Sam Dastyari (NSW, Australian Labor Party) Share this | Link to this | Hansard source

I present an interim report of the Economics References Committee on corporate tax avoidance.

Ordered that the report be printed.

I move:

That the Senate take note of the report.

I rise to speak to the interim report of the Senate Economics References Committee inquiry into corporate tax avoidance. I note that while this is not the final report of the work of the committee on this matter it is a significant contribution of work and it is a significant interim report.

The inquiry into corporate tax avoidance will continue into the second half of the year, with a provisional final reporting date of 30 November 2015. In this, the first of our interim reports, there are 17 recommendations covering four areas: evidence of tax avoidance and aggressive minimisation, multilateral efforts to combat avoidance and aggressive minimisation, potential areas of unilateral action to protect Australia's revenue base and the capacity of Australian government agencies to collect corporate taxes.

It is expected that the final report will focus primarily on transfer pricing and profit shifting with a secondary focus on excessive debt loading, foreign companies avoiding permanent establishment in Australia, the use of tax havens, exemptions from general purpose accounting and the role of private accounting firms in tax avoidance.

The interim report makes recommendations over the four broad areas I outlined earlier. Firstly, that there should be more transparency and more disclosure of the revenue that is earned in and flows out of Australia and into low-tax jurisdictions. Secondly, that the committee agrees that the current government is right to support multilateral efforts to combat aggressive tax avoidance through the OECD base erosion and profit shifting but also believes that this should not and does not prevent us from taking unilateral action to preserve our revenue base. Thirdly, we offer possible suggestions for more reporting by the ATO to parliament, including a public register of tax avoidance settlements reached and what the experts at the ATO think is effective tax policy, what they think should be tweaked, what their estimations of foregone revenue are and any potential improvements to the system. Finally, we offer some suggestions and some minor tweaks to improve how agencies like ASIC can help the ATO collect corporate taxes.

I do not believe these recommendations are controversial. They will improve the information that we all have. As the inquiry continues it will focus on some more controversial issues, including transfer pricing and profit shifting. There is also likely to be a secondary focus on the use of tax havens, the role of private accounting firms in tax avoidance and foreign companies avoiding permanent establishment in Australia.

The evidence from this inquiry has demonstrated just the size, the scope and the nature of this problem. While this is not a problem or an issue that all firms are engaged in and certainly it is one, with the evidence that we have seen, that is largely being engaged with by multinational firms operating subsidiary operations in Australia, the size of this problem, the scope of this problem and the nature of this problem should not and cannot be ignored.

There is anger out there in the community. There is anger that there are companies that are able to behave in such a way all of which, in the evidence that we have been presented so far, has been legal, all of which has not demonstrated illegal behaviour from the evidence that we have seen. The concern out there and the questions that people are asking are: how is this type of behaviour legal? How is this type of behaviour allowed? How do we have a structure, a system and a set of rules that allows a lot of this behaviour to go on and allows a lot of this behaviour to be able to be ongoing?

I want to thank some people in particular for the incredible work that they have been able to do in the production of this report. Firstly, there are the people who brought this issue to our attention from the Tax Justice Network and from United Voice. I want to particularly thank from United Voice Patrick Gorman, Jacqui Woods and Madeleine Holme and also thank the former national secretary of that union. Again, the report that was initially produced, as they outlined, had a lot of technical attempts to be able to calculate some data. Some of the techniques they used were crude but the crudeness was designed to be able to make the case as to why this is an issue for further investigation. I want to thank the Tax Justice Network, in particular Mark Zirnsak, Anthony Reed and Jason Wood.

I want to commend the work from Chris Jordan and his team from the Australian tax office for their cooperation with the work of this inquiry. Again, not everything that was said was something that I would necessarily have agreed with on all matters to do with the Australian tax office, but the way in which they engaged with this inquiry, the way in which they engaged with this interim report deserves to be commended.

I want to thank the incredible work of the senators on this committee. I want to thank in particular Senator Sean Edwards and his staff and his team. I want to thank Senator Canavan and his staff. I want to thank Senator Xenophon and his staff. I want to thank Senator Ketter and his staff. And I want to thank Senator Whish-Wilson and his staff. But in particular I also want to extend my sincere thanks to former Senator Christine Milne and her hardworking staff who have pushed many of these issues that we considered in this inquiry. There is no doubt that Christine Milne's 25-year public contribution has played a huge role in putting this issue front and centre, and it would be remiss of me not to recognise that it took Christine Milne to actually first bring this issue to my attention. I am proud of the work that has been done and the work that the committee will do.

I also want to make special mention of the Labor shadow economics team and the guidance and advice from them, including Andrew Leigh, Chris Bowen, Bernie Ripoll and Ed Husic.

The work of the parliamentary library has been sensational. The amount of research that they have done in preparing some of the reports and information that has really informed this debate is truly worth commending. I want to thank Catherine Lorimer, Indra Kuruppu, Kai Swoboda, Jonathan Chowns, Liz Wakerly and Les Neilson. I hope I have not missed anyone. I certainly also want to acknowledge Anne Holmes, the former head of the economics team at the parliamentary library, who has moved on to bigger and better things.

The team from the Senate economics committee staff is sensational. Dr Kathleen Dermody and her staff are the most overworked committee in the country. I am so sincerely thankful for the incredible work that she does and especially, without mentioning everyone who works in her team, Alan Raine for his advice, his crisp writing, the long nights, the early mornings, the weekends and the incredible work that has been produced in this.

I do also want to take the opportunity to thank my own team and my staff and the work they do, in particular Cameron Sinclair, who has really driven a lot of the work behind this report.

But I want to say that I believe that, while there are different views on how these issues can and should be dealt with—and I note there are further comments from the Greens and there is a dissenting report from the government—I think there is a consensus as to the enormity of the problem and there is a consensus to the significance of this issue. I believe, while people in this chamber in this place may come to this issue with different techniques, with different strategies on how to tackle it, I do not believe that there are people in this debate in this chamber who come at it with any bad intent or any intent other than actually being able to tackle this issue.

I believe there are some simple, practical steps that we can and should take immediately. I believe they are outlined quite succinctly within the report. I want to thank everybody for the work that they have done and the work they will continue to do as we move on from this interim report to the production later in the year of a final report.

Sean Edwards (SA, Liberal Party) Share this | Link to this | Hansard source

I also rise to speak on the interim report on corporate tax avoidance by the Senate Economics References Committee. I acknowledge the collegiate nature of the contribution that we have just heard from Senator Dastyari. In all reasonableness, this is a very important references committee. I chair the Economics Legislation Committee, as a member of the government team, like Senator Canavan, who joins us here in the chamber. Senator Dastyari is the chair of the references committee.

We are interested in ensuring that everybody who deals in Australia and takes money from a retail or wholesale perspective in Australia and earns their income from Australians and Australian businesses pays their tax in Australia. Obviously this is a big issue in world terms too, which is why the Treasurer, Mr Hockey, has been so active in this space since coming to government. It is somewhat strange that we have found ourselves in this inquiry now, given that it is running in parallel with the work of the Treasurer and the Assistant Treasurer, Mr Frydenberg, who have been actively working with the G20 nations on this. In fact, last year, when Australia was the president of the G20, this was a lead topic for the Treasurer when those countries came together in Queensland.

It is enjoyable to go through and work on issues which the government is working on, but it almost seems that the chair and a number of the other people participating in the committee thought that this was all new. Well, it is not new. It is not new for the government. It has been a high priority for the government. But the work we are doing is assisting the government in highlighting those issues, and I have been proud to work in a collegiate way with members of the committee to ensure that we do get what is right.

It has been somewhat of a sideshow at different times, as companies have been called in panel sessions and we have heard from them about their various taxation arrangements. What I did not hear in the contribution from Senator Dastyari was the fact that none of the activities of the companies that we have had before us have in any way, shape or form been proven to be illegal. That just highlights why all sides of this chamber should be working hard to ensure that the government of the day, the Abbott Liberal-National coalition government, gets this policy setting right for all time and to ensure that it does not do it unilaterally and not in concert with what the rest of the world is doing. It is essential that this occurs in such a way.

The reason that we put in a dissenting report is largely that most of the issues that were contained in the report were things that either we have addressed as a government or had no intention of addressing—they either added red tape or did not work in a policy setting which would fit into an international framework. We heard Senator Dastyari talk about the Tax Justice Network. For anybody that is listening to this contribution, the name of the Tax Justice Network is a little bit—not deceptive but it just implies something that it perhaps is not or is not up to. It is interesting that Senator Lines has left the chamber, because she used to work for the United Voice trade union, which the chair of this committee referred to along with the Tax Justice Network lobby group.

It was somewhat embarrassing at one of our hearings, when the companies Microsoft, Google and Apple were in front of us, and I had to explain some things to other senators. You might be interested, Senator Canavan—it was one of those rare occasions that you were not with us on the journey, in Sydney. I had to explain to a number of the senators the difference between turnover, net profit and EBITDA and how that reflected on a balance sheet and taxable income and gross revenue. To be giving a lesson in economics in a Senate hearing was somewhat unedifying. That was somewhat of an embarrassment to the opposition senators.

The other consideration that has been encompassed in this coalition dissenting report is the fact that the coalition has granted more resources than ever before to deal with multinational tax avoidance. The Public Groups and International division of the ATO have more specialised staff, with greater access to resources, than existed under any former Labor government. That is really the issue. The opposition are quite shrill, when we are actually in government doing something about this at the highest level internationally—the G20 and the OECD countries. What we call BEPS—base erosion and profit shifting—is now on the international stage, and we are at the forefront.

You might know that the UK introduced what they colloquially call the Google tax. That is something which they did under pressure. Policy under pressure is not always good, so we are trying to find a better way to deal with people who, while they do not act illegally, their activities—to use another colloquialism—do not pass the pub test. The pub test is: people who earn their revenue, their income and their profit in this country should pay their tax in this country. We do not resile from that.

In the remaining time that I have available to me I will say that, if you had listened to the previous contribution, you would think that everything is all wine and roses in the Senate Economics References Committee, but, disappointingly, yesterday was a pretty rough day for me. I respect the institution of the Senate committees. I obviously respect the fact that there are times when you can talk about reports, and there are times at which they remain confidential until there is an agreement. There is a process by which this Senate operates which I think suffered a great blow. In the rough and tumble of what goes on in this place, you can expect that politics will play out. But when the very institution which binds us, which gives us the level of civility and the level of what we can expect in this, is breached, then, sadly, you have to use whatever you are able to draw on in stopping this from happening again.

Unfortunately, it was with a heavy heart that yesterday I referred to the President of the Senate the fact that I believed that the contents of this interim report had been leaked widely to the press. It was represented in a 17-minute expose on a nationally televised program in prime time. Also, the 18 recommendations in the report were aired on Radio National yesterday morning and then again in AM on the ABC, where the presenter actually said that he had sighted the report and the television coverage actually showed the report. That is when I felt that there had been great damage done to what we know and hold dear in this place, which is the confidentiality of committee reports until such time as they are tabled in this place.

This is the time when people should be talking about committee reports. This is the time when you get your opportunity to go out and run your media programs, to run your lines, to run whatever it is. I respect that, and I think everybody in this place should respect that. I know that Senator Whish-Wilson is going to follow me in this debate. He and I are in furious agreement on this. I know that there are members on the other side who also hold this protocol dear, and I am sure that he will make his own comments on that.

I thank you, Mr Acting Deputy President. I look forward to working with the committee some more on this issue.

Peter Whish-Wilson (Tasmania, Australian Greens) Share this | Link to this | Hansard source

I rise to also speak on the release of the Senate Economics References Committee interim report on tax avoidance. I must confess that, yes, I nearly choked on my coffee on Sunday morning, watching Insiders, when I noted that they were speaking about the conclusions of this report, because, as Senator Edwards said, now is when we should be releasing those conclusions and talking about them. This is not necessarily a political process, but this is a matter of due process. The Greens certainly want to note that it is disappointing for a committee which has achieved so much, which was initiated by my previous colleague Senator Milne for very good reasons and which has been conducted in a spirit of tripartisanship—if I could add more numbers to that, I would. It has been conducted in a spirit of tripartisanship. There have been numerous hearings, and an incredible amount of work and effort has gone into this. It is disappointing that it has been sullied at the end by what has obviously been a leak. All I would say on behalf of the Greens is that we hope that, whatever comes of it, it does not happen again.

What I want to say here today is pretty simple. We have heard numerous recognitions of people who have contributed to this report. It was almost two years ago that I was visited by the Oaktree foundation and they raised this issue of tax avoidance as being a key thing that they were going to target. We have also had visits from the Tax Justice Network and United Voice, and we have had a considerable amount of input from Mark Zirnsak, from the Tax Justice Network, to help us with our additional comments. That was providing input to us during the committee process and in the conclusions that we have drawn as a party.

I would say that tax avoidance is out of control in this country. It is one of Australia's biggest exports, but it should not be. We are talking about—the numbers we have seen are quite mind boggling—billions of dollars. Revenue of $388 billion went offshore from Australia to related parties in the year that we looked at, 2011-12. For comparison, the total amount collected by the federal government for domestic tax revenues that year was $330 billion. We are almost seeing an equal amount of revenue going offshore through multinational networks as we are collecting in this country. It is a significant problem that we have to tackle. Just to give you another comparison, in 2011-12 we exported nearly $57 billion worth of iron ore in Australian dollar terms, and that year we also saw—from information that was provided to the committee—nearly $60 billion that went to tax havens. That is a pretty interesting point of comparison.

How do we tackle this? Unfortunately, you cannot tax what you cannot see. We do know that reputational risk is taken seriously by large corporations, particularly corporations that have strong brands and sell products. Customers, no matter where they are, do not like the fact that companies might be avoiding their tax or using legal loopholes—and it must be pointed out that in a lot of the cases we are dealing with tax minimisation; it is not necessarily illegal. It is a fact that we need to change the laws, especially between countries, to make sure that this kind of thing does not occur, because there are too many loopholes that allow tax minimisation.

We need to see people power working. We need to see people voting with their feet and penalising companies that are clearly being named and shamed for tax minimisation. I do not mind using that term. I know it was debated on Q&A last night, but I think we know that reputational risk is important to companies and that they are not going to want to see their names being dragged through the mud for tax minimisation.

We found, while going through the inquiry, that there were a number of large companies that were exempted by ASIC from providing publicly detailed financial accounts. This has to end. To take one example from a hundred, Facebook have never lodged a financial report in Australia. They have been granted exemption from full financial reporting because they were a small proprietary company controlled by a foreign company but they are not part of a large group. Who among us can characterise Facebook as a small company? This is just one of the ludicrous points that came up very early in the inquiry. Most of the big global companies either are completely exempt from financial reporting or have permission to file special purpose accounts. Special purpose accounts tell us nothing of the value and are given out like candy in the name of red tape reduction. The Greens want all these exemptions to be scrapped and full financial disclosure to be made public in accordance with prevailing accounting standards. Every time 'GST' comes out of this government's mouth, the public need to remember the phenomenal amount of money that we are losing from tax dodging in this country. If we tighten the rules and regulations, we can bring that revenue back into society to help fund schools, hospitals and the other things we need it for.

One company that the ATO classified as being in its most at-risk category was News Limited. What the ATO said about the company was that it ranked as the most at-risk because of:

… the history of their aggressive behaviour in tax over a period of time. But, importantly, it is about transparency and willingness to be open with us.

These are direct quotes from the ATO:

Historically, this particular taxpayer has made it quite clear that they have not had an interest in being open with us and discussing any of their affairs with us prior to their doing transactions.

News Corp Australia transferred $4.5 billion to its New York parent by a return of capital through share acquisitions instead of disbursing, as it normally would, through a dividend. That is the kind of example that the committee heard, and these are the kinds of rules and regulations we need to have a look at. This is only an interim report. We are looking at things such as base erosion, profit shifting, thin capitalisation rules et cetera in the second half of the report, but we need to get some solid understanding about how to tackle those issues.

One thing that became very clear to us also was that the Australian Taxation Office, as we already knew from previous estimates inquiries, is significantly under-resourced. It does not have the resources to tackle these issues of large multinational tax minimisation. We heard that, in this country, taxation in this area is by negotiation. It is settlement by negotiation. They literally march into the offices of these companies with their lawyers. The companies are totally lawyered up. A lot of the experts these companies have are actually previous tax office employees, and they negotiate as to what tax they are going to pay. There is very little litigation around this. Senator Canavan was in Melbourne when we had a whistleblower from the tax office, a previous tax office employee, tell us all about this. The ATO lacks resources and expertise. It needs to be fully armoured so that it can take this issue seriously.

The Greens have made seven recommendations in our additional comments. They are available for anybody to have a look at. Recommendation 1 is:

The Australian Taxation Office should be required to publish the details of the top 10 Australian companies that transfer wealth off shore in each financial year. A right of reply will be afforded to each named company to justify its transactions.

Recommendation 2 is:

Australian companies that are part of a larger group of international companies should not be eligible for special purpose accounting treatment and must provide ASIC with detailed financial reports to prevailing accounting standards.

Recommendation 3 is:

Australian companies that are part of a larger group of international companies should include in their financial statements the value and purposes of all transactions between related companies.

There are a number of other recommendations there that relate to provision of information. Efficient markets work on the provision of information, and we cannot actually tackle this issue until we can get that information first, so that is really where we have to start. The second last recommendation is:

That the Parliament establish a public register of beneficial ownership of companies and trusts so that identification of financial beneficiaries can be traced and publicly identified. The Australian government should also work closely with other countries to establish a global standard for such registers.

The bigger context of this debate around multinational tax avoidance is that we need to raise revenue in this country. We do not actually have a deficit problem in Australia; we have a revenue-raising problem. We need to raise revenue and not raise these issues around taxing the poor, as we have seen in this government's first budget, and going after the sick. We need to think about other ways that we can raise revenue to spend in this country. We need a fair and equitable tax system, and it is simply not fair that large multinational corporations—because they have significant resources, can lawyer up in negotiations with the tax office and are almost impossible to pin down unless we have global cooperation—can get away without paying their fair share of tax. That is not fair, it is not equitable and it is not acceptable. I look forward to this committee doing a lot more good work to pursue this area.

Matthew Canavan (Queensland, Liberal National Party) Share this | Link to this | Hansard source

I want to start off by taking a slightly different emphasis from that of previous speakers on this report. I make the point that our tax system is often held up as the envy of the world. Our tax framework provides more powers to the Australian Taxation Office than almost any other country in the world provides to its taxation office, and we should be proud of that. Certainly, when you talk to small businesses or other people in this country, I do not think many of them would think that the Australian Taxation Office does not have sufficient power. When it comes to small businesses and individuals, the Australian Taxation Office has enormous power to ask questions, to find out information and ultimately to bring prosecutions. That is not to say that we cannot make our law better, but I do take issue with Senator Whish-Wilson claiming at the end that somehow we can deal with our deficit problem just through looking at multinationals and corporate tax avoidance. As I am sure Senator Whish-Wilson would know, we have a budget deficit of $35 billion this financial year. We raise around $70-odd billion in corporate tax. I do not think we are going to increase our take of corporate tax by in the order of 50 per cent through any of the recommendations in this report or the subsequent final report. Indeed, if we were going to do that, it is surprising that this interim report has not actually made any recommendations which will raise more revenue directly.

As other speakers have outlined, this interim report has focused on strengthening the transparency of information provided by large companies to the Australian Taxation Office and to the Australian people. It is only an interim report, but I fear that it falls down in the fact that it does not adequately assess or build off what the government is already doing in this area. Indeed, it makes almost no comment on what the government is already doing on corporate tax, and I suppose that in some senses, therefore, it is an implicit endorsement of what the government is already doing. I will not go through all of the detail, because I think Senator Edwards usefully summarised earlier the government's actions, but suffice to say that what the government has already done and announced is many times greater than the recommendations of this report. This report is only about asking for more information and transparency from corporations. What the government has actually done is gone after 30 multinationals already; it is strengthening our anti-avoidance law, which is the centrepiece of our taxation framework, and the strength that we have in it; it is increasing penalties for those who avoid tax; and it is also implementing a voluntary code of conduct to establish or to provide greater transparency and a consistent vehicle for corporations to publicly provide how much tax they pay.

I want to make a couple of other points on the inquiry itself. I too join with Senator Dastyari in thanking the hardworking economics staff. I think the Senate economics committee might have fourteen inquiries on at the moment. It is an immense workload. I hope that, when we consider establishing more references committees, we take account of the workload that is already placed on the hardworking committee staff. Notwithstanding that, this was an important report, and they have done a stellar job in producing this report.

I would say though, in a more negative comment, that I do think some of the hearings for this report did approach an almost show trial atmosphere. There are no doubt issues in this area that need exploration, but at times the conduct of some senators was not helpful, in my view, to the proper exploration of these issues and at times sought to disparage, with very little evidence or context , hardworking Australians and professional hardworking Australians.

In particular I would like to stand up for the accountants in this country. There was one hearing where senators, particularly from one political party, sought to disparage and call into question the ethical standards and conduct of accountants without any evidence whatsoever that there was some kind of misconduct occurring by accountants. I am almost 100 per cent positive that not every accountant in this country does the right thing all of the time, but we are lucky enough to have in this nation an accountancy profession and practice that takes pride in its standards. They are professionally governed organisations with standards that must be adhered to if they want to maintain their certification as accountants, and no-one is helped when we unfairly drag such professions through the mud without any evidence. We have not had the scandals here in our accountancy profession that have beset the United States, particularly after Anderson a few years ago. We should be thankful for that, and I hope that the accountancy profession in our country continues to maintain its high-level of professional and ethical standards.

Finally, I also add my objection to one particular aspect of the interim report as outlined in the government's dissenting report, and that is the approach to demanding private and confidential information from individuals in this country. I do not believe that we should be asking individual taxpayers to publish their information, however lucky they might be. I will never approach the threshold of $100 million or so that we are putting on this—I am not going to have that much money—but I do not think the politics of envy helps either when we go after particular individuals in our nation and ask something of them that none of us individually would ever be willing to do—that is, publish our own private taxation records. Indeed, if we want to do that as politicians, let's have the guts and do it ourselves. In other countries they do that. In some other countries, politicians publish their taxation records on a regular basis. If we are expecting some people in our community to do that, have the guts and publish your own taxation records as well. I do not think anyone does that to my knowledge and I do not think that anyone will. We should not ask others to do what we would not be willing to do ourselves.

Overall, I want to thank again the hardworking staff of the economics committee and the overall good nature with which this committee was conducted, and I look forward to contributing to the final report.

Question agreed to.