Joe Ludwig (Queensland, Australian Labor Party) Share this | Hansard source

I also rise to speak on the Tax Laws Amendment (Combating Multinational Tax Avoidance) Bill 2015. It is interesting to note that the Treasurer has outlined that there is further work to be done in this area. It is clear from the cursory examination so far in this debate that, whilst supported in this instance by the Labor Party, there is more work to be done by the government. The paper 'Australian Tax Brief—Multinational anti-avoidance law and country-by-country reporting' points to more work that is required to be undertaken. When you look at the overseas experience, it is well noted that they, too, have examined this area and believe there is more work to be done. An OECD report supports Australian government action on multinational tax avoidance. It all points to the clear view—held, I think, by both this government and Labor—that it is time for work to be undertaken. There is some criticism that this government is acting too early and should wait for the OECD to outline a more global policy in this area, but figures in a 2014 report of the Tax Justice Network allege that the 200 largest publicly listed entities in Australia had an effective tax rate of 23 per cent over the last decade. Further, the report alleges that 29 per cent of these entities had an effective tax rate of 10 per cent or less and 14 per cent had an effective tax rate of zero per cent. It is clear that there is a quite compelling argument to act now. In doing that, this bill, I think, is the first in a number of bills that will address this over time.

The bill amends the Income Tax Assessment Act 1997, the Taxation Administration Act 1953 and the Income Tax Assessment Act 1938 to strengthen tax avoidance laws for certain multinational entities. This bill has four schedules. Schedule 1 introduces the new concept of 'significant global entity', being an entity with an annual global income exceeding A$1 billion. This will capture 1,000 companies that represent the highest risk to Australia's corporate tax base. Schedule 2 introduces anti-avoidance measures to deal with significant global entities that put in place schemes using artificial or contrived arrangements to avoid the attribution of business profits to Australia. The schedule targets multinationals which artificially avoid having a permanent establishment in Australia for the purpose of avoiding tax. Schedule 3 doubles the existing maximum penalties for significant global entities involved in tax avoidance and profit-shifting schemes. However, stronger penalties do not apply to those entities that have a reasonably arguable position. This will ultimately ensure that penalties are not increased where a breach is the result of uncertainty of the tax laws. Finally, schedule 4 requires significant global entities to provide transfer pricing documentation, including financial reports, on a country-by-country basis. This implements the recommendation by the Organisation for Economic Cooperation and Development—the OECD, which I spoke of earlier—and the G20. Country-by-country reporting requires significant global entities to provide three statements to the tax commissioner with relevant and reliable information in order to carry out transfer-pricing risk assessments.

Labor is taking a bipartisan approach to this important issue and will not stand in the way of attempts to tighten Australia's tax net, no matter how small or insufficient these may be. We have a stronger view in this area. We believe that tackling tax avoidance and protecting Australia's revenue base should be beyond the usual political divide. We are committed to ensuring that large multinational companies pay their fair share of tax in Australia. Labor is aware that every dollar of Australian tax avoided must be made up somewhere else. The revenue has to come from either small businesses or individuals or a reduction in services. Those Australian workers who pay their fair share of tax should be treated fairly when it comes to multinationals. While huge global firms earning billions of dollars in revenue in Australia can avoid contributing to the things that make this possible, like our roads, schools, justice system and other public services, it would seem remiss of the Labor Party to say to those individuals paying their fair share of tax, 'It's okay for you to pay your fair share of tax, but it's okay for multinationals to continue to use methods to avoid contributing likewise.'

A person earning the average Australian wage pays about 21 per cent in tax; a small business pays the corporate tax rate of 30 per cent on their profits. However, in the past few years there have been increasingly regular reports about large companies paying just a fraction of this amount. The Senate's recent corporate tax inquiry heard evidence that one big multinational firm may have paid as little as two per cent tax on billions of dollars in revenue. Australia is quite clearly losing billions of dollars in forgone tax revenue, while hardworking individuals are forced to pay the right amount of tax. With the level of debt rising under the coalition, Australia simply cannot afford to let tax revenue drain away offshore.

The four schedules in the bill do make some progress towards combating multinational tax avoidance; however, Labor does believe that more is needed in this area. This bill takes an untested approach to closing loopholes. There are no precedents for this approach around the world, so it remains to be seen if this bill will protect even one extra dollar of Australian tax.

But it is worth putting the wood on the coalition. They should, with the implementation of this bill, outline what, over time, it recovers and how it recovers the multinational tax revenue into consolidated revenue.

Six months ago Labor laid out a multinational tax package that would have raised $7.2 billion by tackling debt deduction arrangements to stop companies double-dipping on tax benefits and increasing resources for the Australian tax office. In 2012-13, companies shifted over $300 billion between their Australian arms to overseas parent or subsidiary companies. Labor's priority will be to shut down loopholes that allow big multinationals to send profits offshore.

Labor has been calling for more action on multinational tax for over two years. The Liberals have been, I think, sitting on their hands on this for some time. They have now been effectively forced to act. So the Liberals are acting, but I think it will be seen to be a very small contribution to the overall effort and they will continue to wait to see what the international fora do, before again deciding, I suspect, to have another inquiry into whatever the overseas jurisdictions decide to do. In other words, they will continue to just push the ball down the hill and hope that something else might come along to distract the public from the overarching need for reform in this area.

In the last budget they handed back more than $1 billion to big multinationals, but they cut the pension and want to make young Australians pay more for a degree. It is clear that they have continued to protect the big end of town in this debate. I suspect that that is in their DNA and that they will continue to do that. I think that is evidenced by this bill we have today. It is a sop to the area; it is saying, with their hand on their heart—as cold as that might be—'We are doing some work in this area.' But I do not think it is serious enough nor sufficient to justify that.

Labor's package contains four measures which have been costed by the independent Parliamentary Budget Office. This side thinks that this type of work should go ahead and create more outcomes for the Australian people. The first measure is a worldwide gearing ratio. This will ensure that tax deductions will be based on a company's entire global operations, not just what they do in Australia. Deductions will be assessed on the debt-to-equity ratio of a company's entire global operations rather than allowing companies to claim up to a 60 per cent debt-to-equity ratio for their Australian operations.

The second measure is hybrid mismatches. This measure will standardise our tax law with other countries so that companies can't 'double-dip'. Standardising the rules on hybrid entities and instruments with tax laws in other countries will reduce opportunities for companies to double-dip by claiming tax exemptions in one country and tax deductions in another.

The third measure is increased ATO compliance. This measure will improve compliance with the ATO by providing effective funding. Under Labor's policy, the ATO will have the resources it needs to properly investigate and pursue multinational profit shifting. We do not want additional funding provided to the ATO under the previous Labor government to expire, as evidence from Senate estimates and from the Australian tax commissioner himself showed that additional compliance activity from the tax office is yielding greater revenue from multinationals. In other words, pursuing greater compliance does work.

The final measure is third party data matching and an early start date. This measure was announced by Labor in the 2013-14 budget to bring forward the start date on improving compliance through third party reporting and data matching. This has been delayed by the government until 1 July 2016. Again, what we see is a government that simply wants to kick the ball down the road. It does not want to effectively deal with taxing multinationals fairly for the Australian people.

What it does want to do is give more time, because even these small measures raise the hackles of the various tax institutes—the Australian Bankers' Association and like organisations. I think they are crying crocodile tears on behalf of their constituents, because what is clear is that, when you look at the figures I quoted at the beginning, there is an overarching need to act in this area.

Labor will form a multinational tax expert panel to assist with the implementation and refinement of these measures, to ensure that these changes work as intended. What is clear is that there will be—always will be—a sharp practice and a smart practice by very good accountants and lawyers to try to keep in front of this type of legislation. That will go on. It goes on in other areas, and it is not surprising you will find it here. That is why you do need a tax expert panel to continually look to see what practices are being undertaken by business, to ensure that they do not short-change the Australian people and are paying their fair share of tax.

In supporting this bill, Labor is demonstrating our willingness to work constructively with the government to tighten Australia's tax next. In the same spirit, the government should adopt our $7.62 billion tax package and tackle all the loopholes that let companies send their profits offshore. It goes without saying that our laws do need to be continually updated to close loopholes, because changes in technology and a more globalised business environment will continue to create new avenues to be pursued. And of course it would be unfair for a multinational company not to use those new changes in technology and, of course, take advantage of a more globalised business environment. So any compliance framework, any laws, should always be kept up to date to ensure that they continually pay their fair share of tax in Australia.

Labor's package is not the final word on tackling multinational tax avoidance. We have regularly called on the government to adopt our measures alongside their own. This bill focuses on companies that artificially avoid booking revenue in Australia so that they do not have to pay tax on the profits. However, it does nothing to stop companies using debt deductions to send money offshore, as our package would.

The government needs to drop their push to gut Australia's tax transparency laws, if they are committed to ensuring that major corporations pay their fair share of tax. As I alluded to earlier, I am not convinced. I will hear from the coalition during this debate, but it would be helpful if they did put their hand on their heart—as cold as it might be—and say that their position is to ensure that there is transparency in Australia's tax law and that they are committed to ensuring multinational companies pay their fair share of tax.

In 2013, Labor passed law requiring the ATO to publish information about the income and tax paid by companies earning more than $100million. This law applied to only about 2,000 of Australia's biggest firms. The government now wants to carve out about 800 of these companies so that they can continue to keep their tax affairs secret, arguing that private firms should not be held to the same standard of accountability as publicly-listed companies. Australians would then be in the dark about whether major corporations are paying their fair share of tax, without greater transparency. I think it says a lot about this government's view about ensuring that there is no transparency, not only in this area but in others.

We ought to aim to create a level playing field for everyone who does business in Australia. Multinationals should not have greater access to tax breaks than do individuals and small businesses, simply because they can afford to pay for better accountants and lawyers and can spend a lot more on them. Australian businesses should be competitive, because they can innovative and they are efficient, not because they are testing themselves against the limits of our tax laws.

The coalition should support Labor's multinational tax package, alongside this suite of reforms. It is the only way to ensure that we can close loopholes and not advantage the big end of town. But I do not have a lot of faith that the coalition would support a fair, open and transparent tax package that would do just that. I think they simply want to kick the ball down the road a little bit and hope that it might all go away at some point.