Barnaby Joyce (Queensland, National Party, Leader of The Nationals in the Senate) Share this | Hansard source

I rise to speak on the Tax Laws Amendment (Cross-Border Transfer Pricing) Bill (No. 1) 2012. Transfer pricing is an issue that I have a lot of interest in, being an accountant and also from regional Australia.

I think the coalition is being extremely fair on this arrangement. We do not, as a principle, believe in retrospective changes because they make life impossible. How do you plan for a government that is making plans for you before you even know that the changes they would make would come about? So it is a very fair proposition to say that we will make changes on the prospective level—that is, from this point forward.

That does not diminish the requirement that we have to do something on transfer pricing. We must realise that nowadays 60 per cent of international trade—that is, trade that goes on between countries—is within companies. Transfer pricing is becoming a massive mechanism for the avoidance of tax in transactions between countries. The tax that companies avoid by transfer pricing has to be paid for by somebody, and that somebody is the individual—that is, the Australian taxpayer. The Australian taxpayer has to pick it up. If we believe the standard of social services we have should be maintained, then we must maintain the tax base to do it. It is interesting. It is something you probably do not want to try looking up on Google, because Google has been notorious for trying to get out of tax by transfer pricing. They use one of the mechanisms called the Double Irish agreement where they create a quasi-operation in the Bermudas and use that as a mechanism for the taxable entity, and the concessional tax rate means they miss tax.

The whole world seems to be going along this path where it is somehow believed that it is morally right for organisations to avoid tax within their operations between countries, but we will come down like a ton of bricks on individuals inside a nation who try to avoid tax. So more and more of the taxation burden is falling on individuals.

Each country seems to be playing this game. They all have their way of doing it. On the demise of the British Empire, they managed to keep their fingers on the financial empire well and truly operating. We know that a vast number of the hedge funds in the world are domiciled on Jersey Island. I do not think they are actually there, but that is where you will find their operations. Jersey Island, the Cayman Islands, Bermuda—we even see the Chinese making sure they keep Hong Kong and Macau going so that organisations within China have the capacity to get a differential tax rate and keep things opaque by moving away from transparency or closing up altogether.

You say, 'What has this got to do with Australia?' I quote to you from an inquiry that was held by this parliament in the last week that revolved around transfer pricing. A Mr Hamilton said:

If they were acting as a not-for-profit they would not necessarily be within the income tax system …

But in going on to a transfer pricing issue, Senator Fawcett brought to their attention:

The end point that the chair is probably coming to is that if country X has a sovereign holding in Australia, grows wheat—and let us assume they do not claim anything; they just self-fund the whole operation and they grow however many tonnes of wheat—

Mr Hamilton, representing the tax office, said:

And they export it. Would they be taxable? No.

So who does pay the tax? If those companies in transfer pricing are not paying the tax, then it is the person out in the street from here that pays the tax.

We now have a major issue because we demand our services are maintained at the same level and our capacity to finance them is lost. How are we making it up? We are just borrowing the money, so the debt is escalating.

It is an issue in the prospective form that we need to go forward and start closing these loopholes. I do not think we are ever going to win the battle. It will be a continual movement of funds away. The unfortunate thing is that, as international companies avoid tax believing that they are somehow omnipotent bodies which do not have to pay the tax that individuals or anybody else has to pay, the government borrows money. When they run out of money to borrow, they start printing money. If where you are storing your wealth is ink on paper and a government starts borrowing money, then it is a self-defeating proposition. In the end, you have done yourself in because all the money you have managed to divest and hold in certain accounts throughout the globe becomes worthless. As countries go into programs of quantitative easing, it diminishes the value or worth of whatever funds you have in the book denominated in that currency.

One country that has had the most dramatic forms of quantitative easing in the past, and which will continue to do so, is the United States of America. If you have wealth denominated in US dollars that you have managed to squirrel way, stuck up a log somewhere, and the US starts printing currency, you have not really done yourself any favours whatsoever. I do not know what you would do next—probably you would go back to hiding gold or something. So in relation to transfer pricing we have to make sure that, in the future, we are part of the global process to make sure that the advantages international corporations will always have are not so overwhelming that the tax burden falls unnecessarily on the shoulders of the individuals who are left here.

It has become even more opaque now with the advent of sovereign entities, sovereign wealth funds, state owned enterprises. If it is opaque for corporations trying to get transparency on transactions that run between countries, it is virtually impossible to get it when the entity making those transactions between countries is one of the countries themselves. If it is, we end up in a very awkward position if we ask that country to bring its books to our court to display to us what they are earning. It obviously works on the undeniable premise, the implied belief, that we think they are lying. If we drag another nation's government into a courtroom in the belief that they are lying, they may well read that as an insult and a loss of face for their country. So we would get ourselves into an awfully convoluted position which, undoubtedly, people would balance up: 'What are the ramifications of a bad outcome diplomatically with this country if we proceed with this case? They are far and away worse than the tax revenue we are trying to get back so we will just let them get away with it.'

Once that happens, the Australian people will say, 'If you are creating one law which somebody who does not even live here can get away with but I have to deal with it, that is inherently, completely and utterly unfair.' We will lose the respect and confidence of our own people because of our inability to deal with them in a manner equivalent to that with which we deal with other people or the government of another nation. It is not a case of getting an unfair advantage; it is making sure that there is some sort of parity.

As I said, 60 per cent of international trade is within companies. To try to find out exactly what an organisation has earned relies on the internal documents, which relies on the internal valuation. We always think it is easy, but it is not. For instance, take a large cotton farm, how are you going to know how much they are going to grow? How do you dig down? It is the internal dynamics of another country, another corporation. I suppose you work on the premise that you probably are not going to get everything that you want but, if you can get a fair share, then that is what you will take. There are instances with transfer pricing now where you basically get nothing at all.

The basic concept of how it can work is that a product is said to be removed from Australia at a certain price—a bale of cotton, for instance. They will say that the bale of cotton is only worth $300 or $400 a bale. It has been transferred to a mill in another country, where they mill it. Surprisingly enough they make a lot of money at the mill where they mill it but they make no money in the country where the cotton came from, and if the country where it came from is our country we do not collect the tax revenue. However, it requires and demands the utilisation of road resources and police resources and the laws and health standards that we expect, but we do not get the capacity to get our fair return from that entity to support that infrastructure, which is ours.

The coalition supports prospective change to these laws, and Senator Cormann clearly spelled that out. To try to make sure that we get somewhere with this I hope that is truly considered. The reason retrospectivity is not appropriate is that it becomes a very bad rule to work by. Once we start talking about retrospectivity, we do not know where on earth it changes. It draws into question the plans of basically any organisation that is operating at the moment. To be prudent and astute, manage to get the changes in straightaway. But retrospectivity, especially in tax law, creates massive uncertainty because people just do not know where you will strike next. But I think it is absolutely fair that, prospectively, these issues that have become clouded, that will always be running second to astute accountants working in St James Square in London or working in Manhattan, devising ways with the utilisation of the Cayman Islands, Bermuda, Singapore, Hong Kong, Macau and the Jersey Islands to move money around so as to minimise or, if possible, avoid tax—if people believe that they do not have to pay any tax at all, then that is the tax they want to pay: none.

There are ways, and there have been mechanisms even in this parliament—I have been present when laws have been passed—to basically allow people to get out of tax altogether. Tax exemptions for non-rural property assets is one that comes to mind in recent times. I remember quite clearly crossing the floor on that and found that the Labor Party got up and crossed the floor in the other direction to make sure it went through. I wonder who they got the phone call from? These are the issues. To keep integrity in the tax base we must make sure that we manage the country so that people have to pay as little as possible and to make sure that those who should pay do pay. I think that is only fair. If we do not manage these things, if we leave it open for the movement of funds away from our taxation net, then, quite obviously, anybody who is prudent will do precisely that.

So, in closing, it is well worth the read to find out the sort of money that currently is being lost through transfer prices globally, which people believe is in the vicinity of about $3 trillion. When we say it is 'lost', it is not actually lost; it just means somebody else somewhere else has to pay it. Generally, it is an individual, but if it is not an individual it becomes an overloading on debt, so prudent management means prudent collection. Underlining that we have no belief in retrospectivity, it is fair warning to say that, prospectively, it is the role of any government to make sure that people do not pay excessively, that they pay their fair share, and that mechanisms that are built deliberately not for minimisation but just complete and utter avoidance are removed. You cannot live with the benefaction that is before a nation if you are not willing to kick the tin in some way to pay for it.

Nor should you be allowed the right, the privilege of operating in the country if you have no interest whatsoever in supporting the mechanisms that are vital to that country and supporting the people who underpin that country. It goes without saying that, in this continual torrent of moving funds to different corners of the world, even in the corners where they move it to and through, there is no real benefaction there. It is not as if you go to the Bahamas or Bermuda and these people are opulent; it is just the avoidance of tax. Where the funds ultimately flow to, the benefaction—you always find it—is to some individual at the end who has decided to make it their purpose in life to rip off other people.