arms of its operation in order to book its profits in the lower tax jurisdiction. This tax shield used by BHP in Singapore is used to smuggle profits out of Australia. Mr Beaven may choose to cutely describe aggressive transfer pricing as a valuation dispute, but in the world in which we all live this is evasion.

We now know, despite the veil of secrecy from BHP, that tax office audits into BHP's aggressive transfer pricing evasion have now been going on for over a decade. The tax office audits only came to the public's attention and mine through the Senate committee. They were not known to me as Treasurer in my 2010 discussions with miners surrounding the MRRT.

Some of us in this place remember the mining tax debate in 2010. I remember it pretty well. Two things really stand out in my mind. One is that BHP was frothing with outrage at the very suggestion they were paying too little tax during a period when Australia's mining and mineral resources were enjoying record-high prices. The second was their claim that the government's proposed resources rent tax would destroy their operations, close their projects and kill their jobs.

One of the central arguments BHP used at that time was that they paid very high rates of corporate tax and this somehow excused them paying an historically low share of tax on the supernormal profits they were earning. Well, now we know the truth. Between 2005 and 2014, BHP sold Australian minerals to its Singapore marketing hub to avoid paying taxes on profits of $5.7 billion. While BHP paid $1 billion in top-up taxes, these taxes only applied to 58 per cent of the profit generated through the Singapore marketing hub. A full 42 per cent of the profit was untaxed in Australia. Nor was it taxed by the government in the UK, where BHP is co-owned. The directors of BHP Australia and BHP UK are the same people. Overall the tax paid by BHP represents only 10 per cent to 12 per cent of their total profits, made almost exclusively by selling Australian resources. While BHP maintain that their Singapore operations are at arm's length from their Australian branch, I make the simple point again that the directors of both the UK and Australian entities that control the Singapore hub are the same people.

At the height of the mining tax debate, BHP were inflating the impact of the MRRT on their operations while funnelling their profits through foreign tax havens. As the government negotiated with the miners in good faith on critical issues, the miners were expanding their tax avoidance schemes at the same time. It was interesting to see that BHP have finally disclosed that an audit from the tax office has served them with an additional bill for the MRRT of $117 million.

There is now no question that BHP has been gaming the system and is in serious dispute with the tax office over its unpaid taxes. BHP cannot claim to be transparent given its failure to clearly outline numerous back payments as a result of tax office audits as well as failing until now to outline the amounts currently in dispute with the tax office and the Australian states. And of course the governments of Western Australia and Queensland have also been treated very badly by BHP, which has sought to evade critical royalty payments due to the peoples of those states.

Forensic investigation of BHP has revealed it began to pay withholding tax in 2011. These taxes are likely to have been levied by the ATO for profits made on Australian operations, exposing an additional loophole BHP was exploiting. This finding is damning for the management of BHP during 2010. There is a stark contrast between the esteem in which BHP, its executive and the board expect to be held and their actual behaviour. BHP does have an experienced board—Mr Nasser, Mr Andrew Mackenzie, Mr Brinded, Mr Broomhead, Mr Davies, Anita Frew, Caroline Hewson, Lindsay Maxsted, Wayne Murdy and Dr Schubert. The board owes the Australian people a full and frank explanation of its role in approving these aggressive transfer pricing schemes. The board of BHP has not been true to the values it espouses in its charter of corporate responsibility.

Corporations are not ends in themselves. The community cannot allow the corporate veil to hide the moral responsibilities of those that run those corporations. We live in a community, not in a corporation. When companies fail to pay their fair share of tax, revenue must be found elsewhere from businesses and individual taxpayers. The billions of dollars avoided are forever lost to education and to infrastructure, which are vital investments to the growth and ultimately of the country, and ultimately support the bottom line of all corporates operating in our community.

If we assume 10 per cent of corporate tax collections is lost through these practices, the cumulative cost to the budget is $26 billion over four years. Now at a time when this government hacks and slashes at the social safety net in the name of budget repair, it is simply obscene for corporates to walk away with money on this scale. There is a stark contrast, as I said before, between the respect that the boards and their executives demand and their actual behaviour. These actions of these businesses tear at the very fabric of our community and erode trust in business as well as in government.

In government, Labor acted on rampant tax evasion and minimisation. And every step of the way, we were opposed by the coalition. Now in government, the coalition has obstructed or watered-down legislation to expose the extent of tax evasion and minimisation. Tax avoidance saps a government's capacity to effectively govern. It erodes the community's faith in politicians that tolerate it and it sends a signal that there are two tax systems—one for the super wealthy and one for the rest of us.

The recent decision by the European Commissioner for Competition to raise $13 billion in evaded taxes by Apple will hopefully give momentum to taxation authorities around the world to deal more aggressively with the scourge of multinational taxation. It is a decision that ought to be welcomed by the Australian government and tax authorities because it sends a signal to arrogant multinationals that when they put in place artificial structures that do not correspond to economic reality, they should be dealt with forcefully and harshly.

Over a two-year period, the Senate Standing Committees on Economics inquiry into multinational tax evasion and high net worth individuals showed that multinational tax evasion has reached epidemic levels. As the tax commissioner himself said at the time 'enough is enough'. If a company operates in Australia, it has a moral and legal obligation to pay tax here and to support the economic system which nurtures our business sector. A progress tax system for corporates and individuals is central to a country's capacity to fund its own growth. It is one of a number of structural reforms required to lift living standards across the developed and the developing world.

Rampant tax evasion torpedoes this central platform of inclusive growth and will hinder the development of the sustainable development goals. And of course rampant tax evasion is now a structural cause of growing inequality globally and in our country. The failure of the Business Council of Australia to speak out about these practices compromises its standing and credibility. Tax havens and their plundering of the revenue from developed and developing countries, and the protection they provide large corporations and wealthy individuals is now a dramatic handbrake on global growth.

Just as importantly, tax avoidance is a huge part of the trashing of public faith in democratic legitimacy right around the globe. Everyday workers have the sense that the economy is an inside-outside game in which the wealthy play by different rules and everyone else is denied opportunity. Well they are wrong. What we need to do is to put in place ethical systems. Everyone has a moral responsibility to pay their tax but there is an economic responsibility to try to drive the growth and the reform and the living standards that are required for consensus across the democratic world. The behaviour of BHP, one of the largest mining companies in the world, is one that proves that we have a long way to go until we get the standards that we need for a system of democratic government that is funded correctly by corporate and individual tax.

Proceedings suspended from 10:31 to 10:46