Catryna Bilyk (Tasmania, Australian Labor Party) Share this | Hansard source

In the interests of time, I won't speak for very long today on the Treasury Law Amendment (Making Multinationals Pay Their Fair Share—Integrity and Transparency) Bill 2023. The concept of fairness defines who we are as Australians and how we view ourselves as global citizens. From our beginnings as a classless society, we all expect a fair go, and we all expect everyone to pay their fair share. Sadly, the playing field is not so level when it comes to multinationals paying their fair share of taxes, and Australians are rightly angry.

I've spoken in this place many times about the urgent need to address the issue of multinational companies paying their fair share of taxes. Around 34 per cent of our largest and most profitable companies paid no tax in 2016-17. In the ninth and most recent ATO annual tax transparency report for 2021-22, it's clear to see that not that much has changed in the past five years. Thirty-one per cent, or 831, of Australia's largest corporations once again paid zero tax for the financial year. The average Australian worker paid more tax in the last financial year than a lot of our richest companies, many of which had earned over a billion dollars in total income. The local plumber, taxi driver, nurse or teacher's aide does not earn anywhere close to $1 billion a year, yet they somehow pay higher taxes than companies that earn more money in one day than these workers make in their entire lifetime.

Multinational tax avoidance is one of the biggest contributors to inequality in Australia, and by avoiding paying their fair share of taxes these companies are reducing the revenue available to pay for essential services for the Australian people. This means that there is less money for the government to spend on essential services such as health care and education as well as critical infrastructure, including major roads, rail and bridges. Companies that do the right thing when it comes to paying their fair share of taxes are also disadvantaged. Domestic businesses and small businesses, in particular, do not have the ability to exploit mismatches in the international tax system. When taxpayers see multinational corporations legally avoiding income tax, it undermines voluntary compliance by all taxpayers. Unlike our predecessors, we believe that all Australians deserve and expect a level playing field when it comes to paying taxes.

Passage of this bill will require companies to disclose information on the number of subsidiaries and their country of tax domicile, ensuring that large corporate groups are more transparent about their corporate structures. This increased transparency will allow authorities to hold companies to account for engaging in opaque tax practices, such as through the use of subsidiaries located in low-tax jurisdictions, thereby informing government on whether tax laws are operating as intended in collecting the right amount of revenue. Companies will only be required to disclose their subsidiaries and their locations as part of their annual financial report, thereby reducing any extra compliance burdens as a result of these tax changes. This is in line with international approaches.

Schedule 2 of this bill strengthens Australia's thin capitalisation rules. Thin capitalisation is a financial strategy that involves a company financing its operations primarily through debt rather than equity. Because interest on debt is tax deductible, multinationals can adjust their debt levels and use related party borrowings to minimise the amount of tax they pay. This allows the company to benefit from the tax advantages of interest deductions on the debt—often using excessive interest payments to artificially reduce their tax liability. Schedule 2 of this bill limits debt deductions of multinational corporations to 30 per cent of profits. This fixed ratio based approach will replace the current safe harbour test and ensures that deductions are directly tied to the company's economic activity.

Interest expense amounts exceeding the 30 per cent fixed ratio debt deductions will be able to be carried forward and claimed in subsequent income years, up to 15 years, thus ensuring that small entities with greater earning volatility are not adversely affected by this bill. A third party debt test is also being introduced. This test has been designed primarily for the property and infrastructure sectors, which tend to be more heavily geared and provide greater flexibility to deduct genuine third-party debt in a manner consistent with common debt financing arrangements, while balancing the overall tax integrity nature of this bill. We introduced this bill—