Zali Steggall (Warringah, Independent) Share this | Link to this | Hansard source

I rise to speak on the Treasury Laws Amendment (Making Multinationals Pay Their Fair Share—Integrity and Transparency) Bill 2023. While Australians are enduring what's been described as the worst cost-of-living crisis for a significant time, multinational corporations continue to get away with industrial-scale tax avoidance. The Making Multinationals Pay Their Fair Share—Integrity and Transparency Bill makes a promising start on targeting large corporations by limiting the amount of debt deductions multinational entities can claim in an income year. The bill ensures that debt deductions are linked to an entity's economic activity and taxable income in Australia, which I commend. I'm encouraged by the commitment this bill makes to integrity, especially given that it is in line with international approaches to enhance corporate tax transparency. However, while I support any measure that increases transparency and integrity, this bill only scratches the surface when it comes to stitching up the myriad loopholes that currently exist in our tax system.

The Australian Taxation Office transparency report released in November last year revealed that 32 per cent of large and medium corporate entities, including mining, energy and water companies paid no tax at all in 2020-21. I'm just reminding everybody that that is one-third of large-to-medium corporations. Chevron paid just $30 in income tax, despite having a total income of some $9.1 billion. Loopholes in our tax system are allowing multinationals to extract billions of dollars from the Australian public. With the recent revelations concerning PWC and other major accounting firms, it's clear that our tax system has been exploited by multinationals for many years at the expense of hardworking, taxpaying Australians. Just repeating, the Australian Taxation Office's annual tax transparency report revealed the amount of tax paid by some 2,468 large-to-medium corporation entities, and it showed that no tax was paid by nearly one-third. More than half of the mining, energy and water companies included in the report paid by no income tax in 2020-21.

I'll just stop for a moment, because we know those companies are making record profits from Australian resources. They include companies like Adani Mining Pty Ltd, one AGL entity, Alcoa Australian Holdings, Ampol, Anglo American Australia, ExxonMobil Australia, two Glencore entities, Peabody Australia holding companies, Santos, two Shell Energy entities, Whitehaven Coal, Woodside Petroleum and Yancoal Australia. Remembering that at the moment we are having a debate, for example, as to why the Australian taxpayer is funding $1.5 billion towards the key infrastructure cost for yet another gas development. These large multinationals turn around and take the handout of public money to pay for infrastructure but then do not contribute back into the system. Every year, the Australian public is denied billions of dollars in tax revenue because of multinational tax avoidance. Why does this matter to everyone? That is money that could be spent on schools, hospitals, affordable housing and, in particular, climate change mitigation and transition which so many of these fossil fuel companies are in fact accelerating and making worse.

Whilst I commend the government for the bill, the bill does not address major tax avoidance schemes. The bill does not address situations like the one that occurred in 2017, when the Australian entity of multinational oil and gas giant, Chevron, was caught engaging in a transfer pricing scheme. Chevron's Australian entity borrowed at an interest rate of nine per cent from an entity it created in the US state of Delaware called Chevron Funding Corporation. That corporation was borrowing at just 1.2 per cent while lending at nine per cent to the Australian entity. This artificially inflated Chevron's expenses in Australia, thereby transferring profits to the tax haven state of Delaware.

The Australian Tax Office won a landmark case against Chevron, claiming that the scheme had denied the Australian public roughly $340 million in tax revenue. Using unusually high interest expenses paid to overseas subsidiaries is not the only way multinationals seek to game the Australian tax system. In July last year, Rio Tinto settled a dispute with the Australian Tax Office for some $991 million for its use of offshore marketing hubs and overstated borrowing costs to transfer profits offshore to avoid paying taxes in Australia. I find it rather ironic when I hear so many in this place go to bat for these fossil fuel companies, these big multinationals, when they are vowing to contribute back to the very substance of the community they're so happy to take from.

Multinational oil and gas companies essentially pay so little tax but receive so much funding and subsidies from the public purse. Last year, a report from the Australian Institute found that multinational oil and gas giants Chevron and ExxonMobil paid zero income tax over a seven-year period despite a combined total income of $100 billion. I find that obscene. When I think of the consequences that we as a society are going to have to pay—the transition, the adaptation and the preparation—I think not only have we been pillaged but, on top of that, the Australian people are going to be left to foot the bill. When thinking of that total income of $100 billion with zero tax when individual nurses are paying more tax than some of the nation's largest oil and gas companies, it's blatantly clear that our tax system has a problem and is broken.

There are a number of ways in which multinationals avoid paying taxes in Australia. It's when we step back and look at the strength of the other tax systems around the world that we realise how badly Australians are being fleeced. This is really important because we have incredible challenges ahead of us. We have big transition costs. We have a cost-of-living crisis. We have everyday Australians struggling. We have people in this place quibbling over small increases to support the most vulnerable in our community. We are actually not providing sufficient support. We are keeping people below the poverty rate. Yet, we have these loopholes remaining. It begs the question: is it because of our lobbying practices? Because these multinationals have voices and access to government in a way that so many others do not. We know that that has allowed this system to continue for way too long.

The comparisons with high integrity tax systems are important. For example, Norway has a highly effective tax regime. It has been taxing the export profits of its oil and gas sector at 78 per cent since the 1990s. Through this tax, Norway has built its sovereign wealth fund, which is now worth around $2 trillion, or around $1.5 million for every Norwegian family of four. Just stop and think about that for a moment. What have both major parties been doing for the last 20 years around so much wealth in Australia? We have just dug it up and shipped it out, and we have not made sure that the Australian people for generations into the future have the kind of wealth fund that should be there for them.

While Norway has been taxing its oil and gas export profits at 78 per cent for the past three decades—three decades, that's 30 years!—tax revenue from Australia's oil and gas sector has been in consistent decline.

In 1997, corporate tax paid on oil and gas export profits in Australia was 16 per cent of total revenue, but in 2020 it had dropped to just one per cent. Over the nine-year period from 2012 to 2020 the Australian oil and gas sector reported expenses to the Australian Taxation Office equalling a staggering 90 per cent of total revenue. That compares to an expense-to-revenue ratio in Norway of just 21 per cent. In Norway they claim expenses of 21 per cent. In Australia they are claiming 90 per cent to limit any kind of tax liability. It beggars belief that those numbers don't have the Australian government calling time and saying, 'Hang on a minute; we are not doing the right thing by the Australian people.'

The high oil and gas expense ratio in Australia either represents a woefully inefficient industry or an extremely effective campaign of financial engineering to exploit loopholes in our tax system and, I would argue, incredibly effective lobbying to both sides of this place. Australia needs to put in place some serious reform. The petroleum resource rent tax is a classic example. Here we are on the threshold of yet another opportunity where Prime Minister Albanese is going to need to stare down the question: do I do the right thing by the Australian people or do I continue paying lip service and doing what the gas industry wants? Further to broad multinational tax reform, we desperately need to fix the broken PRRT. After it was introduced in the early 1990s, the PRRT made up 19 per cent of total oil and gas revenue. Thanks to decades of lobbying, that has been whittled away to just one per cent of total oil and gas sector revenue. Australians are being fleeced on the sale of natural resources that ultimately belong to them and should be wealth building for generations of the future. In here I look at children in the gallery. They put their trust and faith in this place to ensure that we have laws that will take care of their future, and we are failing dismally because lobbyists and big corporate interests are coming before the interests of people.

The call is very clearly on the government when it is looking at the reform of the petroleum resource rent tax, which we know is coming: why are you ignoring the recommendation from Treasury, which actually collects a more significant amount of revenue, compared to the one the lobbyists and gas companies have been pushing? It's going to be a real test for the Albanese the government. On whose side do they stand? Do they stand on the side of securing generational equity, revenue for future generations, or do they stand on the side of the gas lobbyists?

Whilst this bill is a step in the right direction to limit profit shifting, much more needs to be done to rein in multinational tax avoidance. I commend the intention of this bill to turn the tide on multinational tax avoidance; however, it addresses just the tip of the iceberg. We need to get real in this place. If the government of Prime Minister Albanese wants to be seen as turning over a new leaf and doing things differently, let's call a spade a spade: if you genuinely want to reform, you need to do more than address just the tip of the iceberg. I will be looking with interest at the proposal the government bring forward when it comes to the petroleum resource rent tax. Are they going to be on the side of generational equity, ensuring gas companies pay their fair share of royalties, or are they going to be on the side of the gas lobbyists from the gas companies? The Treasurer, the Prime Minister—everyone in this government—will have that important question to answer to the Australian people.

Cassandra Fernando (Holt, Australian Labor Party) Share this | Link to this | Hansard source

I rise today to speak on yet another crucial focus of the Albanese Labor government: multinational tax avoidance. It is prevalent in the global economy and has been ingrained in big business culture for far too long.

This bill delivers on another of our election promises to the Australian people.

Our nation's economic integrity and fairness have been sidelined for too long, and we must take a stand to ensure that everyone, without exception, pays their fair share. My constituents pay their fair share of tax, and I'm sure all of us in this place pay our fair share of tax. But for too long now those in the big-business and multinational world have used dodgy strategies to get around their tax obligations. The Treasury Laws Amendment (Making Multinationals Pay Their Fair Share—Integrity and Transparency) Bill 2023 is a crucial step forward in closing the loopholes that have allowed some multinational corporations to avoid their tax responsibilities. It is time to level the playing field and create an equitable tax system that benefits all Australians, not just the privileged few.

For far too long multinational companies have engaged in complex financial manoeuvres, exploiting gaps and discrepancies in tax laws across jurisdictions. They have shuffled profits to low-tax havens, all while enjoying the benefits of operating within our secure and prosperous country. What has this meant for us? It represents a significant loss of revenue for our nation, reducing the resources available for vital public services like education, health care and infrastructure.

Schedule 1 of this bill targets both listed and unlisted Australian public companies. It will require them to disclose any subsidiaries they have and where they are located. This will go a long way in keeping these companies to account, by forcing them to be more transparent about their corporate structures and their tax arrangements. I suspect the Australian people would not be pleased to learn of companies that abuse loopholes and have subsidiaries sprawled across low-tax areas of the world. I would anticipate that many Australians would vote with their wallets and support the businesses that support them and their country.

Another positive flow-on from this change is that it will allow for better economic analysis and help the government of the day to determine whether our tax laws are working as intended. If the data shows our laws are lacking, changes can be made. This information will be disclosed as part of the company's annual financial report, which also helps to reduce compliance burdens. This is not a radical proposal. It is in line with other Western countries such as the United Kingdom, which already has these types of measures in place. It is estimated that $500 billion to $600 billion in corporate tax revenue is lost every year as these profits are expertly shuffled into low-tax regions across the world.

In Australia, company tax accounts for roughly 19 per cent of Australia's revenue, and our changes in schedule 2 of this bill are estimated to result in a gain to receipts of $720 million over the four years from 2023-24. This will be achieved through several measures, including limiting debt related deductions to 30 per cent of profits. An earnings based approach to debt deductions ensures that any deductions are directly tied to a company's earnings. This will assist in addressing the tax planning activities of multinationals. As debt is tax deductible, it has become a strategy for some multinationals to adjust debt levels and utilise borrowings to minimise the amount of tax they pay.

This has become such an internationally prevalent issue that it has resulted in an almost international effort to combat this practice, which has been led by the OECD. Several OECD countries, particularly the United Kingdom, as I have already mentioned; the United States; and the majority of the European Union have already implemented these earnings based interest limitation rules. Importantly, the new third-party debt test provides additional flexibility to deduct genuine third-party debt, which is consistent with common debt financing arrangements used across the world, all the while balancing the overall tax integrity purpose of this measure.

These changes are simple, commonsense propositions. It should not be the case in this country that someone on the minimum wage is paying more in tax than some of the top companies in the world. We cannot stand by and allow these corporate giants to manipulate the system, leaving everyday Australians to bear the burden of funding our nation's future. This bill signals to the Australian people that the Labor Party and the Albanese government will not stand by and let this continue. The time has come to hold these multinationals accountable, to require transparency and to close the tax loopholes that have been abused for far too long.

The core principle behind this bill is integrity. It aims to tackle the complex web of tax avoidance strategies and improve the transparency of multinational corporations' financial activities. By requiring these companies to disclose proper tax information to the Australian Taxation Office we can gain a clearer picture of their operations and ensure that they are paying their fair share. I understand the concerns raised by some who argue that these measures may discourage foreign investment or burden corporations with excessive regulation. All the changes contained within this bill were subject to extensive consultation in both August 2022 and April 2023, with civil society and industry stakeholders providing feedback that the measures in this bill are required.

Let us be clear. This bill does not seek to restrain business growth or innovation. Instead, it's about creating a level playing field for all businesses—large and small, domestic and international. We all know that local families and small businesses do the right thing, and so should big businesses. It's just that simple. By ensuring that everyone pays their fair share we can promote healthy competition, foster innovation and strengthen our economy in the long run. This legislation sends a powerful message to the global community that Australia is serious about tackling multinational tax avoidance. By helping to lead the charge alongside countries with similar laws, like others in the OECD, in enforcing fair taxation practices, we position ourselves as a nation of integrity, setting an example for other countries to follow.

This bill is not a magic fix for all multinational tax avoidance. Neither is it the only step needed to fully address the complexities of multinational tax avoidance fully. But it is a crucial and tangible step in the right direction. As the representative of a working class electorate I remain committed to working to strengthen our tax system to make it more transparent and ensure that it serves the interests of all Australians. I would hope that this government can count on all members in this place to support this bill and signal to the international community that all parties take tax avoidance seriously. I cannot think of anything more hypocritical than for those opposite, if on one hand they are saying they will repeal the increased welfare payments from the May budget, claiming that we cannot afford it, to then not support ensuring that multinationals and others are paying their fair share of tax. Do they think only everyday Australians need to pay tax? I would not want to be a coalition MP, having to go home and justify that to my constituents.

Regardless of what others say, I am proud to belong to a government that is united in creating a fairer, more equitable tax system that benefits every Australian. Let us remember the core values that underpin this legislation: integrity, fairness and transparency. To put it simply, the amendments contained within this bill, particularly the changes in schedule 2 that reform Australia's thin-capitalisation rules, will ensure that multinationals will pay an appropriate amount of tax in this country.

The timing of Australia's anti-avoidance legislation will assist in deterring multinationals from avoiding income tax, thus ensuring the appropriate amount of tax is paid and reinvested into services the Australian people need. By passing the Treasury laws amendment bill, we will take significant strides towards securing a better future for our great nation—where every individual and every company contributes their fair share to build a stronger and more prosperous Australia for all. Labor will always support legislation, like this, for a fairer and more just Australia. I thank the House.

Bert Van Manen (Forde, Liberal Party) Share this | Link to this | Hansard source

I can assure the member for Holt that the coalition will be supporting this bill, but I note that the whole process conducted by the responsible minister has been a complete and utter shambles. That's not unusual for those opposite, since they've been in government. We've seen schedules pulled just hours before introduction, to the point where the explanatory memorandum refers to schedules of the bill that no longer exist. We know that Labor wanted this bill to be more onerous and to tie business down in more red tape, but that would have not improved, one iota, the level of revenue raised in this bill.

I think it's worth reminding the House and those new members opposite that this is just the latest tranche in a number of bills to improve the effectiveness and transparency of our tax system, particularly in relation to multinationals and ensuring they pay their fair share of tax. Many of those first tranches of legislation were introduced by a coalition government. The coalition government has a solid and sound track record in ensuring multinationals paid their fair share of tax, over the last nine years that we were in government, and minimising the risk of multinationals avoiding paying their fair share of tax. Our system is undermined when people and organisations avoid their tax obligations. That's why we worked so hard when we were in government to ensure they did pay their fair share.

We welcome the continuation of the OECD's two-pillar solution to multinational tax avoidance. This was started by the coalition government, and it's pleasing to see that the current government is continuing that process to ensure the integrity of our tax system. That is crucial for all of us, because that is what assists in funding the services that Australians rely on each and every day.

This legislation highlights an important point, and the shadow Treasurer's amendment to this bill reflects on that, that Labor have broken their promise on tax. Labor promised only to increase taxes on multinationals before the last election, but we've seen them break that promise. Labor have raised taxes on superannuation, capturing one in 10 Australians, over time, and young Australians earning average wages today, according to Treasury modelling.

Labor are taxing unrealised capital gains. Let's be clear. That is a wealth tax—unprecedented around the world—and an assault on family owned businesses and self-managed super funds. Labor are increasing taxes on franking credits, banking half a billion dollars in taxes from Australian companies, Australian retirees, Australian super funds and Australian charities. Labor have ended a range of small-business tax concessions, decimating the instant asset write-off, all but burying the technology investment boost and ending loss carry-back measures. This is despite independent economist Chris Richardson predicting Labor would breach the coalition's tax-to-GDP cap during their first year in office. Higher taxes will not assist with the cost-of-living crisis and they will certainly not assist with small to medium business and the productivity crisis that we are seeing with this current government.

Labor has broken promises on tax, and it proves they can't manage the economy and can't be trusted. As we have said all along as a coalition, higher taxes are in Labor's DNA.

But what's in this bill? Schedule 1 introduces new rules on the disclosure of information about subsidiaries. For the financial years commencing on or after 1 July 2023, Australian public companies, listed and unlisted, must disclose information about their subsidiaries in their annual financial reports.

Schedule 2 to the bill aims to strengthen the thin capitalisation rules in division 820 of the Income Tax Assessment Act 1997. The amendments seek to address risks to the domestic tax base arising from excessive use of debt deductions, thereby transferring wealth elsewhere, to lower-tax environments, which amounts to base erosion or profit-shifting arrangements. These amendments introduce new thin capitalisation earnings based tests for certain classes of entities, replacing the existing asset based rules for those entities. The debt deductions under the safe harbour test will change from up to 60 per cent of assets to 30 per cent of profits.

These amendments also establish a new arms-length debt test in the form of a third-party debt test. The schedule also introduces a new subdivision, 820-EAA, for debt deduction creation rules. These rules disallow deductions to the extent that they are incurred in relation to debt creation schemes. The new test excludes related-party debt, supporting property and infrastructure investment.

As I said in my earlier remarks, these just build on the coalition's track record of nine years in government. In 2014, as the G20 host, Australia played a leading role in the original OECD base erosion and profit-shifting project, which was initiated in 2013 and delivered in 2015. Under the coalition, Australia was an early and vigilant adopter of the OECD/G20 BEPS recommendations. These established a multilateral approach to prevent tax avoidance and increase tax transparency to tax administrators.

The coalition government's measures included introducing the diverted profits tax, which limits a company's ability to shift profits out of Australia; introducing the multinational tax avoidance law, which ensures companies do not avoid a taxable presence in Australia; strengthening the thin capitalisation rules; strengthening transfer pricing rules; doubling the penalties for tax avoidance; and establishing the ATO Tax Avoidance Taskforce. The task force, created in 2016, enforces existing laws and supports the government's new tax avoidance measures. It targets multinational enterprises, large public companies and private groups, and wealthy individuals.

From 1 July 2016 to 30 November 2021, through all of these measures the ATO raised more than $24 billion in tax liabilities against large public companies, multinational corporations and privately owned and wealthy groups. This ultimately generated tax collections of some $17.3 billion. In the 2019-20 budget, the government provided additional funding to the task force to expand its activities, and this was expected to raise additional tax liabilities of $4.6 billion over the forward estimates. I think this track record speaks volumes for the work of the coalition government and provides a very sound foundation for the current government to continue building on.

But, in closing, let me speak more to the amendment. We've seen that the government has continued to break its promises in dealing with the cost-of-living crisis. The government knows only one way when they run out of money, and that's to come after yours. Changes to these multinational tax arrangements in this bill do not change that, whether it is franking credits or superannuation, you can't trust the government on tax. The Prime Minister and the Treasurer went to the election promising Australians that they wouldn't touch franking credits, yet in a year they've added two tax grabs on Australian shareholders.

Changes to these multinational tax arrangements in this bill do not change the fact that they've broken their promises in other areas of tax. I spoke earlier this week on the issue of productivity. We've seen a 4.6 per cent fall in productivity in this country under those opposite's leadership. Yet we see nothing from them about how they're going to turn that around and improve the productive opportunities in this country. Through their broken promises on tax or the collapsing productivity under this government, we are still seeing CPI at six per cent, and core inflation a little bit under that at 4.9, amongst the highest in the world.

The CPI data tells us what we know Australians are feeling each and every day: prices are not coming down. There's the broken promise on reducing your electricity bills by $275. I know from talking to many people in my electorate that their electricity bills are only going on way, and that's up. They're not going down, and there's no sign of that happening anytime soon. Whether it's grocery prices, whether it's petrol prices, whether it's a range of other costs across the economy, particularly mortgages for many people in my electorate, prices have only gone up. This government promised at the last election that the cost of mortgages would go down, the cost of electricity would go down and the cost of living would go down. Well, it has only gone one way since the election, and that is up. They have no answers.

This is a good piece of legislation in terms of ensuring multinational companies pay their fair share of tax, but it does not gloss over and does not hide the failure of this government to deliver on their other promises. There is no sign of that happening whatsoever. So I commend this bill to the House. As I said in my opening remarks, we will not be opposing this bill. But, once again, I just want to make the point that all we have seen from this government is higher cost of living, higher taxes and no sign of anything different from them whatsoever.

Shayne Neumann (Blair, Australian Labor Party) Share this | Link to 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.

James Stevens (Sturt, Liberal Party) Share this | Link to this | Hansard source

I rise to contribute to the debate on the Treasury Laws Amendment (Making Multinationals Pay Their Fair Share—Integrity and Transparency) Bill 2023, and in particular in support of the amendment from the shadow Treasurer. We in the coalition have a very unambiguous position on taxation and the principles of taxation, which is that we want taxation to be as low as possible and also as fair as possible—that is, the lowest tax burden on everyone in our society but sharing that tax burden fairly and equitably. In principle, we always welcome the opportunity to support measures that are ensuring that the principles of our taxation system are not in any way being abused or sought to be exploited, or pursuing loopholes or structures in which the spirit of the fair taxation on economic activity that happens in our nation and that was derived from our nation is being avoided in any way. So this is a bill that continues along a path that, when we were in government, we were already well along on. Many people contributing in this debate have referenced the frameworks of the OECD, and the OECD has been a helpful body to bring together relevant nations that have these same challenges to talk about some principles in policy around taxation legislation that, if we have a degree of uniformity, will prevent some of the practices that we don't believe are fair and equitable. Most definitely, not enough tax is being paid in this country by some multinational companies because they're structuring their affairs in a way that exploit loopholes that are outside the principles of the fair taxation system and the principles of tax that we expect to be appropriately levied on corporations.

I'm obviously very wary—it's a principle of the coalition—around the topic of sovereign risk and the concept of changing policy positions or legislation where an investor might be able to say, 'I invested on certain terms and in a certain environment that I expected there to be consistency around. The fact that you've changed the goalposts on me is unfair and will mean that a lot of people will reconsider making investment decisions in your economy.' We on this side are always very wary of that. But this is an area that, in no way, comes into that principle of policy.

This is an area where we are identifying that the principles of our existing legislation, our existing taxation regime, are being exploited or enacted outside the principle that any investor should have properly understood was the purpose and intent of the Australian taxation system when they undertook investments in our economy. If they undertook investments in our economy that were contingent on acting outside the spirit of our taxation system—where perhaps they made investments and had a business structure and plan in mind that involved them knowing what the principle of our taxation system was but seeking to get around paying their fair share of tax in our economy—then I've got absolutely no sympathy for that type of investor, and I'm sure no-one in this parliament would.

The economic activity that occurs in our nation needs to be properly shared between a fair rate of return from an investor who takes the risk of investing in the economy and a business proposition. Equally, when they succeed in our economy, they, like any other member of our society, need to pay a fair and reasonable amount of taxation to the government. This is to support and provide the society that we expect to have as a dividend of the economy that we've got, a strong economy that we want to have, and a growing economy into the future.

Those are the principles with which we approach our decision-making in supporting legislation in this area. It's human nature for people, particularly for investors, to seek to maximise return on the capital that they employ. At times, they can be quite ingenious in identifying ways in which they structure their operations. In our view, they might be outside the spirit of our taxation system. Nonetheless, under existing provisions, they've found ways to structure their balance sheets, structure the way in which they realise elements of economic activity, within their operations in our country and not in our country. Clearly, they would not be illegal, lest they be open for direct prosecution, but they are outside the spirit.

When we see examples of corporate structures, corporate accounting and balance sheet manoeuvrings that are not capturing a fair return on economic activity, within our economy, through the fair established principles of our taxation system, then we've got to take action. We know the history of issues around things like transfer pricing, particularly in the mining and minerals sector.

This bill deals with issues around structuring balance sheets and leveraging assets, in this country, with certain debts that are not fair and reasonable, to achieve the dramatic reduction in realised income and realised profit that should be fairly taxed within our economy. We're addressing that in this bill. Equally, it's the principle of having a coordinated approach to this with similar economies. We want to always be about a low-taxing environment and take every opportunity to have the lowest tax burden on the people of this country that we possibly can. That includes the investors of this country.

We also recognise the zero-sum game of having a situation where countries are finding ways to make changes to the principles of their tax system, in certain elements of the tax system, not in the broad concept of low taxation. They're looking for ways to have particular tax treatments that would attract faux economic activity into their economies.

In that case, a particular tax treatment of a particular type of activity is lower in that jurisdiction and has a commensurate cost to another economy currently receiving that economic activity and the taxation of that economic activity. If we don't work together and cooperate on these matters through a framework like the OECD, we will have different types of tax treatments being used in tactical faux business and faux economic attraction principles rather than the general principle we all want—economic activity genuinely happening in our economy being up to us to determine tax treatment. Investors will then make decisions based on us ensuring that we have, generally speaking, the fairest and most equitable tax treatment on those investments that will still allow those investments to return a fair profit on that capital employed but also, given they're undertaking that activity within the economy, be big good corporate citizens that are contributing to the cost of running our society.

The shadow Treasurer's amendment here is very important. Beyond some of the schedules within this bill, it also makes very important points in taxation more broadly and where the government is heading in taxation. One thing that I don't think has had enough attention and needs it is the fact that, in this highly inflationary environment, income tax, in particular, but also the general issue of bracket creep, is really punishing Australian families and Australian income earners.

Inflation peaked at seven per cent more recently; it's still at six per cent. Some people are celebrating that. It's devastating and heartbreaking that, at the moment, our economy is seeing the value of the dollar deteriorate to the tune of six per cent in a 12-month period. That is the destruction of wealth and the destruction of savings for people that are provisioning for their retirements, for their futures et cetera. It also means that, because our income tax brackets are not index linked and as inflation runs hot, we're seeing an increase in the income tax take by default of inflation increasing everything in the economy and bringing the relative rates at which higher income tax is levelled down in real terms.

While in government we undertook a very significant reform now known as stages 1, 2 and 3 income tax cuts. Those were all about addressing bracket creep and inflation eating away at Australian workers' take-home pay. At times, there has been speculation around whether or not the legislated stage 3 of those income tax cuts will be honoured by the new government, who did say very clearly and repeatedly before the election that they wouldn't touch them. At this stage, that hasn't happened. Regrettably, an important point regarding stage 3 is that they are not the tax cuts that they were when they were passed, because we were not anticipating inflation to run at the levels that they have under this new government. So the magnitude of the changes to the stage 3 tax cuts are dramatically different, because inflation was not modelled by Treasury to hit seven per cent at the end of 2022, early 2023, and to now still run at six per cent.

We now have the RBA saying that their policy settings don't model inflation getting back to between their target range of two to three per cent for another two years. So every day, week, month that goes on that we're not within that target bracket, where inflation is running hotter than our target is around monetary and price stability in our economy, people's wealth and savings are being destroyed by the magnitude of that gap. And, of course, the expected benefit of changes to the tax scales are not what they were envisaged in the lower inflation environment, which was what was being projected when that decision was made.

We now have, as the shadow Treasurer pointed out, a circumstance where our tax-to-GDP ratio is going up. There are issues, which are just so perverse, like bracket creep and the dividend that the government will get from higher inflation because of that bracket creep. They're taking more money out of the pockets of Australians in real terms, and the growth of that tax-to-GDP ratio, which this amendment makes very clear, is projected to increase to levels that are putting a greater burden of tax on the people of this country.

So we debate this bill, which is about making sure that everyone pays their fair share of tax. In particular, this is targeted at multinationals and the structure of balance sheets and the like and about ensuring that proper capture of economic activity in this country is taxed at an appropriate rate. But we also make the point through the debate on this amendment that this government are increasing taxes. In some cases, it's by stealth, and, in some cases, it's vindictive, like the changes to the superannuation tax. 'You've been successful and you've got a lot of money, so we might just take some of it from you. We'll never tell you anything about it before an election because that might cost us votes. We'll wait until we've been elected and then undertake these dramatic increases in taxation on certain cohorts of Australians that we don't like.' That's the position of the government, so we oppose that.

This amendment highlights our position there and the general challenges around bracket creep and the increase in taxation from a percentage-of-GDP point of view, and that is, as I've canvassed, particularly aggravated by inflation running as hot as it is. Nonetheless, the principles that this bill is seeking to achieve are important. They are a continuation of the work that we undertook in government. We commend the OECD framework that sees governments working together on these issues, because we certainly believe that, as much as we want taxation to be as low as we can get it, everyone should pay their fair share of tax. Where multinationals are obtaining significant economic benefit from investing in our economy, they should pay their fair share of tax to pay for our society.

Andrew Charlton (Parramatta, Australian Labor Party) Share this | Link to this | Hansard source

I rise to support the Treasury Laws Amendment (Making Multinationals Pay Their Fair Share—Integrity and Transparency) Bill 2023. The Australian corporate taxation system is an important pillar of our fiscal structure, and it's very important that we get that pillar right. If we don't then we face Australia becoming uncompetitive in global capital markets and we won't attract the investment that Australia has always needed to build our economy and fuel our economic growth. We want to make sure that foreign investors have confidence in Australia and get a strong return for the investments that they make here. Those investments build our companies, build our infrastructure and develop us as a nation.

But, when we don't get our taxation system right, we can create a series of problems that reverberate right through the economy. One of those problems is a significant revenue shortfall. When multinationals don't pay their fair share of tax, it means that other Australian companies and individuals have to step in to pick up the burden. The second problem is that it creates a lack of competitiveness: the level playing field disappears, and Australian domestic companies are at an unfair disadvantage to their foreign competitors. We need to make sure that Australia's corporate taxation system works for Australia and works for our investment partners.

Right now, Australia's company tax system is incredibly concentrated. Over the last several years, on average, just 10 Australian companies have paid a third of all corporate tax receipts in Australia. Those are familiar names to all of us. There are the miners. BHP pays $7.3 billion in tax. Rio Tinto pays $6.1 billion in tax. Fortescue pays $5.7 billion. The banks are very large taxpayers in Australia. There are also the supermarkets. Coles pays $455 million, and Woolworths pay $636 million.

These, together with a handful of other companies, pay a third of all the company tax in Australia. There's something that unites all of those companies: they're all domestic companies.

One thing that you rarely see on the list of high corporate tax payers in Australia is foreign companies. In fact, foreign companies are overrepresented in the third of Australia's big companies that pay no tax in Australia. Those companies listed in the tax transparency information include Adani, Alcoa, Anglo American, a number of entities owned by Glencore, BP and Viva. Many of these companies are doing the right thing. Many of these companies are following the law. They might have made significant capital investments and have big deductions as a result of those investments. Some of them were impacted by the pandemic. Qantas, for example, paid almost no corporate tax, because of the impact of the pandemic—completely understandable. Some companies have very significant periods before they become profitable, and they too will, very legitimately, pay no corporate tax. But the preponderance of low corporate tax payments by foreign companies is a perpetual issue in the transparency statistics, and it's an issue that we need to look at very closely.

We're not blaming businesses for following the law, but we are saying that that law needs to be tightened so that our system has integrity and everybody pays their fair share. We know that, regrettably, there are many actors out there who would wish to thwart the integrity of our tax system. We've seen, through the recent PwC saga, a number of companies taking advantage of information to restructure their affairs to minimise their tax. PwC did the wrong thing. Part of what they were doing was supporting foreign companies to find loopholes and other ways to reduce the contribution they make to Australia—a country where they earn their revenue and where they have millions of customers, but where they often pay desperately little tax. We know, from the information that has been revealed through inquiries into PwC, that they advised a number of foreign companies, including Uber and Facebook, to set up new structures to minimise their taxation based on information that they gleaned dishonestly from the public sector. Uber and Facebook were doing what they were doing. There's no suggestion they broke any laws, but there is a suggestion here that foreign companies are constantly looking for loopholes, and actors like PwC are helping them to find those loopholes.

The problem with this situation is that, if foreign companies do not pay their fair share of tax, other Australians have to step into the breach. We have a situation now in many industries where we have a domestic player and a foreign player, and the domestic player is at a disadvantage. For example, many retailers now face competition from foreign players who pay no tax, but domestic retailers pay a lot. Coles and Woolworths collectively pay a billion dollars in tax. Some of the foreign entrants that are gaining share in Australia pay almost nothing. We need to make sure that we have a level playing field in Australia so that we don't disadvantage Australian companies and Australian households that suffer from this low taxation because they have to step in and pay higher tax themselves.

The bill in front of us today is an attempt to fix many of those loopholes, to address the problems of integrity and transparency in our tax system. It does follow a global effort to curb multinational tax evasion. This has been a long process, and, for many of us who follow it closely, a very painfully slow process. It is a process that we wish was happening more quickly and yielding greater dividends to communities around the world. In 2012, the G20 met and discussed how to stop base erosion and profit shifting strategies used by companies to exploit loopholes in tax laws. In 2013, we had the report on base erosion and profit shifting, which delivered an action plan on those initiatives. That report acknowledged that effective taxation of mobile income is one of the key challenges facing economies around world today. It also encouraged us to not allow multinational enterprises to reduce overall taxes paid by artificially shifting profits to low-tax jurisdictions.

We're on a journey to solve this problem but we have a long way to go. There are many multinational corporations that are taking advantage of low-tax jurisdictions, and they're taking advantage of a number of loopholes that enable them to do so. The number of big foreign companies in Australia that pay massive royalties or other payments for intellectual property to foreign parents who just happen to be in low-tax jurisdictions is an outrage. These companies are simply taking money from Australia—from Australian citizens—and shifting it to low-tax environments.

We have desperately little information about these internal royalty payments, which have the effect of reducing the profitability of the Australian entity, increasing the profitability of the foreign entity in the low-tax jurisdiction and therefore shifting tax dollars from Australia to those low-tax jurisdictions. We have very little information because there is so little transparency. What do those royalties mean? What are those companies paying for in terms of this intellectual property? I don't doubt that there is significant investment in these big multinational companies' headquarters that does require some recompense from jurisdictions around the world, but it seems that these royalty payments are going way beyond that. These royalty payments are less about compensating for investments in intellectual property in those jurisdictions and much more about shifting tax liabilities. That's why often you find that, not coincidentally, these companies are domiciled in low-tax environments. We have very little information about that.

The second incredibly common loophole is the use of debt instruments, where a multinational corporation with a subsidiary in Australia lends that subsidiary large amounts of money through intercompany loans, and the Australian subsidiary then has to pay back the interest on those intercompany loans. That interest reduces the profitability of the Australian entity. As a consequence, the entity has very little reportable profit and—surprise, surprise!—it pays very little tax. Again, we have very little information to judge the merits or appropriateness of that type of intercompany loan. We don't know how big it is and we don't know what that loan is for. Once again—without casting aspersions on any individual company's behaviour—it seems the pattern is driven more by tax than by operational concerns.

In seeking to deal with these things, this bill contains two proposals: firstly, to amend the Corporations Act 2001 to force companies to disclose their subsidiaries in their annual financial reports; and, secondly, to amend our thin capitalisation rules to make sure that multinational companies pay their fair share. Under the Corporations Act, a company's annual financial report must contain the following: the company's financial statements, notes to the financial statements and a report from the company director. Schedule 1 of the bill in front of us would amend these requirements to enforce a disclosure of the company's subsidiaries within their financial statement, to give us a bit more information about how the company is structured so we can have a bit more transparency about its tax affairs.

The thing is that most companies already do this. We commend them for that; that is a good thing. This is about making sure that all companies follow the same good practice—that they're up-front about their subsidiary structures so we have information that enables us to understand the way the company is structured internally, to give some justification to the way that they conduct their tax affairs. In these declarations multinationals would need to include the name of each subsidiary; the residency of each subsidiary; whether it's a partnership, trust or body corporate; and, if it's a body corporate, the public company's ownership percentage.

This proposal follows best practice that has been implemented right around the world. Australia has been a member of the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting. We're one of 168 members of the Global Forum on Transparency and Exchange of Information for Tax Purposes. After the measures agreed on by the G20 in 2012, more than 135 countries and jurisdictions have moved to address tax avoidance and improve tax transparency. There is clearly global demand for action on multinational tax evasion, and Australia is doing its part. I want to commend the Treasurer, the Assistant Treasurer and the assistant minister for all of the work they are doing to support the global process and to implement that process here in Australia.

The Treasurer has said that a big focus of the Albanese government is to address multinational tax loopholes, and that is exactly where our focus should be.

Those proposals that I just outlined will help in improving transparency and helping us understand the structure of subsidiaries to justify tax arrangements. Schedule 2 is about the debt issue and what's called thin capitalisation rules. This part of the bill proposes to change Australia's thin capitalisation rules, and these changes will directly address base erosion and profit sharing by reducing the amount of interest expense that multinational corporations can deduct for tax purposes. This will significantly improve tax integrity.

Right now, multinationals can deduct up to 60 per cent of their assets. Under this bill, the threshold becomes 30 per cent of profits. Profit is measured as earnings before interest, tax, depreciation and amortisation. This measure is estimated to gain $720 million in receipts over four years—$720 million is the rightful contribution of multinationals to the Australian state and to Australian citizens, based on their activities here, which, over many years, has been shipped abroad to low-tax jurisdictions.

We do not want to be in that situation. We don't want to race to the bottom around the world, where Australia and other nations are bound by international competition to continue to slash their tax rates and to deprive their citizens of that revenue just because if we don't some other jurisdiction will do it before us and the activity will move there. That's why we need to act as an international community. That's the only solution. But part of acting as an international community is for Australia to take these steps.

I commend this bill. I commend the work of the government's economic ministers. We look forward to continuing on the long journey to improve the integrity and transparency of multinational taxation in Australia, strengthen Australia's corporate tax system and make it fairer and more efficient for all Australians.

Max Chandler-Mather (Griffith, Australian Greens) Share this | Link to this | Hansard source

The Greens will be supporting this bill in the House. We would have preferred the government adopt the policy that both Labor and the Greens took to the 2019 election but that Labor since dropped at the 2022 election, which is a familiar pattern with this Labor government. It was to remove the safe harbour and arms-length tests for multinational debt deductions and instead limit multinational debt deductions in Australia to the same ratio as their worldwide debt-to-equity ratios. We are yet to be convinced that deductions denied under the thin capitalisation rules provided by this bill should be able to be carried forward for up to 15 years, and we will be pursuing this issue through the Senate legislative committee inquiry.

However, what I wish to focus on is what's not in this bill, and that is the public country-by-country reporting. In November last year, the Assistant Treasurer and the Assistant Minister for Competition, Charities and Treasury put out a media release promising that by 1 July this year Labor would require multinationals to publicly disclose revenues, profits and taxes paid in each jurisdiction, the operations and activities of the global group, and an entity's international related party dealings.

The exposure draft of this commitment proposed the first unrestricted and mandated public country-by-country reporting framework. In what would have been the first time in a long time, the exposure draft proposed by the government would have established Australia as the gold standard. It was widely welcomed by tax justice advocates and civil society in Australia and around the world. Of course, it was not so wildly welcomed by big business—businesses like who else but the globally renowned facilitators of multinational tax avoidance schemes and disruptors of government attempts to crack down on these schemes, PwC, who said in their submission:

…based on our own observations and discussions with stakeholders, domestically and internationally, there has been significant concern with these measures as currently drafted. In summary, in our view, the design of the proposed legislation may not meet policy objectives of enhancing transparency and trust without an excessively onerous compliance burden.

That's why we don't see the public country-by-country reporting in this bill. It's because big business and their proxies and the big four consulting firms don't want transparency because of what that would mean—more public pressure on them to pay their fair share of tax.

And if we know anything about the Albanese government by now, it's that they're not up here to upset big business or take them on. One of the hallmarks of this government is to do just enough to be able to say they're doing something, while keeping to a bare minimum any inconvenience to big corporations and their wealthy shareholders.

But, in a clear demonstration of the government's backflip, public country-by-country reporting is actually in the explanatory memorandum of this bill. While the minister says it will come at some point in the near future, you can bet that it's going to be heavily watered down compared to what was originally proposed. In a similar process, when the government originally struck the deal with the Greens to introduce $1 million fines for bankers who break the rules, it took a day for the banking lobby to force the government to renege on their promise. I'm sure, in a similar process going on right now, the government will be backing down from what would have been an actually effective form of transparency imposed on these big corporations.

We also note that part of this bill's title is 'making multinationals pay their fair share'. Yet in this term of parliament we have seen the government go harder on making students pay than on multinational corporations. We've seen them go harder on people living below the poverty line. We've seen them go much harder on forcing millions of people to live in permanent housing stress. What we would like to see this government do when it comes to making multinationals pay their fair share of tax is to do the bare minimum and make those multinational corporations pay their fair share and pay some of their superprofits in tax. While millions of people in this country do it tough, we've seen companies like Chevron, Woodside and the big four banks record billions of dollars in profits. The big four banks alone recorded $17 billion in half-yearly profits this year. Compare what this bill is going to raise, which is just over $350 million a year, to how much students will have to pay when their student debt is indexed over the next four years, which is in the billions of dollars. In fact, the government are raising more money off indexing student debt than they will off apparently cracking down on multinational corporations and their tax avoidance.

If we did actually crack down on multinational tax avoidance and if we did make them pay their fair share in tax, then we could fund the construction of hundreds of thousands of good quality public homes. We could lift the over a million people being forced to live on just over $50 a day out of poverty and give them enough money to go and live a good life. We could make sure that the millions of people right now who can't afford to go see a dentist, because it's not covered under Medicare, could use their Medicare card and go to the dentist. We could make sure that we use the wealth in this country in a way that guarantees everyone what they need to live a good life.

It should be very clear to the public by now that these are political choices that the government is making. The inflation crisis is one driven by corporate superprofits, one driven by companies like Coles and Woolies increasing their profit margins, and one driven by companies like Chevron taking advantage of the war in Ukraine and price gouging this country for gas that should be taxed fairly and used to build wealth in this country that allows us to invest in alternative industries and manufacturing but is instead going into the profit coffers of the same corporations that happen to be some of the biggest donors to the Labor and Liberal parties.

So, while the Greens might end up supporting this bill, raising just over $350 million a year off multinational tax avoidance while they're raising billions of dollars off student debt should make clear to the public where this government's priorities lie. It is going to be another wasted generation where billions of dollars of this country's wealth is shipped offshore into the profit coffers of foreign shareholders and multinational corporations. Australians are often not going to see even a single cent of that wealth that could be put to work making sure that everyone in this country has what they need to live a good life.

Matt Burnell (Spence, Australian Labor Party) Share this | Link to this | Hansard source

I rise here today to speak in favour of the Treasury Laws Amendment (Making Multinationals Pay Their Fair Share—Integrity and Transparency) Bill 2023. Beyond the introduction of this bill to the House, I am also glad to see that it was the Assistant Minister for Competition, Charities and Treasury that was responsible for doing so. I know, and for that matter anyone who knows him well or even has vague knowledge about him knows, that the assistant minister is extremely passionate about this issue and is determined to see some real progress occur in this space. Which is not to say that many of us on this side of the chamber don't share that same position; we definitely do—though the assistant minister's passion in areas such as this makes him quite an advocate for the devil in the detail.

Seeing real action on corporate tax avoidance, in particular by large multinationals, has been a long time coming. The world is a vastly different place than it was in 1915, when Australia first introduced company tax, something that helped us to fund the financial burden we faced as a result of World War I. Back then, international travel to and from Australia was done by boat, with journeys taking weeks out at sea. But today corporate profits can travel out of Australia to countries as far off as Bermuda, the Cayman Islands and the British Virgin Islands in the time it takes for signatures to appear on a number of documents in a lawyer's office. And to think there was a time when we thought the Concorde was lightning fast!

I know there is a great deal of enthusiasm by members on the crossbench to get multinationals to pay their fair share of tax, and I'm sure there are some in opposition who want to see progress in this space, too—although I'm sure their support is somewhat less enthusiastic compared with other parts of the chamber. I would have thought they would be cheering from the sidelines on this one, because, after all, it is an established fact that the Liberal and National parties have had the two highest-taxing governments of the past 30 years. Perhaps it's the source of those taxes that matter the most to those opposite—and on that note we couldn't agree with them more. We want to see more multinationals paying their fair share of tax in Australia, after all. Just think, with the extra revenue generated by measures in this bill, those opposite could have built some eye-wateringly large car parks in Liberal and targeted marginal seats! They just lacked ambition. We are ambitious for them.

After all, those opposite stand on the shoulders of giants—giants such as Joe Hockey, a former treasurer who spoke of Australia being a nation of 'lifters and leaners' within our economy. Where multinationals that generate billions in annual revenues in Australia somehow end up paying zero or next to zero tax, you can only conclude that they are leaning on Australia, leaning on hardworking Australians who pay their taxes, with a few deductions here and there, but essentially contribute more income tax than a company that has taken in billions that year in revenue that was earned right here. Australia is meant to be the nation of a fair go, and that is most definitely not the best example of this being the case. I am at least somewhat hopeful that the present-day member for North Sydney sees things differently than her predecessors did.

Given some of the global events that have transpired over the past few years especially, very few things truly startle us. But there is a distinction between 'shocked' and 'surprised'. For example, when I hear that in the 2021 financial year Chevron paid $30 in income tax in Australia—$30!—on the back of revenue to the tune of $9.1 billion and a taxable income of $413 million, am I shocked? You bet I am. Am I surprised? Absolutely not. I am by no means approaching this from a background in corporate law or as a tax practitioner, but on the numbers alone we can all share in the perspective that something is clearly not right. There are many examples of companies operating in Australia that have paid very little income tax in Australia on the back of substantial revenue made in Australia. The list is a long one. Some have paid zero, or effectively zero, for several years now. Thankfully that data is now published through the Australian Taxation Office, through taxation transparency measures. If you want to uncover the names of some of the worst offenders, I'd encourage you to google it, and Chevron has definitely been one of them.

The brazen nature of corporate tax minimisation and avoidance is quite staggering, frankly. The effects can be felt by all of us. With the $30 paid by Chevron in tax in the 2021 financial year, instead of being able to contribute to paying for doctors or nurses at our hospitals or to vital public infrastructure, we can instead award one lucky taxpayer a few family-size pizzas and maybe even a garlic bread, with Chevron's generous contribution—a significantly more modest meal than the 'double Irish Dutch sandwich' that many global corporate hermits have chowed down to on from time to time. Some may say that some suspected companies haven't utilised that or similar methods, or that they don't utilise strategies like that anymore. Maybe it was a 'sometimes' food, or maybe tax transparency laws across the globe have shamed them into ceasing the practice.

Outside of the minds of the most hard-core free marketeers and libertarians among us, some of those practices utilised by many giants multinationals shock the conscience of those with the ability to understand what they entail. In the broader sense, multinational enterprises hoodwinking our tax system and taxpayers, in general, to the fact that they could pay more tax but will spend millions on lawyers and accountants to avoid paying millions and billions in tax is something the Australian people do not want to see continue, this flagrant disregard for our country.

The passage of this bill through the House is yet another example of the Albanese Labor government following through on an election commitment. Who knew that big multinational companies paying an equitable level of tax, or at least more than they had to, in a given financial year, would be a vote winner? But the problem of complicated tax strategies for large multinational enterprises is not a uniquely Australian problem. It is faced by many countries in the developed world, particularly within the OECD, the Organisation for Economic Co-operation and Development. The OECD has been investigating corporate tax avoidance for several years, given that its member nations comprise over 60 per cent of the world's GDP and three-quarters of global trade. A cooperative approach by member nations on a domestic level can go a long way to curbing the ability of multinational companies to employ many commonly utilised strategies of corporate tax minimisation and tax avoidance that exist today.

This bill is split into two schedules. They neatly bifurcate the means employed to achieve the outcome of getting multinational enterprises to pay their fair share of tax in Australia. Broadly speaking, schedule 1 is focused on the disclosure of subsidiary entities, while schedule 2 is geared toward amending Australia's thin capitalisation rules. It is my hope to get stuck into explaining the nature of each schedule and why these reforms are sorely needed in Australia—and, for that matter, abroad—although, given the complex and voluminous subject matter, this may become a difficult task within the time constraints imposed on us. I'd better get a move on.

Schedule 1 lays the groundwork to impose greater financial reporting obligations for Australian public companies, listed or unlisted, to affirmatively disclose relevant corporate entities in their annual financial reports. If it's passed, the requirement would be for this to commence from this current financial year. This is the first step to addressing the problem. It should not take the release of another 'Panama Papers', 'Pandora Papers', 'Paradise Papers' or a leak from the inside to let governments, both our own and other nations', taxpayers and investors to get insight of a multinational's corporate structure.

Tax transparency is important. It shouldn't take leaks from insiders or corporate whistleblowers to uncover the full story behind how much tax a company pays and the layers upon layers of related corporate entities it has around it in order to shift profits, debt, IP or other intangibles around to avoid paying tax in one or multiple jurisdictions or to muddy the waters, to make investigating their tax affairs manifestly difficult, to downright impossible, to decipher the labyrinthine maze of financial documents that are publicly disclosed. This will provide a great deal of guidance to many about the true nature of how assets, revenue and liabilities move around between branches that, essentially, grow from the same trunk.

Having information like this being the norm can give the public better insights as to how good a corporate citizen and enterprise is within their country. This is useful for governments, investors, institutions, all the way down to individuals who are not particularly sophisticated themselves. Investors across the spectrum have the right to make decisions on ethical choices that a company makes, such as this. It is also a viable tool for the consumer, when there's enough viable market competition, to make a valid judgement call on whether to shop with a competitor, instead of with a corporation that specifically goes out of its way to avoid paying tax in Australia, especially when it is one that has made a concerted effort to do so financial year after financial year.

It isn't fair to Australian companies that do the right thing, especially when they try to compete with global giants that duck and weave around paying tax in Australia. Having a more digestible means of following the money is the right thing to do, no matter who is attempting to read this level of detail about a company, subsidiary companies or trusts that a company may be the trustee of.

The schedule accomplishes these aims through amendments to the Corporations Act to, as I alluded to earlier, create requirements for the disclosure of information by Australian public companies concerning subsidiaries in the form of a statesmen that is disclosed in a manner similar to others at the end of the financial year. This statement would include the names of relevant entities; the type of entity, meaning whether it's a body corporate, partnership or trust; their tax residency status; and, in the case of a body corporate, the percentage of ownership by the company releasing the statement.

Schedule 2 of the bill, on the other hand, concerns thin capitalisation. In an ordinary sense, capitalisation refers to the levels of debt to equity or gearing of a business. However, in thin capitalisation—schedule 2 of the bill affects this practice—a highly leveraged business utilises this to, in large part, minimise their profits by way of debt which is owed to often closely associated corporate entities to the business through interest payments on the debt that's parked on their balance sheet. The multitude of amendments further bolster the current rules that are in place within division 820 of the Income Tax Assessment Act. If they were working as desired, we would not be here right now. It is common practice among jurisdictions across the globe, but Australia, along with many others, are moving to place limitations on this practice. The bill's explanatory memorandum approximates that 2½ thousand taxpayers have potential to fall under the scope of the changes set out in schedule 2. Quite notably, the changes alter the approach for calculating the permissible limits from being a 1.5-to-one debt-to-equity ratio to instead cap interest deduction in the given financial year to 30 per cent EBITDA, meanings the earnings before interest, tax, depreciation and amortisation.

The rule changes do allow for a degree of flexibility and choice for entities, given the ultimate goal is to deter and prevent cynical arrangements that appear to have little commercial justification other than tax minimisation. The process, largely aided by consultations on this legislation, aims to reduce the potential for unintended consequences that may occur if the applicable rules were rigid and agnostic to the type of commercial activities a business is involved in, as an example. This is evidenced by the exclusion of related party debt from consideration which was aimed particularly at not adversely affecting the legitimate incurring of debt which aids property and infrastructure investment. I would actively encourage all members to pick up a copy of the explanatory memorandum for a more thorough explanation of the voluminous provisions contained not just in schedule 2 but across the bill in its entirety.

On a concluding note, I would observe the contribution made by the member of Hume, the shadowy Treasurer, in this place yesterday evening. The member for Hume came into this place parroting tired old lines that are quite easily refuted. You can always count on the member for Hume to supply his own hot take on economics or financial reports. He talks about productivity falling by 4.6 per cent, and he did so again reflexively during the debate on this bill last night, yet he continues to ignore that the weakest quarter was almost solely presided over by the Morrison government. You can call him naive for not knowing these things—or worse, if he was aware of this inconvenient truth. I will let us all reflect silently on which side of the coin the truth might land on. If he doesn't like where an argument is going, he will find some statistics to misdirect the room like someone playing economic three-card monte at a street corner. If doesn't like the numbers, he will thump his chest and argue louder as if to shield the audience from hearing the words he is using. If the argument isn't on his side and the numbers aren't on his side, as the City of Sydney is all too aware, there is always PDF editor. One can always count on the member for Hume to make you wonder what he can count on, what is party room can count on him for and, lastly, whether he can count at all.

Graham Perrett (Moreton, Australian Labor Party) Share this | Link to this | Hansard source

At last year's election Labor clearly outlined how an Albanese government would ensure that multinationals pay their fair share of tax. Australia, with its rich resources, skilled workforce, vibrant economy and legal stability, has been an attractive destination for multinational corporations for many, many decades. They come here seeking to capitalise on opportunities in our domestic market—remember, the 13th biggest economy in the world—and also our international connections.

Labor welcomes foreign investment and recognises the benefits that this investment brings. However, it is essential that we create a level playing field for all businesses operating within our nation.

The current tax system facilitates multinational companies to exploit loopholes and employ aggressive tax planning strategies to shift profits overseas, resulting in minimal tax contributions here in Australia, which can benefit society. Often the mechanism is a sub-office in a cheaper tax jurisdiction entering into an intellectual property leasing arrangement with the Australian joint venture 'partner'. This is an accounting trick for tax minimisation purposes that is not illegal but is definitely immoral and certainly unAustralian.

Corporations should not come here to shelter under our social stability while using legal loopholes to leach extra profits offshore. This practice not only deprives this great southern land of much-needed revenue but also creates an unfair advantage for these large corporations over small and medium-sized Australian enterprises that cannot engage in such dodgy legerdemain. Small businesses in my electorate of Morton are paying their fair share of tax, and we need to make sure that the multinational companies are contributing and paying their fair share as well and not extracting an extra advantage over Australian businesses.

Australians are still shouldering the $1 trillion in public debt racked up by the Abbott-Turnbull-Morrison governments that left the nation with little economic legacy—other than that interest bill. During the Abbott-Turnbull-Morrison years, Australians were losing out on funds that should have been available for vital services like Medicare, aged care, child care and mental care. Australians lost out because multinational companies used tax havens and tax avoidance schemes to avoid paying their fair share of tax in Australia. We even had PricewaterhouseCoopers, PwC, using information gained through government contracts—they were engaged by the government—to help companies exploit the loopholes that they were actually contracted to help stop, putting private greed before public good. I hope the people who decided to do that will pay and pay dearly.

That is why the Albanese government will mirror global developments on multinational tax through a responsible and measured multinational tax integrity package that will close tax loopholes and improve transparency. This government understands that businesses of all sizes make important contributions to the economy, and we want to see that continue. This legislation is simply about levelling the playing field for Australian businesses and increasing transparency in our taxation system.

Schedule 1 of the Treasury Laws Amendment (Making Multinationals Pay Their Fair Share—Integrity and Transparency) Bill relates to the disclosure of subsidiaries, as well as introducing new reporting requirements for Australian public companies, both listed and unlisted, to disclose information on the number of subsidiaries they have and their country of tax domicile. This will assist in holding companies to account, particularly those large corporations that engage in dodgy practices. It will require them to be more transparent about their corporate structures and whether they are operating with some sort of questionable tax arrangements, such as through foreign subsidiaries in low-tax jurisdictions.

Tax havens aren't just a tax dodge; they're dodgy in other ways, too. Tax havens are favoured by drug runners, extortionists, terrorists and money launderers. Firms that use tax havens are rubbing shoulders with some of the world's most unsavoury characters. Yet there are plenty of firms content to play this game. According to one estimate, one-tenth of global GDP—around $12 trillion—is currently stashed away in tax havens. When multinationals exploit tax lurks, ordinary taxpayers end up footing the bill. A firefighter can't ask to be paid using a shell company in Bermuda. The local cafe operator can't route their coffee orders through the Cayman Islands. Across Australia, employers and firms are working hard and doing the right thing and often proudly paying their fair share.

Most people don't begrudge others for their success, but they expect to compete on a level playing field. How can a small Australian technology start-up take on the global giants if it has to pay a higher rate of tax than they do? You don't have to look far to find the fingerprints of tax havens. When you cast your eye over recent registers of the foreign ownership of agricultural land in Australia, you will initially see a list of companies that you would expect. The five biggest owners of farmland in Australia are Britain, the United States, the Netherlands, Canada and China.

Surprisingly, in sixth place comes the Bahamas. An island inhabited by a few hundred thousand people with income levels that sit at about half of Australia's is the sixth-largest foreign owner of Australian farming land. It doesn't make much sense until you realise that the Bahamas has no company tax and no income tax and appears on most people's lists of tax havens. And there are other examples. We need to know who is using the Bahamas and other tax havens to dodge paying tax from profits made in Australia.

Using the information that will be collected, the government can ensure better economic analysis can be used to inform whether current taxation laws are functioning as intended—paying your fair share—and collecting the amount of revenue that the Australian people are owed. The consequences of ignoring multinational tax avoidance are clear. Somebody has to pay for schools, hospitals, national security and transport networks. When powerful interests miss their turn, everyone else—everyday Australians—ends up paying more. That means teachers and nurses and amboes and child-care workers and fruit pickers will all pay more. Like Robin Hood in reverse, multinational tax-dodging hurts those who can least afford it. Companies will be required to disclose this information when completing and releasing their annual financial report, which will help to limit compliance issues and burdens.

This is not a new concept. In fact, a number of other countries around the world have similar measures already in place. This bill would simply bring Australia into line with international approaches such as that of the United Kingdom. This section of the bill was carefully constructed with stakeholder feedback—obviously not the tax avoidance people and not totally relying on PwC—and is a huge step in the right direction towards ensuring that we increase tax transparency. It complements the ongoing work being done by the Albanese government to make multinationals pay their fair share.

Schedule 2 of the bill relates to thin capitalisation, a topic that I know gets most Australians excited. It is a new revenue-raising scheme that targets a known tax-planning arrangement by limiting multinational companies' debt deductions. This is another change that will ensure that multinational enterprises operating in Australia are paying their fair share of tax and that we are levelling the playing field for Australian businesses. Under these new limits, a multinational company's debt deductions would be limited to 30 per cent of profits using the EBITDA test, which is earnings before interest, taxes, depreciation and amortisation. This test will replace the currently used safe harbour test. However, in order to provide more flexibility for smaller entities with earning volatility, debt deductions denied under the EBITDA test where the interest expense amount exceeds the 30 per cent ratio limit will be able to be carried forward and claimed in subsequent income years. This measure will also retain the arms-length debt test as a substitute test which will be applied to an entity's third-party debt, disallowing deductions for the related party's debt. Adjusting to an earnings based approach to debt deductions will ensure that deductions are tied directly to the entity's economic activity and earnings. This is a more robust approach that ensures tax planning practices of multinationals are properly regulated.

The OECD has led global efforts to address tax integrity risks and limit multinational companies' adjustment of their debt levels and use of related party borrowings to minimise the amount of tax they pay. Most OECD countries, including the United Kingdom, the United States and most of the European Union, have already implemented similar earnings based interest-limitation rules. The proposed thin capitalisation amendments will simply bring Australia into line with our international counterparts. The Albanese government has held extensive consultation with different sectors. While some will have slight exemptions from the new rules, these sectors should be subject to the new interest limitation rules, as they can give rise to a base erosion risk.

By introducing this bill, the Albanese government are keeping our promise to make multinationals pay their fair share. We called on the Abbott, Turnbull and Morrison governments to make these changes to multinational tax laws. Instead, they chose to chase welfare recipients to pay back incorrectly calculated and illegal debts. We're all paying the price for that, including some who've lost their lives. The Labor Party have a history of calling out injustice when we see it and legislating to stop it when we get elected. Making multinationals pay their fair share is a prime example of why Labor governments really do make a difference. This bill means more money for our hospitals, our schools, our crucial infrastructure projects and our environment, and I commend the bill to the House.

Peter Khalil (Wills, Australian Labor Party) Share this | Link to this | Hansard source

You know, Deputy Speaker Freelander, as we all do here, that most Australians pay their fair share of tax. So why should the biggest multinational companies get away with paying sometimes zero tax in Australia? Did you know that one in three medium and large corporate entities paid zero tax in the last year? That is 782 out of 2,468 large-and-medium-sized corporate entities. In the mining, energy and water sector, more than half the companies paid no income tax. Among those companies, some of them just paid $30 in tax—Chevron was an example of that. In 2021 Google earned more than $7 billion but paid only—wait for it—$85 million in tax. That might sound like a lot but that's an effective tax rate of 1.2 per cent. Facebook, the social media giant, doubled its profits but funnelled nearly $1 billion into local advertising revenue to an international subsidiary, so their total Australian tax bill was $24 million. That's an effective tax rate of 2.4 per cent. Just last year, Aristocrat made $1.229 billion and paid $327 million in tax—a bit higher, an effective tax rate of 26 per cent. But the amount of corporate tax revenue lost annually due to multinationals minimising tax ranges is an estimated $500 billion to $600 billion. It's time they pay up. It's time they pay their fair share as companies that are operating in Australia.

This is an issue I'm clearly passionate about. There's a difference between tax avoidance and tax evasion: tax evasion being illegal and tax avoidance being within the rules—finding ways to get around paying your tax is tax avoidance. Every dollar lost through those attempts and those efforts is money lost to our kids' education, it's money lost to housing, it's money lost to health care, to protecting our natural environment, to looking after older Australians in retirement, and to reducing the cost of child care. I've been speaking about the issue for many years. In this place, when we were in opposition in the last parliament, I called on the former government to take bolder action. It's no surprise they did nothing—absolutely nothing. I wrote a policy paper on this issue back in 2021, laying out some of the ambitious reform ideas of how we could tackle the problem. I was so pleased that when I worked with our then shadow ministers Andrew Leigh and Steven Jones, and the now Treasurer, Jim Chalmers, that they were working on these ideas as well. They understand the fairness question around this, and that these multinationals should pay their fair share. As an executive team, they have done a tremendous job in putting together policies around making multinationals pay their fair share of tax. As a government, as ministers in the government, they are now taking concrete action through this bill. That's a lot more than the former Treasurer Josh Frydenberg did—he did nothing. During the 2022 election campaign, the Albanese government, with all the work that was done by Minister Jones, Jim Chalmers, Andrew Leigh and others, committed to ensuring multinationals pay their fair share of tax, took that to the last election, and now they're delivering on it.

The policies supported by this government are grounded in the OECD G20 inclusive framework on base erosion and profit shifting that began back in 2013. Base erosion and profit shifting, or BEPS, is associated with multinationals exploiting those gaps and mismatches between the tax systems of different countries and jurisdictions, and it affects all countries internationally. They look for the weak spots. In developing countries there is a higher reliance on corporate income tax, which means these countries are impacted more disproportionately from BEPS. Over 135 countries and jurisdictions are working collaboratively in the OECD G20 inclusive framework on BEPS.

This includes implementing actions to tackle tax avoidance, improve the coherence of international tax rules and ensure a more transparent tax environment.

These amendments will introduce new reporting requirements for listed and unlisted companies that require them to disclose their subsidiaries and where they are located, which addresses the risks to the domestic tax base arising from the use of debt deductions as base erosion or profit sharing—the BEPS technique. These measures will help us hold companies accountable and ensure greater transparency. This is about ensuring companies—in particular, large corporate entities—become more transparent about the way they operate, their corporate structures and whether they are operating with opaque tax arrangements and flushing that out, which could be through subsidiaries based in low-tax jurisdictions, which is a classic example or technique that is used.

Without this level of transparency, we will not know whether our tax laws are doing their job and whether they are collecting the fair amount of revenue that they should be. These changes will require companies to disclose this type of information as part of an annual financial reporting, which helps us work in line with other approaches seen globally, such as that which has been adopted in the United Kingdom.

Another amendment will be introduced to strengthen Australia's thin capitalisation rules. This is a revenue raising measure that will help level the playing field for Australian businesses. It will target a known tax planning arrangement by limiting MNEs' debt reductions and ensuring they pay their fair share of tax in Australia. More specifically, the measure will limit an entity's debt related deductions to 30 per cent of profits. This new earnings based test will replace the current safe harbour test. It will allow debt deductions to be denied under the entity level test, which provides smaller entities with earnings volatility and more flexibility, and will allow an entity in a worldwide group to claim debt related deductions up to the level of the group's net interest expense. This new group ratio will replace the worldwide gearing ratio and retain an arm's-length debt test as a substitute test, which will apply only to an entity's external third-party debt, disallowing deductions for related party debt under this test.

That all sounds very complicated, but they are very specific policies that have been worked through to ensure that these multinationals pay their fair share of tax. It's about time because a lot of these companies—not all but a lot of them—are still finding ways to avoid their tax responsibilities in Australia. If you're an ordinary Australian—you're a local Australian business, you're a cafe owner or you've got a small business—you're paying your 30 cents in the dollar or whatever it might be. You can't hide your profits or your revenue if you've got a local cafe in my electorate, in Pasco Vale or Brunswick. You're not hiding your revenue in a subsidiary on Cayman Islands. No cafe owner can do that, can they? They're paying their fair share. The average punter is paying their fair share of tax out of their salaries, out of their wages.

Is it too much to ask that some of the biggest companies in the world pay their fair share of tax in Australia, a country in which they are making a profit? Is it too much to ask that that revenue comes back to the taxpayer? I don't think it is. This bill, these amendments and the work that's been done by our ministers and our government is all about making them pay their fair share. It's about fairness. Australians deserve a government that does everything that it can to make sure that these large companies are paying their fair share. Australians should be able to have confidence in their tax system and the principle that everyone—from individuals and small businesses to those large corporations, both Australian and foreign owned—are contributing and giving back to our society through their tax payments.

Evasion and avoidance are not victimless activities. That's an important point. Every dollar that is lost through tax avoidance tactics that big companies utilise leaves us worse off as a society because that's money that would otherwise be going into a whole range of policies that go to Australians' quality of life. The whole community suffers when some members, whether they be individuals or corporate entities, wrongfully or artfully dodge making their fair contribution.

The other point I'd make is that while activities such as tax avoidance might be technically legal, they undermine the rule of law. They're certainly not in the spirit of the law. The primary purpose of the tax system is that it belongs to, and should benefit, the people of Australia. An activity such as tax avoidance also undermines public trust in government, because it is our responsibility to make sure that there is a level playing field where everyone is paying their fair share regardless of their size. It's about making sure that the tax system is fair for all.

After nine years of the previous coalition government doing absolutely nothing in this space—they couldn't even match some of the OECD initiatives—it is up to us, as a Labor government, to make sure that we're doing everything we can to close these loopholes and to shut down and mitigate these tax avoidance measures that are being utilised and exploited expertly by these multinational companies. It's up to us to instil some fairness back into the system and bring back confidence and trust that as a government we're doing everything we can to level the playing field so that when your average punter, your average cafe owner, who pays their fair share of tax, is doing their taxes at the end of the year—a husband and wife, a small family business or whatever it may be—they can have confidence that the government is ensuring that the big players, the big corporates, are also paying their fair share of tax and not evading that. It's up to our Labor government. That's what we're doing with this bill: taking real action to make those multinational companies truly pay their fair share. I commend the bill to the House and thank the minister for all of his hard work on this policy area.

Tony Zappia (Makin, Australian Labor Party) Share this | Link to this | Hansard source

It was interesting listening to the member for Wills. I agree with his comments and summation of the importance of this legislation, the Treasury Laws Amendment (Making Multinationals Pay Their Fair Share—Integrity and Transparency) Bill 2023. For years now this parliament has been talking about ensuring that everyone pays their fair share of tax. It's one of the subjects that quite often gets raised by, I have to say, all members of this parliament, and I accept that there is goodwill from across the chamber to ensure that that is very much the case.

In the 2022 federal election campaign, Labor committed to ensuring that multinationals pay their fair share of taxation if Labor was to be elected. As part of this commitment, this legislation is now before us in the parliament. It is legislation which begins the process of ensuring that everyone in this country pays their fair share of tax. Whilst I'll make some comments about that in my own remarks, I'm pleased to see that everyone who has spoken thus far does not disagree with that sentiment.

The Australian tax system is complex. It has evolved over the years and has morphed into a tax system that is complicated, difficult to understand and manage, and filled with loopholes and other provisions which enable legal tax avoidance. I stress the word 'legal', because what most of those who avoid tax are doing is allowed to be done under our laws. If it wasn't, they wouldn't be able to do it. It is those laws that we need to try and rectify. Adding to the difficulties, we live in a global economy, where large corporations—and that includes companies that were founded here in Australia—operate across multiple countries. Each of those countries have their own tax laws, tax rates and tax compliance regimes. Through domiciling their head offices in low-tax jurisdictions or by establishing multiple subsidiaries, global entities are able to minimise their taxation payments and, in some cases, completely avoid taxation whilst operating entirely within the law. Australia's relatively high corporate tax rate adds to the incentive for global corporates operating here in Australia to engage in tax avoidance.

Whilst I note this is something other countries are attempting to address and I accept that there have been international discussions about how we collectively work on this problem—because it is a problem for other countries as well—the reality is that we still live in a global environment where almost half the countries of the world don't want to engage and will be happy not to be part of the discussions or part of a process by which everyone pays their fair share of tax. They don't want to be part of that process because, through their own systems of government and their own tax laws, they actually make money out of their jurisdictions being used as either tax havens or tax avoidance places by the corporates of this world.

This legislation attempts to bring back at least some additional genuine tax to Australian taxpayers. Schedule 1 targets Australian public companies, in expecting them to disclose their subsidiaries and where they are located—a point I was making a moment ago. Schedule 2 targets a known tax-planning arrangement by limiting multinational entities' debt deductions. That's a much more complex process and, I suspect, one that only good tax accountants understand. I think it is that complexity and lack of understanding that has allowed this process, a process whereby companies are able to claim many more deductions than they are legitimately entitled to, to continue for decades. If we can close it down, and I hope we can, it will be one way of at least recovering some of the lost tax that this country is entitled to.

I note that the legislation has been consulted on extensively. Consultation began almost immediately after the election in May 2022. In the first round of consultation, which was a broad consultation process, there were some 70 submissions. Later, in November, there were consultations with the tax advisory firms and the property sector. In March there were consultations on the proposed draft legislation, where another 55 submissions were received. The last round of consultations took place in April. I understand that they were mostly with industry representatives. I stress that point just to assure people in this place that consultation with respect to what is important legislation has been extensive and the proposal before us was reached after that consultation took place.

With respect to the disclosure of information about subsidiaries, Australian public companies will be required to disclose such information in their annual financial reports. This will impose some compliance costs—and I note that within the consultation process the issue of compliance costs was also raised—however, the reality is that those compliance costs are relatively minor in comparison with the turnover of the companies involved and the amount of tax that has been lost. Whilst there are indeed thousands of entities that meet the definition of those companies that will be part of that compliance, realistically this will impact only those companies that have complex corporate structures. I believe those entities are all in a position to meet the additional compliance costs required of them. My understanding is that the EM's indicative estimate of 471 entities is based on Australian public companies, with a group turnover of more than $250 million—that is, the large corporate groups. If that is the case, and they are companies or entities turning over more than $250 million, I suspect that the compliance costs would pale into insignificance compared to the total cost of running those entities.

I have spoken in this place on several occasions about multinational tax avoidance.

And I note that according to one 2020-21 report 73 of the 134 fossil fuel companies in Australia paid no tax at all on a total income of $164 billion. When the average person out there in the community hears figures like that, they ask the question, how can that be? We are talking about $164 billion of turnover, yet 73 of those fossil fuel companies paid no tax at all. The truth of the matter is that most of those fossil fuel companies are well-known brands—companies that people know of and know full well that they would be making handsome profits, albeit that they were able to minimise or totally avoid their tax obligations.

Tax is paid on profits made in Australia, and it is clear that those 73 companies, a number of which are amongst the richest and most profitable and powerful in the world, are shifting their profits offshore, either through subsidiaries or by having their head offices domiciled offshore. Then they pay head offices all sorts of fees at inflated prices to ensure that here in Australia their taxation returns show that they have not made a profit. That is what we need to try to work through and resolve.

On that issue of tax avoidance, I want to quote from some other reports and summarise what I think is the true situation across the world right now. In June an OECD report showed that in recent years across 15 countries, including Australia, a large proportion of inflation has been attributed to company profits. People in this place talk about the causes of inflation, and one of the drivers of that inflation is the profit-making by those large entities. Again, it's hard to single out anyone in particular, and it's hard to quantify specifically, but we know it is happening. And post the COVID pandemic there have been numerous reports—again, both within Australia and from around the world—that corporate profits soared. At a time when the economies of most countries were being shut down because of COVID, corporate profits were increasing. Again, it's hard to imagine, in the minds of most ordinary people, but that is in fact what was happening.

Fortune reported in early 2022 that US companies posted their biggest profit growth in decades by jacking up prices during the pandemic. Again, looking at the issue of COVID and how those profits are derived, when not only were economies shutting down but also people in many cases had lost their jobs and were receiving no income or being supported by governments through welfare payments, these companies were making huge profits and actually increasing their prices. It's totally immoral and unethical. A Bloomberg article in August 2022 described a measure of US profit margins as being its widest since 1950—that is, in more than 70 years. Oxfam have reported:

The world's small elite of 2,755 billionaires has seen its fortunes grow more during Covid-19 than they have in the whole of the last fourteen years combined.

And it has been reported this year that in Canada nearly every sector has achieved more gross profits than in pre-pandemic times. Lastly, Tax Justice UK reported in late 2021 that just six companies made 16 billion pounds in excess profits during the pandemic.

So, in the past three years, when the world was effectively on its knees in so many ways, the big corporates were making windfall profits, and it is those windfall profits that they should be paying their fair share of tax on. This legislation goes some of the way to trying to ensure that that is the case.

I note that similar types of measures have been introduced overseas and particularly in the UK, where much of the guidance for this legislation has been sought. However, if we are to truly tackle this problem, I believe that we need to ensure that it is done in a cooperative way right across the globe, not just with some of the countries that share our concerns about it. Because, whilst there are countries that are prepared to act as havens for tax avoidance companies, the processes and practices that these companies engage in will continue. And they will continue in a legal way.

The reality is that the effects of this go further than just simply those companies not paying their fair share of tax. It also gives them a competitive advantage when they are competing with other companies that are prepared to pay their fair share of tax, because, by not paying the tax, they have an advantage and, therefore, are able to undercut those companies. Secondly, it is totally unfair that companies will continue to do that whilst paying their executives millions of dollars. The average working person in Australia pays their full share of tax each and every week and is not able to participate in those tax avoidance schemes. And, thirdly, as others have spoken about, there is a concern that small entities in Australia don't employ the accountants and don't have the subsidiaries overseas to be able to engage in the tax avoidance measures that these companies are doing each and every day.

For all of those reasons it is important that we try to level out the playing field and have a fair tax system. In doing so, it will assist governments of all persuasions in raising their revenue so they can provide the services that everyone expects of governments.

Julian Hill (Bruce, Australian Labor Party) Share this | Link to this | Hansard source

ILL () (): If you go and stand outside any set of shops in Australia on the weekend, as I and I know colleagues regularly do, one of the things that will always come up if you're there for an hour or more is the intense frustration that Australians feel about multinational companies that dodge their tax. People who pay their fair share of tax rightly get angry when big companies use every trick and loophole to avoid paying tax, and it's a serious problem not just in Australia, as this bill deals with, but globally.

The OECD estimates that base erosion and profit shifting costs countries between US$100 billion and US$240 billion in lost revenue annually, and it's growing. That's the equivalent of at least four to 10 per cent of global corporate income tax revenue gone. It means that governments across the world are denied hundreds of billions of dollars that should be able to provide services and infrastructure, lower the tax burden on workers and reduce debt. Multinational tax avoidance, though, is more than just lost revenue to governments and societies. It undermines the fairness and integrity of the tax system, and, as the member for Makin rightly observed, it's unfair to small businesses and other businesses operating in Australia that these big multinationals get a competitive advantage over them and can claim more market share because they are dodging their tax, while Australian companies are paying it. Global multinationals can pay armies of lawyers and accountants millions of dollars to reduce their tax bills, yet Australian workers, families and small businesses are the losers. It also has a deterrent effect in a bad way. It undermines voluntary compliance of taxpayers, both individuals and small businesses, because they see big multinational companies not paying their fair share and think, 'Why should I?' So they give it a crack.

How do multinationals do this? It's a nerdy topic, but base erosion and profit sharing, or BEPS, refers to tax planning strategies used by multinational enterprises to exploit gaps and mismatches in tax rules between companies. They are very clever and invest a lot of money doing this, but they exploit those loopholes in the misalignment of rules to avoid paying tax. Companies artificially shift their profits to low- or no-tax locations where there's little or no economic activity to erode taxes bases through deductible payments such as interest, royalties, inflated loans between them and selling marketing services from one country to another.

These practices have become more and more sophisticated in recent years as companies use intangible assets such as intellectual property that they then hold in low-tax jurisdictions and incredibly complex valuation arguments that cost governments million to prosecute. The rapid growth of the digital economy has actually exacerbated the issue. It will get worse, not better, if we don't act.

Although some of the schemes used are illegal, most of them are not, and that's where we as the parliament come in. We have got to tighten the law and address this. Frankly, it's not a problem that any country can address alone; it can only be dealt with through coordinated global action across more than 100 countries. Of course, it does require domestic action, like we are doing in this bill, to increase tax transparency, align laws and shut down the ability of big companies to dodge corporate tax. That's exactly what the government is doing.

This legislation implements key parts of the plan that Labor took to the election to ensure multinationals pay their fair share of tax. It levels the playing field for Australian businesses and increases transparency. It's key. It shouldn't take leaks from corporate whistleblowers for countries and citizens to find out who owns the company, how many subsidiaries there are or where they are paying tax. The reforms will hold companies to account—particularly those large corporate groups—on their corporate structures and whether they are operating with opaque or atypical tax arrangements. Given the global momentum—it has taken years, but there is global momentum to this because the problem is getting worse—towards ensuring that firms pay their fair share of tax, it's in the public interest that shareholders have more information of this kind. Australian taxpayers paying their fair share rightly expect their government to make sure that global forms operating in our country are paying their fair share of tax too.

These laws are more urgent because of a decade of Liberal division, dithering, delay and failure under the Abbott-Turnbull-Morrison regime to take meaningful action on multinational tax avoidance and crack down on it. The coalition's failure for a decade was deeply unfair to Australian firms. If you are starting a new business, you are not socking your money away in the Bahamas. If you're an Australian startup, you're not looking for a lurk in the Cayman Islands. Instead, you are working hard to try and come up with a new business model, monetise it, make it profitable, grow wealth, grow the economy and create jobs. But the previous government was content to sit by and let startups and small business face the potential of being cheated in an unfair playing field by multinational firms and tax dodgers who are investing all this money to use tax havens.

The voting record of the Liberals and Nationals speaks for itself. When Labor was last in office, the coalition voted against Labor's multinational tax measures under prime ministers Rudd and Gillard. One measure which I think the Gillard government legislated later saw Chevron, under the Liberals, forced to pay an extra $300 million in tax, which the Liberals—I was here—astoundingly tried to claim credit for. If we had emojis in Hansard we'd put a 'facepalm' in it at this point. They voted against Labor's crackdown on multinational tax, and then, when it actually worked, they claimed credit for it. Duplicitous.

Then there is a record of the Abbott, Turnbull and Morrison governments—I don't mean the ATM government whirring out the cash, giving away billions to big business during the pandemic and putting it on the national debt. When Tony Abbott was elected, they actually scrapped multiple multinational tax measures which were there and ready to go. Then Malcolm Turnbull's main tax priority—we endured it for two or three years, sitting over there—was to cut corporate tax. That was his big economic reform priority—to cut corporate taxation. Scott Morrison's main fiscal achievement, of course, was $1 trillion of Liberal debt and record deficits.

To be fair, they did make a few tweaks here and there, but they were window-dressing; they were fundamentally designed to make people think they were doing something but not actually crack down on the problem. So I will stand by Labor's record on cracking down on multinational tax avoidance any day, because it is fundamentally one of fairness. It goes to the core value and the core purpose of the Labor Party to provide a level playing field, in this case, for Australian businesses to compete.

But it's not just their record of inaction; before the election, Liberal MP Michael Sukkar, the member for Deakin, and Senator Jane Hume put out a press release actually criticising Anthony Albanese, now Prime Minister, for wanting to do more on multinational taxation. They were actually criticising the Labor Party for saying we need to do more on this.

These policies are grounded in the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting, which began in 2013. That's 10 years ago. We should have been doing these measures years ago, as others countries have. We're way behind. The reporting of subsidiary information in this bill is in line with other international approaches—for example, the United Kingdom's listing rules, which were introduced around 2016. That would be seven years ago! Anecdotal feedback from some industry groups was that this change in the United Kingdom actually resulted in companies simplifying their corporate structures.

How will this bill work? The new rules bring Australia into line with other comparable jurisdictions around the world. The legislation has been carefully designed. It's been the subject of two intensive rounds of consultation. Because we're a proper government that run a cabinet process and actually go and talk to business rather than making stuff up at press conferences, the government actually made changes to the exposure drafts because we listened to businesses about how these rules will work. The legislation has then been carefully designed to balance the tax integrity issues with economic considerations, particularly and importantly to make sure that we remain an attractive place for productive investment.

The bill will implement the OECD's global two pillars plan, which was designed to address challenges created by the digitisation of our economies. This includes a global minimum tax proposal to ensure that multinationals pay an effective rate of at least 15 per cent tax on the profits they make around the world. It's so important. What we've seen now for a couple of decades is what I've talked about before: a race to the bottom. When Turnbull and the Libs over there—a lot of them who were here then are still left over there—were arguing for that, it was like any cut to the corporate tax was always a good thing. If you take that logic, then zero per cent corporate tax would be nirvana. We've got to stop this race to the bottom, so that governments around the world have sufficient revenues and so that corporations are not rent-seeking but actually making a contribution back to the society that provides the space, framework, rules and courts within which they can do business and make profit.

The second pillar is a fairer distribution of profits by multinationals, particularly digital firms. Working together within the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting, over 135 jurisdictions and countries are collaborating on the implementation of these tax measures to tackle tax avoidance, improve the coherence of international tax rules and ensure a more transparent tax environment.

Just briefly: schedule 1 deals with multinational tax transparency and the disclosure of subsidiaries, which I talked about. They are rules that have been in place in the UK for seven years. We should have done it years ago, but here we are. It introduces these new reporting requirements for Australian public companies, listed and unlisted, to disclose information on the number of subsidiaries, stuff like where they're located and their country of tax domicile. As I said, it's been informed by extensive consultation. It was introduced in the winter sitting to enable the changes still to take effect on the 1 July start date.

When this legislation is finally passed—it will be interesting to see how they vote and try to water it down, if you look at their record—it will require these large corporate groups to be more transparent about their corporate structures and whether they're operating with those opaque tax arrangements like subsidiaries in low-tax jurisdictions. This information will not only improve revenue collection but support better economic analysis and help to inform evaluation as to whether tax laws are operating as they're intended in collecting the right amount of revenue or whether further measures are required.

With the way it's been designed, companies will need to disclose this new information in their annual financial statements, which will help to reduce the compliance burdens. Again, that is in line with international approaches and how things have been done in the United Kingdom for some years. The stakeholder feedback in August and then April that led to this bill is that it really is a step change in ensuring tax transparency and that it complements the ongoing work to implement a beneficial owner register and public country-by-country reporting, which the government is continuing to work through with stakeholders.

Schedule 2 deals with thin capitalisation. It introduces Australia's thin capitalisation rules to address the risks to the domestic tax base arising from the use of debt deductions as one of those base erosion and profit-shifting measures.

I'll conclude where I started: it's fundamentally important that Australia's tax regime—and the rules that we're putting in place with this bill and subsequent reforms which are being worked on at the moment and will come to the parliament in due course—aligns with those of other countries, that we harmonise the frameworks and that we shut down the loopholes and the places that multinational corporations are able to utilise in order to avoid their tax. We need to close off those options. There is an Australia-specific approach, given the unique characteristics of our economy, for external debt—a third-party debt test—to support ongoing investment, including in the infrastructure and property sectors. There were particular concerns sensibly raised by those sectors throughout the consultation, and the government has taken them on board to minimise the transition cost for stakeholders.

Schedule 2 is a revenue-raising measure, and I know that sometimes makes those opposite twitch. It is a revenue-raising measure because the country has a structural budget deficit that the Liberals have left behind. This is an entirely appropriate place for the government to seek to raise some more revenue by making multinational corporations pay their fair share of tax. Frankly, if the Liberals had actually done this work in their last couple of terms of government, the deficit wouldn't be as big as the one we inherited, the national debt wouldn't be as big as what we inherited, and the country would be in a better position. Australian businesses would have been able to operate in a more competitive and fairer environment if the previous government had actually done their job instead of standing on the record, as they outlined earlier, of at every point under the Rudd and Gillard governments voting against measures to crack down on multinational tax avoidance—claiming credit for Labor's achievements back then when they worked and not taking any real action. I commend the bill to the House.

Joanne Ryan (Lalor, Australian Labor Party) Share this | Link to this | Hansard source

I rise to join colleagues today to speak on the Treasury Laws Amendment (Making Multinationals Pay Their Fair Share—Integrity and Transparency) Bill 2023. Making multinationals pay their fair share sounds like a reasonable proposition to me, hence I am here supporting the bill. What price do we ask multinational companies to pay to operate in a stable democracy? What price to operate in a country with clear legislation and a judicial system that is separate from government? What price to operate and build a business here in our country? What price to be part of our egalitarian community? What price to use our roads? What price to hope to employ Australians educated in our schools—a workforce treated in our health care? Making multinationals pay their fair share is actually asking multinationals to be responsible corporate citizens and to be part of this broad Australian community—part of our economy, part of the global economy, but also part of this system and not predators of the system.

For as long as I have been here—which is nine years—as the member for Bruce so elegantly put, I have heard those opposite ready to take credit for Labor initiatives in the former Gillard and Rudd governments—where multinational Chevron ended up paying $300 million more in tax—as a line in a press release that said they were doing their job, when in fact they voted against that happening. Those opposite are often over there, and the tenor of the argument around taxation is always the same. The tenor is that if we don't create an environment in Australia where multinationals pay minimum tax, if we're not competitive on a bottom-line tax rate with every other country in the world, then multinationals won't come here to do business and, therefore, we'll miss out on employment and investment. But what this bill is saying is we need to balance those scales. They do not choose to come here simply for a taxation rate.

We know already that many of them are structured so as to avoid any taxation rate by using tax havens where they have a got a floor of taxation.

We know that in our global economy these multinational businesses have been structured to avoid tax not just in our country but in other countries around the world. One might argue that it is to avoid tax in countries where the vast amount of revenue raised by governments is from PAYG workers, everyday Australians paying their taxes every week. Our great Australian community, our egalitarian society, has a progressive tax system that draws from every worker in this country making their contribution to build our roads, to create the infrastructure we need, to build and fund our schools and our hospitals—all of the things we as a society value for ourselves. What is the price for multinationals to operate in that community, in that society? For me, the price is that they pay their fair share. It is that when they're using the roads, the highways, the freeways, the airports, the terminals and the ports they pay their fair share. The way they do that is not with a user-pays system where they get a ticket at the gate but through the taxation system. This bill is about doing exactly that.

This bill is about righting the scales and ensuring that multinationals who are operating here and multinationals who want to operate here are making their contribution to our local economy and are operating in the global economy in a responsible way, and when I say 'a responsible way', I mean in a way that respects the populace of the countries where they operate. That's what this is about. This is about ensuring that multinational companies operating in Australia respect us and pay their fair share.

This, of course, was an election commitment from the Albanese government. We committed to ensuring that multinationals would pay their fair share of tax. These measures are rooted in the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting, which was established in 2013. For any of my constituents who aren't economists and aren't accountants, particularly high-flying accountants who deal in multinational taxation avoidance, this may sound like gobbledegook. What it really means is that, collectively, countries across the globe have gotten together and said: 'These companies are getting very clever. They're all avoiding paying tax. They're avoiding paying tax in the UK, in Australia and in other places around the world. We need to muscle-up together and come up with a framework where we can ensure that our populations and our societies are respected.' So more than 135 countries and jurisdictions are working collaboratively within the OECD/G20 inclusive framework on exactly these issues. The joint efforts are focused on implementing measures that address tax avoidance, enhance the consistency of international tax regulations and foster a greater degree of transparency in the global tax environment. It all sounds rather sensible to me.

As the member for Bruce pointed out on several occasions, a Conservative government in the UK was able to implement something seven years ago as part of this framework. My question to those opposite is: where have you been? A UK Conservative government saw the sense in this, but an Australian Liberal-National coalition government didn't. It chose to ignore it. It chose to allow the disrespect of our society by these multinational companies to continue. I can only imagine that what might have been driving them was that, if all of the 135 countries working together closed off all of these avenues for tax avoidance, we'd become the place the multinationals want to be. Except they're cleverer than our 10-year Liberal-National coalition government, because they're already avoiding our taxes, and the 135 countries that are getting together are getting together to say, 'We cannot allow them globally to avoid taxation everywhere. They have to pay their fair share.'

The bill will create a fourth element to a company's annual financial report. At the moment, a company's annual report already includes financial statements, notes to the financial statements and a director's report. This will bring in line a further disclosure. The financial statements for most companies will already include some information on their subsidiaries based on a subjective materiality threshold. The introduction of the disclosure mandate in this bill will enhance the information flow by necessitating the inclusion of details about all subsidiaries.

For those listening at home, it's the old saying: 'Follow the money.' Now you'll be able to follow the money, because they'll have to disclose the subsidiaries. It's pretty simple. Who will be impacted? It will only, likely, apply to large corporate groups that operate from complex corporate structures and multiple subsidiaries. Approximately 470 large corporate groups, entities with $250 million revenue or more, are likely to have multiple subsidiaries. At an aggregate level, the potential in-scope population is estimated at around 8,000 entities—2,100 listed entities and 5,750 unlisted public entities, based on financial report lodgement. However, a large number of these will be smaller companies that have no subsidiaries and, therefore, will disclose a nil statement.

This piece of legislation is our government trying to catch up with the other 135 countries, trying to catch up with what lots of other economies across the globe are doing. In terms of paying their fair share, this is our government doing their share of the legislative agenda to ensure that not just this country but other countries are able to collect the revenue they need to run their societies and economies.

The opposition's position is that the government did not provide enough time for affected stakeholders to understand and provide feedback. But we heard from the member for Bruce this morning that that's not the case, that there have been changes made, there has been consultation. The amendments were first announced in April 2022 as part of the government's election commitment platform. They've since been subject to extensive stakeholder consultation on all the schedules of the bill. In late 2022 there was a public consultation on design, through a consultation paper, and there was a consultation on exposure draft legislation for all schedules in March and April of this year.

The final legislative approach reflects this stakeholder feedback to accommodate genuine commercial arrangements, as much as possible, noting that it is a tax integrity measure. The tax integrity measure is not intended to reflect the status quo arrangement of taxpayers. Postponing the changes would present a revenue and tax avoidance risk by allowing taxpayers to artificially restructure their arrangements to avoid the new rules and gain a tax benefit.

I rise today to support the bill because I believe that multinational companies who operate in Australia should be paying their fair share of tax. I believe that operating here makes them a part of our economy and, therefore, they should respect the citizenry that has created and works in that economy. It's an easy thing to say, 'Make multinationals pay their fair share of tax.' We know, from over time, that multinational companies will gear up to try to avoid measures that have been put in place. But if 135 countries continue to work together, if the Australian government can be a force for good, in this space, rather than a recalcitrant, then we may find that our revenue in this country is enhanced and that we will be able to make commitments to our communities, that we will be able to, in good faith, say that we can raise revenue without raising their personal taxes, that we can raise revenue for the infrastructure that communities like mine so desperately need.

Josh Burns (Macnamara, Australian Labor Party) Share this | Link to this | Hansard source

I'm very pleased to rise to speak on the Treasury Laws Amendment (Making Multinationals Pay Their Fair Share—Integrity and Transparency) Bill 2023. This bill is an important bill, because across my electorate we have thousands of hardworking Australians going to work every single day and paying their fair share of tax—thousands of people who turn up to contribute to our nation's economy, who get up and go to their workplaces and contribute tax in the Australian system. We also have hundreds of small businesses in my electorate—businesses that make our local community what it is, businesses that give us so much character and depth as well as provide services to our local community.

The thing is, the individuals who work in my local community and right across the country, as well as the small businesses that I am so proud to represent in Macnamara and the small businesses right across the country, don't have the ability to put millions of dollars into their own tax teams, to get their own tax advice. They don't have millions of dollars to seek ways in which they can minimise their tax payments as a corporation or as an entity as a whole. They just have to pay their tax. So, this bill seeks to level the playing field. This bill seeks to say that if you're a small business or an individual paying your fair share of tax in this country then the multinational enterprises, who contribute to our society and who play an important role, should also pay their fair share of tax. This bill is about making it more transparent so that those multinational enterprises are put on a level playing field to those small businesses and to the individuals who pay their fair share of tax in this country.

The bill introduces new rules to protect the integrity of the Australian tax system and improve transparency. It will help ensure a fairer and more sustainable tax system. In recent years we have witnessed an alarming trend whereby corporations have exploited loopholes and engaged in tax planning to avoid paying their fair share of taxes. This not only erodes public trust but also puts an undue burden on the hardworking taxpayers I've been speaking about in this contribution. It undercuts the funding required for the essential public services that people all around the country rely on.

This is particularly unacceptable at a time when Australians are facing pressures around the cost of living. Inflation has been hurting Australian families and Australian workers. And while inflation is easing, thanks to the fiscal responsibility of the government as well as the hard work of the Australian people, I know that many people in my electorate are still finding the cost-of-living pressures real, are still finding day-to-day expenses extremely difficult to manage. So, it's only fair that, when small businesses that struggled through the COVID pandemic are now facing rising costs for a range of reasons due to inflation, much of which has nothing to do with the Australian economy but overseas international pressures, multinational enterprises pay their fair share of tax so that individuals who are feeling the cost-of-living pressures are not put under undue pressure to fill the gaps and to fund the programs that we all rely on and that it is a more equal and fair system, where the multinationals also pay their fair share of tax. I think it's important to be clear on this point: this bill is not an anti-business bill. On the contrary, this bill is about saying to the small businesses that don't have the capacity to fund millions of dollars worth of tax advice that they should be on a level playing field with some of the big multinationals who can afford to have teams and teams of people working to minimise their tax liabilities.

I represent an electorate where prosperity is built on successful small and medium businesses, where many people hold shares in large corporations. I want to see a strong corporate sector making profits, paying dividends to our local investors, but I also want to see those corporations paying their fair share and making sure they are taking part and carrying their fair share of the tax burden.

This is very much in the interests of the corporate sector itself. Many corporate leaders that I speak to understand this perfectly well.

This bill seeks to tackle the problem of corporate tax avoidance head-on. It is designed to restore integrity and transparency in our tax system and to hold multinational corporations accountable for their tax obligations. At its core, this legislation aims to close loopholes that have allowed some companies to shift profits to artificially low tax jurisdictions, thereby reducing tax liabilities in the countries where they actually operate and generate substantial revenue, like Australia.

Many investigations in recent years have identified methods by which multinational corporations evade their tax responsibilities. In 2014, the Australian Financial Review reported on a number of Australian companies avoiding tax by way of secret tax deals in Luxembourg, negotiated by the accounting firm PwC. The article identified hybrid debt structures, total swap returns, royalty payments and intra-group loans to reduce taxes. The ability to move profits around the world purely by paperwork, in return for what seems to be a minor fee to Luxembourg, is a recurrent feature in the subsequently leaked tax agreements. We regularly see reports about the number of corporations who pay little or no tax in Australia. There are sometimes legitimate reasons why a corporation will have no tax liability in a given year. But the broader picture shows that, in many cases, corporations have deliberately arranged their affairs so as to minimise their tax responsibility in Australia. This has to change because it's unfair. Government has a responsibility to address this harmful practice that undermines the government's ability to fund essential services. Miners, oil and gas producers and technology companies are among the multinational companies the government is targeting through the proposed legislation.

I'll step through some of the specifics of the bill and their implications. The first schedule is multinational tax transparency: the disclosure of subsidiaries and transparency and accountability. This schedule targets Australian public companies, listed and unlisted, requiring them to disclose their subsidiaries and locations. By doing so, this measure will hold large corporate groups accountable and promote transparency in their corporate structures. It will enable us to identify any opaque arrangements involving subsidiaries located in low-tax jurisdictions, helping us ensure that companies pay their fair share of taxes.

The second part is informed economic analysis. The disclosure, as I've just outlined, of subsidiary information will provide valuable data for economic analysis. This data will aid in understanding whether our tax laws are functioning as intended and collect the appropriate amount of revenue from multinational enterprises.

The third point is a really important point. This is a battle that we can't fight alone in Australia. We need to align ourselves with our international partners. The proposed disclosure requirements align with international approaches to tax transparency. The United Kingdom has had a similar measure in place for some time now. This will make our legislation consistent with global efforts to promote tax fairness. By integrating this information into annual financial reports, we aim to reduce compliance burdens for companies but we will also, at the same time, want to enhance transparency.

Schedule 2 revolves around thin capitalisation. This is about levelling the playing field. It's a revenue raising measure designed to ensure that MNEs pay their share of taxes in Australia by limiting debt deductions. We aim to create a level playing field for Australian businesses, preventing tax avoidance practices. By increasing the tax liabilities for multinational enterprises we are levelling the playing field for the small businesses and individuals who are paying their fair share of tax. We shouldn't—and I repeat—have a situation where small businesses who can't afford millions of dollars' worth of expertise to minimise their tax liabilities being disadvantaged by those companies that can. The new earnings based test is a schedule where rules will limit an entity's debt related deductions to 30 per cent of profits.

This is about making sure that businesses are unable to find these sorts of loopholes, where they just continually create deductions when they should be paying tax. This new earnings based approach ensures that deductions align with the entity's economic activity, and it will be a robust solution to address tax planning practices of multinational enterprises.

Finally, let me re-stress this point: this is about international best practice. Most OECD countries have already implemented earnings-based interest-limitations rules, including in the United Kingdom, the United States and much of the European Union. This will bring us in line with international efforts to address tax integrity risks. We need to close the loopholes so that businesses aren't looking for the lowest common denominator. We need to make sure—and we are working with our international partners, especially in the OECD—that businesses know that wherever they turn there is going to be a fair and equitable tax arrangement. Australia must do its part, and this bill contributes to that important principle.

I think it's important to note that the drafting of this bill involved extensive and meaningful consultation with key stakeholders across the economy. In August 2022 and in April 2023 we engaged with various representatives from the business community, tax experts, industry associations, advocacy groups, unions and many others to gather insights, perspectives and feedback. These consultations proved invaluable in shaping the bill's provisions and in ensuring that it strikes the right balance between tax transparency and protecting the integrity of the Australian tax system, while considering the diverse needs and concerns of all stakeholders involved. By collaborating with key stakeholders, we have built a comprehensive and well-informed piece of legislation that reflects the collective aspiration for a fairer and more sustainable tax system in Australia.

In conclusion, this bill is a necessary step towards building a fairer, more transparent and sustainable tax system. By supporting this bill, we are sending a powerful message that Australia is committed to ensuring that multinational enterprises pay their fair share and contribute to the prosperity of our nation and the wellbeing of our communities. I am proud of the hardworking people that I am privileged to represent. Each and every day, they go to work and make meaningful contributions to their businesses, their organisations and our local community. They come home at the end of the day and pay their fair share of tax. We have some incredible small- and medium-sized businesses that operate in my electorate, full of people who are smart, hardworking and, like those individuals, pay their fair share.

It is not acceptable that we have a situation in this country where large corporations who can afford to find these loopholes and who can afford to minimise their tax contributions are free to do so. We need a situation in Australia where our tax arrangements are fair and equitable across all different corporations. This bill is an important step in making Australia an international partner with our like-minded countries, in making our tax arrangements fairer and in creating more revenue to provide the essential services that our hardworking Australian businesses and community rely on. I commend this bill to the House.

Debate adjourned.