Bill Heffernan (NSW, Liberal Party) Share this | Hansard source

Yes, or a promotion. It is well documented—and you can read the transcript of the various hearings we have had on this, with one as late as last Thursday—that the resources required to audit transfer pricing are not there. It is simply mission impossible. Hence, the article the other day where, globally, there are companies—and these characters are all likeable rogues; as Kerry Packer said, 'You're a mug if you don't try and minimise your tax; God bless him—avoid paying trillions of dollars in tax annually as a result of the mismanagement of transfer pricing.

We saw the Foreign Investment Review Board approve the sale of Myer. We asked FIRB, 'Would you have approved it if you knew that that Myer sale was going to avoid $700 million in tax that was due to Australian taxpayers?' They did not answer it. That is because they are simply not resourced. That sale went through Luxembourg. We missed out on $700 million. There is no end to this. What Senator Macdonald said was not quite correct; I can correct him now: there is tax on food sent out of the country by corporations if it is packaged for business. If it is packaged with the tax exemption for charities, it is not.

As the ABS have pointed out to us many times, what we have got to come to terms with, as much as this legislation is probably designed to try and end some of the leakage, is that there is a serious leakage of Australian revenue, which I have been banging on about for quite a while, through the generosity that we provide to foreign capital. Foreign capital is obviously very much an essential part of the working engine of Australia and has been for many years. It is well recorded over the years that a lot of foreign capital that comes into Australia does a good job and finances a lot of infrastructure. But in agriculture the people that bring it in usually do the investment, spend a lot on infrastructure, which is great for the area and the district it is in, and eventually go out with their tail between the legs because they did not allow for droughts or they did not understand that farmers do not pay themselves overtime and do not pay the board bonuses, and most of these companies have gone broke. But what we are talking about here is serious revenue leakage. The bit that Senator Macdonald spoke about can be captured by transfer pricing. The pieces that cannot be captured are the sovereign investors.

I note that over the weekend Mr Brian Wilson, the new Chairman of the Foreign Investment Review Board, referred to the fact that FIRB may have to reposition itself on the national interest test with regard to operations by sovereignties that are not commercial. If it is not commercial, you are not looking for a return on your money, you can distort the capital market, you can distort the commodity market if you bypass the commodity market, and you also avoid the tax system.

It has been confirmed by the tax office to the committee that passive investment by a foreign sovereign entity is not taxable. They talked about—and it took us an hour on Thursday night to get them to the point—the fact that they would first assess whether there is a business. They said you can be a sovereign business but when it comes to the tax you can get an exemption, even though you are in the business system. Then you can declare your production is for a humanitarian purpose—and we all realise that the coming food challenge barring a human catastrophe, unless we do not arrive at nine billion people by 2050 and 12 billion people by 2070, means we have got a huge problem. Some foreign countries are a wake-up to that and they are going to other countries, and in a lot of countries they are going to they pay as much for bribing government officials, which is the normal way of doing business in Asia, as they do for acquiring the asset. These people have told me that: 'What's wrong with you Australians? Don't you accept bribes the way the others do? Wake up!' We do not, and thank God this parliament does not have endemic corruption like a lot of other parliaments.

When AA Company, Australia's largest agriculturist, comes to the hearing—Senator Back was there at the time—and says, 'We are seriously disadvantaged with onshore financing of super funds into agriculture because we don't get the advantage of going around the loop and going out through some tax haven,' we have got a serious problem because I do not think legislation, however good it is, for transfer pricing is going to fix. If you set your book right and you declare your production in Australia from agriculture is for a humanitarian purpose, and if we know that a place like China, for instance—and you are supposed to be xenophobic to mention that—has to produce half its food by 2070 with 1.8 billion to two billion people from someone else's agricultural resource, and if you declare that is not a business transaction but a humanitarian task, then you can avoid the tax system. What sort of brain-dead proposition for Australia's revenue base is that?

My point is that it is all very well to try and play catch-up back eight or 10 years with retrospective legislation. It does not matter how much legislation you have and how much you amend it, Senator Conroy, if you do not audit it and allow the resources to audit the transfer pricing then the likeable rogues out there are still going to get away with it. You would have to read the transcript of the hearing, and there obviously is not time here to go through the details of what it is all about, but I, like the rest of the opposition, say that retrospectivity is a confirmation of failure. But why would you punish the people that have obeyed the law when you should punish the legislators that legislated shonky legislation that requires us to go back eight or 10 years on transfer pricing?

As I said at the hearing about the guys that are buying the wool, God bless them all, down in the wool country and transferring it direct to a woollen mill overseas, we do not have the resources to know whether it is dags or crutchings or 3A combing. They did not give an answer but they said, 'Well, we'd have to find some average sort of thing.' An average sort of thing? We bought 34 containers of dirt in from China that was supposed to be fertiliser and it got through AQIS and Biosecurity and ended up on a farm at Condobolin. It was supposed to be fertiliser and it was dirt. It was bought on the approved Chinese government site and it took us six months to negotiate with China to get them to agree to take their dirt back home because we did not want it, it was full of rubbish—weeds and bloody seeds and all sorts of things. If you have not got the resources, I will not use the language I would use in the bush but you are kidding yourself if you think you can audit transfer pricing.

The United States have estimated they miss out on $700 billion to $900 million in tax through transfer pricing lack of auditing. It is estimated to amount to $3 trillion on the planet. Where is this to go? I think that we really need to rethink this. I accept there is a serious problem with Australia's leakage of revenue. I guess you employ a smart accountant every time they change the tax law if you are in the business of minimising your tax on the edge of the skating rink, unlike most Australian wage earners who have just simply got to cough up. But do not think that you can tick it off in a bureaucratic way with retrospective legislation on transfer pricing when it is well recorded that it is impossible to do the auditing. If we send out wheat and a foreign entity says that it is feed wheat or AUH2 or something when it is actually AGP1 or APW1, the tax office does not know what it is. It does not have the resources to go and look if they could not look in the containers that were supposed to be fertiliser. To their credit, the reason the Customs and AQIS people did not look was because the bookwork was written in such a way that they did not have to open the containers; in that case the bag sizes in the containers were such that they got a green light corridor through Customs. When the poor cocky up at Condobolin opened the thing and thought, 'Gee, I've saved $200 a tonne on this fertiliser'—

Debate interrupted.