Carol Brown (Tasmania, Australian Labor Party, Shadow Parliamentary Secretary for Families and Payments) Share this | Link to this | Hansard source

I rise to speak on the Tax Laws Amendment (Combating Multinational Tax Avoidance) Bill 2015. While the Labor Party will be supporting this bill, we note that its revenue impact has no dollar figures attached to it because Treasury has been unable to cost it. This proposal in the bill is uncosted and untested, but Labor will support any steps to tighten Australia's tax net and crack down on multinationals who are avoiding paying tax, no matter how small. That is why we are taking a bipartisan approach to this bill. We hope that in the same spirit of cooperation the government will take a serious look at Labor's fully-costed multinational tax package, which will raise $7.2 billion over the next decade. Labor's plan, which I urge those opposite to look at in detail, would close tax loopholes and keep tax revenue here in Australia.

Labor's plan has been costed by the independent Parliamentary Budget Office. This bill, as I have said, is uncosted. Treasury cannot say how much revenue it will bring in. It is an untested approach to corporate tax. When it comes to tax, Labor believes everyone should pay their fair share. It is unacceptable to allow big multinationals off the hook when Australians work hard and pay their tax. We know that when huge overseas companies avoid paying their fair share of tax, individual taxpayers and small businesses are left to pick up the slack. It is incredibly unfair that massive global companies earning millions of dollars in revenue in Australia can get away without contributing to the things that taxes fund, like our schools, hospitals, roads and many other public services.

It is timely to be debating the bill this week when it has been reported in the media that Chevron Australia's United States parent company paid income tax of just $248 last year, despite earning an estimated $1.73 billion profit on interest charges to its Gorgon LNG development. Someone earning the average wage in Australia pays about 21 per cent in tax and a small business pays the corporate rate of 30 per cent on their profits. But, in recent years, it has become clear that many big companies pay just a fraction of that. At the Senate's recent corporate tax inquiry, we heard evidence that one big multinational company may have paid as little as two per cent tax on billions of dollars in revenue—just two per cent tax.

Just consider: if the average Australian wage earner paid just two per cent instead of their standard 21 per cent, they would be paying almost $15,000 less a year. In its submission to the tax inquiry, the Australian Taxation Office said that more than half of Australia's cross-border trade—or over $300 billion a year—is made up of companies transferring money from their Australian operations to their international arms. More than $115 billion of this revenue was channelled to very low tax jurisdictions. When evidence like this is revealed, how can Australians have any faith in the corporate tax system? Why would Australians feel that they should pay the right amount of tax when others get away with paying next to nothing? Where is the fairness in this system?

It is quite clear that we need to tackle multinational profit shifting and corporate tax avoidance. If we do not act now, Australia will continue to lose millions—or even billions of dollars—in foregone tax. And we know that under this government net government debt is continuing to rise so we cannot afford to let tax revenue continue to drain away offshore. Tax reform for multinational companies is so important because of globalisation and the digitisation of the world economy.

Three of the five biggest companies in the world today are companies that make their money primarily on the basis of intellectual property. This makes traditional tax regimes far more complicated. Digital businesses often do not have permanent headquarters in a physical place where their so-called products are made. So this has made it easier for businesses to shift profits to low-tax or no-tax regimes, regardless of where their profit is really produced. The intangible nature of digital goods also raises issues in pricing transactions within companies. Now more than ever we need to update and close the loopholes that have been created because of these changes in technology and a more globalised business environment.

This bill does focus on companies that artificially avoid booking revenue in Australia so they do not have to pay tax on the profits. It contains four schedules which together make some progress towards tackling multinational tax avoidance. But they do not deal with the issue of debt deductions, which is the main focus of Labor's $7.2 billion multinational tax package.

In this bill, schedule 1 introduces a new concept into tax law—the 'significant global entity'—which will potentially capture up to 1000 companies with annual income of over A$1 billion. Schedule 2 amends the existing anti-avoidance provision to counter instances where multinational firms use artificial arrangements to avoid paying corporate tax in Australia. The maximum penalties for firms involved in tax avoidance and profit-shifting schemes are doubled in schedule 3. As a result of this change, the maximum penalty is 120 per cent of the amount of tax avoided under the scheme. However, these stronger penalties will not apply where the taxpayer has a reasonably arguable position. Schedule 4 implements the Organisation for Economic Co-operation and Development's action plan on transfer pricing documentation and country-by-country reporting.

As Labor's Shadow Assistant Treasurer Andrew Leigh has pointed out, the new Treasurer cannot say how much revenue will be protected by this package because Treasury, as I and others have already noted, has been unable to cost it. As Dr Leigh also pointed out, if Labor had announced a multinational tax package that was not costed—and if we could not say how much revenue would be raised—we would be laughed out of town and out of parliament. And fair enough too. But we will support this bill, because we know we must protect Australia's revenue base. However, we do so in the hope, as I said earlier, that the government will work with Labor to tighten Australia's tax net. Labor's changes, which we announced back in March this year and which are fully costed, can be implemented alongside the changes in this bill. Our multinational tax package contains four measures which, as I have said, are costed and also, importantly they are fair. As I have already outlined, Labor believes in fairness when it comes to people paying tax.

In 2012-13 companies shifted more than $300 billion between their Australian arms to their parent or subsidiary companies overseas. I fear, however, that those opposite are not serious about tackling this multinational profit shifting and corporate tax avoidance. In fact, this Liberal government has already shown its true colours—its top priority on tax is neither about ensuring big companies pay their fair share nor about helping low- and middle-income Australians get a better deal. In fact, the government's top tax priority seems to be helping big companies keep secret how much they really pay.

Only recently this government gutted Australia's existing tax transparency laws. Labor introduced these transparency laws in 2013 in response to growing concern that some big firms were not paying their fair share of tax. Labor's legislation required the Commissioner of Taxation to publish the total income, taxable income and income tax payable of all entities with annual turnover over $100 million. This measure was designed to discourage aggressive tax practices, better inform public debate about tax policy and help combat the risk of base erosion and profit shifting. The first publication of this information, based on the 2013-14 financial year, was scheduled to be released in late 2015. The transparency laws applied to about 2000 of Australia's biggest firms, but the government recently wound these laws back to narrow the scope so that these laws no longer apply to Australian owned private companies. Specifically, those opposite exempt companies earning more than $100 million from the transparency laws if: the company is an Australian resident private company; or the company is not a wholly-owned subsidiary of a foreign corporate group; or the company does not have a level of foreign shareholding greater than 50 per cent. The impact of the legislation is to exempt around 1,000 of Australia's biggest, privately owned companies, including those owned by James Packer, Gina Rinehart, Lindsay Fox and 7-Eleven owner Russ Withers from disclosure.

Labor knows that improving transparency is one important way to tackle corporate tax avoidance. The contrast could not be clearer. Labor believes in holding big companies to account and ensuring they pay their fair share of tax. The Abbott-Turnbull governments believe in hiding them from scrutiny so that Australians never know how much tax these firms really pay. This government's record on corporate tax is one of inaction and hot air. Since coming to office, the only concrete things they have done are reopen offshore loopholes worth $1.1 billion and help big companies keep their tax dealings secret so that Australians never know what sort of corporate tax avoidance may be going on under their noses.

Only Labor has a proud record of firm action in tackling tax avoidance and only Labor has a real plan to address multinational tax avoidance. The Liberals seem to think it is acceptable to hand back more than $1 billion to big multinationals in their last budget, while at the same time cutting the pension and wanting to make young Australians pay $100,000 for a university degree. Those opposite seem to think that it is appropriate to let the big end of town slide, while at the same time blackmailing and bullying the states and territories into increasing the rate of the GST. Instead of coming to this place with a transparent and robust plan to address multinational tax avoidance, those opposite would prefer to soften up the public for a GST increase—an increase which would hurt low- and middle-income earners.

Modelling recently released by NATSEM shows that an increase in the rate of the GST to 15 per cent would require people in the lowest 20 per cent income bracket to pay seven per cent more of their income, while people in the highest 20 per cent income bracket would pay just three per cent more of their income. The same modelling also highlights the problems of funding personal income tax cuts with increases in the GST. The modelling shows that increasing the GST to fund a five percentage point reduction in all tax rates would reduce the progressivity of the tax system even more than raising the GST alone. This scenario would see almost two-thirds of households worse off, with the average impact being negative for the bottom three quintiles and positive for the top two quintiles. That is hardly a recipe for 'fair' tax reform.

We know that an increased GST rate of 15 per cent that is also applied to the basics like fresh food, health and education would be a major hit to the cost of living for Australian families, costing the average Australian family an additional $5,000 every year. Mr Turnbull's plan to increase the GST—and, in so doing, hurt low- and middle-income earners—shows just how out of touch he is with the cost-of-living pressures facing average Australian families. Those priorities are warped and unfair. Yesterday, when asked to define what a fair tax system would look like, Mr Turnbull said:

… I think for Australians [it] means that the burden of tax is borne by those who are best able to pay it ...

I could not agree more. However, the touted changes to the GST do exactly the opposite. They would see those least able to afford it paying the biggest share of their incomes in GST.

If those opposite are serious about tax reform and creating a fair tax system, then they will adopt Labor's plans for fairer taxes on multinationals. Under Labor's plan, tax deductions would be based on a company's entire global operations, not just what they do in Australia. Labor wants to amend the current thin capitalisation rules to reduce the amount of debt that multinational companies can claim deductions for in Australia. Companies would no longer be able to claim up to a 60 per cent debt-to-equity ratio for their Australian operations. Instead, deductions would be assessed on the debt-to-equity ratio of a company's entire global operations.

We also want to better align Australia's rules on hybrid entities and instruments with tax laws in other countries. Standardising the rules will, we believe, reduce companies double-dipping by claiming tax exemptions in one country and tax deductions in another.

Labor also wants to better resource the Australian Taxation Office so it can properly investigate and pursue multinational profit-shifting. The Australian Commissioner of Taxation has acknowledged that additional compliance checks by the tax office is yielding greater revenue from multinationals.

When Labor's multinational tax package was announced, the shadow Assistant Treasurer, Andrew Leigh, said:

We need a tax system that rewards the productive, the innovative, the resilient, the clever and the competitive. We need an economy that rewards hard work in business. The crucial question is not: who do we want to pay more tax? It's: who do we want to win in our economy?

Labor is passionately pro-business, and we want to see individuals and businesses succeeding. More than that, we want to see all businesses—big and small, local and international alike—have a fair chance of succeeding because they are competing on a level playing field where the same rules apply to all.

I implore the government to consider Labor's proposals. I also implore the government to commit to a formal review of this multinational tax bill by 2018, as recommended by the report of the Senate Economics Legislation Committee. The measure in this bill is really an uncosted and untested approach to tackling multinational profit-shifting. Accordingly, it is only proper that Treasurer Morrison commit to an evaluation within three years of its 2016 start date to determine whether it has successfully stopped companies from siphoning profits offshore.

Labor has consistently said that the government's tax package does not go far enough because it does not target debt deductions. But we are supporting the government's bill because we understand that protecting Australia's revenue base is too high a priority for it to be caught up in politics. I hope that those opposite can come to the same understanding and adopt Labor's plan—a plan to really tackle tax avoidance on all fronts.

Ian Macdonald (Queensland, Liberal Party) Share this | Link to this | Hansard source

The Tax Laws Amendment (Combating Multinational Tax Avoidance) Bill implements some measures announced in the 2015-16 budget by the then Treasurer Joe Hockey. Mr Hockey will be well and favourably remembered in this place and in Australia for many things, but perhaps one of his biggest achievements during his time in this parliament was the work he did on addressing multinational tax avoidance laws—not just in this country but throughout the world. I recognise Mr Hockey's leadership at the G20 when this matter became a real issue, and it was a result of the G20 actions in Brisbane, as I recall, that global work started to address what is an issue of great concern not only to Australia but to many, and perhaps most, countries around the world.

I am delighted to be speaking in support of the bill. I hear what the previous speaker says about adopting some measures from the Labor Party. With due respect, the Labor Party was in power for six years—six long years, many Australians would say—and they did not do one thing towards dealing with multinational tax avoidance in that whole time. As an aside, it is a bit like the submarines—they never did anything in relation to the replacement of the submarines. Never was any serious decision made during the six years of Labor government. I appreciate what I take to be the support of the Labor Party on this bill but I do hear with some scepticism the urgings of the previous speaker that we should adopt Labor Party principles. As I say, actions always speak louder than words and it would have been good to see some action by the Labor Party during the six years they were in government.

This bill ensures that multinational companies operating in Australia pay a fair share of tax in Australia. Some multinationals—I emphasise 'some'—are artificially structuring their operations to avoid Australian tax by booking revenue from Australian sales offshore. This means, obviously, that they have an unfair advantage over local businesses and families and small businesses, who have to shoulder more of the tax burden because it undermines confidence in the tax system. There has been a lot of chatter in the last few weeks about tax reform. I want to emphasise that, unlike our opponents, when we talk about tax reform we are not talking about tax reform as an end in itself—the coalition, in having a wide discussion about tax and financial reform across the board, is about helping growth in our country, because growth means more jobs and a better standard of living for all Australians. We are about growth in the economy, growth in business activity, which means growth in employment activity and a better life for all Australians.

The multinational tax avoidance bill will allow the Commissioner of Taxation to treat these large multinationals as though they have a taxable presence in Australia and are subject to Australian tax. I should pay tribute to my colleague Senator Heffernan. Senator Heffernan has been on about this issue for more than a decade. In his own inimitable style, Senator Heffernan has raised this in many forums, with his words often falling on deaf ears. But he has persisted. I do not always agree with everything Senator Heffernan says on this issue, but I do want to acknowledge that part of the reason this parliament is currently addressing this problem is the advocacy work over many years of Senator Heffernan, and all credit to him. I understand he will be speaking later in the debate. I am sure he will say some things I do not agree with, but I do recognise and applaud the work Senator Heffernan has done over many years.

Senator Heffernan used to raise this with me years ago and I used to say to him that I thought we were clever enough to tax multinationals that exported profits overseas. I do not recall the detail, but I thought this was a big issue back in the fifties and sixties. I was only a very young person in those days, but there was this issue, as I recall, about General Motors-Holden's. They were making little profit in Australia but they were exporting profits back to Chicago. I understood that the Australian parliament in those years passed some laws that said we did not really care what they sold the vehicle for—we knew what they should be sold for so we assumed that that was what they had in income, whether or not they had it, and we taxed them accordingly. I remember saying to Senator Heffernan that I knew that had happened in the motor industry back in the fifties and sixties and I could not understand why we were not doing it now. Senator Heffernan had told me that he had spoken to the tax commissioner and there were reasons—which perhaps I never understood and if I did understand them I have forgotten—why that could not be applied more widely. I am pleased to see that this bill will ensure what all Australians want. I assure any listeners that the government is determined to maintain the integrity and fairness of our tax system and to ensure that companies who do operate in Australia, who do have economic activities in Australia, pay Australian tax.

There are some members of the Labor Party and the Greens here, and they might recall that early in the term of the Abbott government there was a surcharge being placed on all individual incomes to try to pay off Labor's debt, which if unaddressed would have approached $700 billion. You will remember that when the Labor Party took office they had $60 billion in credit in the piggy bank for a rainy day. Within a few years, they had blown the $60 billion and run up a debt of $100 billion. It got up to $200 billion and, if it had been unaddressed, it would have reached $700 billion.

One of the ways that the then Abbott government thought we might do something about it was to have a surcharge on incomes of individual people. I spoke against it. If I could have found another to call 'no', I would have voted against that, not because I objected to the surcharge on individual incomes. What I objected to—and as I said in a speech at the time—was that companies, many of which were multinational and many of which had few Australian shareholders, if any, were being let off scot-free. I could not understand that. I said to the Labor Party and I said to the Greens, 'Why aren't you with me? Why won't at least one of you call "no" with me so at least we can have a vote on this?' I repeat, it was not that I wanted to, in any way, avoid the surcharge on high income areas—I was totally in favour of that. But I did want to include multinational companies. I think I gave the suggestion that anyone making more than $5 million profit should pay a surcharge as well. It seemed perfectly reasonable to me. But did I get any support from the Labor Party? Did I get any support from the Greens, who are always on about multinational companies and how they are ripping off the world and how bad these people are? Did I get even a word of support from the Greens in that debate? Of course not. So it always makes me critical, particularly of the Greens. But the Labor Party are in the same category. They are hypercritical of all these stories about rip-offs by multinational companies. Yet when they had an opportunity to do something about it, where were they? They were missing in action yet again. That is the Greens political party all over—hypocrisy, hypocrisy, hypocrisy. If I had 10 hours to talk, I could give you—

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

Tell us about Bob Brown's boat.

Ian Macdonald (Queensland, Liberal Party) Share this | Link to this | Hansard source

Tell you about Bob Brown's boat that was in the Cairns harbour and dropped oil into Cairns harbour in the Great Barrier Reef? Is that what you want me to tell you about?

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

Yes, that is it. That is what you want to tell us about.

Ian Macdonald (Queensland, Liberal Party) Share this | Link to this | Hansard source

Well, if that is what you want to hear, Bob Brown was involved with Greenpeace. They took their Greenpeace ship into the Trinity Inlet in Cairns and dropped some oil into the inlet. Trinity Inlet, for those who do not understand, is just off the Great Barrier Reef. So the Greenpeace ship is the only ship that I have known in recent times that has actually polluted the Great Barrier Reef. Did we hear anything from the Greens about that at the time? Not a word.

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

But we heard it from you. We hear it from you every day.

Ian Macdonald (Queensland, Liberal Party) Share this | Link to this | Hansard source

They were treated leniently by the Cairns magistrate. I think they were find only $15,000. The excuse was they had a new engineer who could not read the English words on the thing and he forgot to shut off some valve or something. I think they were fined $15,000, I might say to the Greens so they can pass it on to their mates in Greenpeace. I was waiting and waiting to see whether they paid that. Wasn't I waiting for the day when the time came that they were going to be arrested! But they did do what they were supposed to do, and they actually paid the fine that was imposed. Perhaps, Mr Graeme Wood would have contributed to it, Senator Whish-Wilson—you know, the guy who supported the Greens political party with the biggest ever private donation to any political party in the history of Australian politics. He is a certain gentleman who I have known. I do not particularly blame him. But he gave it to the Greens who, with their normal hypocrisy, slag anyone else who receives donations from private sources. But when they are the recipient of the biggest ever individual political donation of any party at any time in Australian history, then that is okay. That is just the hypocrisy. But I have distracted myself because of the interjections.

The government is leading this fight against multinational tax avoidance. I mentioned that Mr Hockey was president of the G20 in 2014. I am very proud about this. We led the global response to tax avoidance. Last year, the government did strengthen our defences against tax avoiders by tightening our thin capitalisation rules and limiting the scope for multinationals to claim excessive debt reductions. We did already have some regulations in place, but they were being avoided. This measure that we are dealing with today is only one part of a package. This bill will also implement country-by-country reporting, which was a recommendation by the OECD and the G20, and it will increase the penalties for those engaged in tax avoidance and profit shifting. As we announced in the 2015-16 budget, the government is actioning four key G20 OECD recommendations that came out of that 2014 conference. In addition to implementing country-by-country reporting, the government is consulting on rules targeting hybrid mismatches and is taking action on harmful tax practices and treaty abuse rules. Although Australia does not engage in harmful tax practices, the ATO has commenced exchanging information on secret tax deals provided to multinationals by other countries that may contribute to tax avoidance in Australia.

In relation to treaty abuse, the government is taking action to incorporate the OECD's recommendations into our treaty practice. We are also taking further steps to increase public disclosure through the development of a voluntary transparency code by May 2016. That code will enhance public confidence in the tax system and the community's understanding of the tax affairs of large companies. The government is also ensuring that the tax office has unprecedented resources to deal with international tax avoidance. That is very important because adherence to these rules is something that is not cheaply gained. It does require resources and the government has provided an additional $87.6 million to the ATO to investigate international tax avoidance. To date, the program has raised over $400 million in tax liabilities—not bad for an investment of an additional $87 million. The additional investigative and compliance work of the ATO has raised over $400 million, so that is pretty good, and it is estimated that this action by the ATO will raise $1.1 billion in total.

This is a bill that I hope has multi-party support. It is something that, as I say, some of us in this chamber, particularly Senator Heffernan, have been talking about for more than a decade. This is a first step towards addressing those issues and I encourage all senators to support it.

Joe Ludwig (Queensland, Australian Labor Party) Share this | Link to 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.

Chris Ketter (Queensland, Australian Labor Party) Share this | Link to this | Hansard source

I rise to make a contribution in respect of the Tax Laws Amendment (Combating Multinational Tax Avoidance) Bill 2015. Before I go into my prepared comments I cannot miss the opportunity to respond to the contribution of Senator Macdonald earlier in the proceedings. Senator Macdonald generally makes contributions that I find somewhat entertaining. I note that Senator Macdonald is occasionally prone to the odd rhetorical flourish and some extent of hyperbole, but when Senator Macdonald comes into this place and makes some comments that are blatantly factually incorrect, then one cannot allow the record to remain uncorrected.

At the outset of his contribution, Senator Macdonald made the comment that during the course of the previous Labor government no attempts whatsoever had been made to do anything about multinational tax avoidance. As Senator Ludwig has just alluded to in his contribution, there are some examples of the contribution that Labor has made in seeking to address this area. In 2012-13 the Labor government introduced the Tax Laws Amendment (Countering Tax Avoidance and Multinational Profit Shifting) Act 2013, which plugged loopholes in Australia's transfer pricing rules and anti-avoidance provisions. Perhaps Senator Macdonald should go back and have a look at that provision.

The interesting thing to note about that is that, in opposition, the coalition voted against these measures, which is quite extraordinary, and I know other speakers have made reference to the particular fact that there have been some conflicting positions put by the coalition. In fact—and I think it has already been referred to, but I cannot resist the opportunity to reiterate the point—when we sought to tighten the provisions of part IVA of the Income Tax Assessment Act in 2013, Mr Hockey announced that our reforms were:

… an unnecessary overreaction. More red tape for business—when is it ever going to stop? More compliance costs for business—when is it ever going to stop?

We know that the coalition has been, in my opinion, dragged kicking and screaming to the current debate. They accept, because of movements internationally, that there is a need to do something.

As I stand here today, the opposition is not opposing the approach being put by the government. But I think it is fair to say that our approach is tinged with disappointment because there is so much more that could be done in this space. When we have an environment where there is a bipartisan mood to address this issue and to do it in a much more comprehensive manner, the coalition has really dropped the ball and is doing, one could argue, as little as possible in this area.

I want to reflect on the fact that, in the spirit of bipartisanship, the Labor Party has offered a fully costed and carefully calibrated package of measures that would keep $7.2 billion worth of tax in Australia over the next decade. We talk about having a 'budget emergency' in the 2014 context, and this was something that was offered as a genuine attempt to address not only the budget issues but also a real problem in our taxation system. The Labor package included changes to the arrangements for how multinational companies claim tax deductions, greater compliance work by the ATO to track down and tackle corporate tax avoidance, cracking down on multinational companies using hybrid structures to reduce tax, and improved transparency and data matching. This approach has been costed and we know that the approach proposed by Labor would work. It is a responsible approach in this area. Unfortunately, the coalition has seen fit to reject it and has gone down a different track.

As I indicated, we do not oppose this bill, but we do express our extreme disappointment that the opportunity for something more substantial to be done has been lost, particularly when we have the groundwork that has been laid by the Senate Economics References Committee, which looked at this issue over the past 12 months, and when the community sentiment is that something more significant needs to be done. Unfortunately, this is not evident in the bill that we have before us.

Taxation avoidance by global companies operating in Australia is a scourge that must be eradicated. The globalised nature of the world economy has led to a natural tendency for corporate giants to operate on a global scale while exploiting the opportunities presented by national taxation systems. The problem is pervasive and extensive, and it is hard to disentangle global supply chains to work out where profits are actually generated. Some technology companies are able to seamlessly operate on a global scale and reap massive profits through internet based businesses that are not visible to the local tax authority. Even the production of goods—TVs, mobile phones, cars et cetera—is performed through a global production system where it is difficult to track where the production of individual components occurs, where value is added, where loan finance is raised and paid, and where marketing operations are based and so on. We know that companies adopt financial strategies that shift most of the earnings of the wealthiest companies operating in Australia to other jurisdictions where their tax burden will be lower. The issue is to ensure that the tax that they pay in Australia is representative of the profits they earn in Australia.

Evidence has come to light that multinational companies in Australia have been using cost-shifting strategies to avoid paying tax in Australia. As a member of the Senate Economics References Committee, I have had the privilege of being present in a number of the inquiries where, for example, the tech companies were involved. These companies are the subject of the Senate Economics References Committee's report. Firstly, I want to touch on one company. It was very, very disappointing to me as an Apple customer to see what I considered to be the fairly aggressive taxation planning approach by this company operating in Australia. We know from what has come through the committee that Apple paid just $80 million in the 2013-14 financial year on local revenue estimated at around $6 billion. That compared, as we know, with the Australian company Harvey Norman, which paid $89 million on revenue of $1.5 billion. These examples have electrified the community. We have seen people outraged by these examples of aggressive taxation planning. We also saw Google come forward and provide information about their approach, which involves offshore arrangements for profit. Another example is James Hardie, which managed to record a net taxable loss, despite annual profits of over $200 million and being able to pay $600 million in dividends to its shareholders over the past two years. Then there is the mining company Glencore. It is alleged that Glencore paid no tax in Australia over the past three years despite earning revenue of $15 billion.

Tax avoidance is an issue that affects everyday Australians. It is not an academic debate and it is not an arcane technical debate; it is a debate which has real impact on ordinary Australians. Firstly, the tax raised as revenue for Australia needs to fund all of the services that keep this great country of ours going. Multinationals operating here are taking advantage of our world-class education system, communications, electricity, roads, bridges and basic services. Without these we would be an impoverished society that would not generate the profits that are able to be earned. Now we have a situation where the burden of tax is falling on local families and businesses disproportionately. While everyday Australians are faithfully paying their fair share of tax and buying the products that multinationals are selling, they have no idea that every cent that they spend is leaving the country for good. To take the James Hardie example, their loss is claimed as a tax deduction linked to the compensation fund set up for the victims of asbestos—something they tried to avoid altogether, and now Australian taxpayers are subsidising James Hardie's compensation to asbestos victims.

What do we need to do about this? We only heard this week about another resource company operating in Australia which is able to avoid tax in very substantial measure. The proposed multinational anti-avoidance law would force multinational companies with significant interests in Australia to pay their fair share of tax. At this stage, 80 large multinationals have been identified as having significant activities in Australia. These companies will have to report to the ATO fully on their economic activities in Australia and will be forced to pay tax on profits from these activities. While this is a step forward, we in the opposition would like to see more done to prevent the strategies that make tax avoidance a possibility in the first place. At the moment we are simply addressing the symptoms of the problem when the ATO notices something is not right, but we would like to see more done to restrict the types of transactions that are used in the first place.

The PBO's work indicates our package would add $7.2 billion to the budget bottom line over the coming decade. We do not have access to the financial records of international mining companies, so we will leave it to the ATO to decide how much tax they would be paying when significant projects came online. These reports highlight the need to look closely at the role debt deduction plays in complex multinational tax structures. Labor's package targets these deductions because they provide a way for companies to shift profits from Australia to low-tax jurisdictions overseas. So far the Abbott-Turnbull government has refused to even consider closing these loopholes. Their only answer is to jack up the GST. Labor is supporting the government's multinational tax bill through the parliament because we believe protecting Australia's revenue base should be above party politics. The government should take the same approach and urgently implement Labor's $7.2 billion package.

I want also note that, given that we are adopting an approach which is untested throughout the world, we believe that there is a need for this untested approach to be reviewed at the appropriate time. We are saying that the government should commit to a formal review of the bill by 2018, as recommended by the Senate Economics Legislation Committee recently. The committee's report, which I recommend to senators, reflects Labor's reservations about the government's untested approach to tackling multinational profit-shifting. The committee's report recommends that the bill be evaluated within three years of its 2016 start-up date to determine whether it has successfully stopped companies siphoning profits offshore. With Treasury unable to say how much revenue the government's plan might return to Australia and no other country having successfully implemented Australia's approach, it is right that the tax bill should be subject to serious evaluation in the future.

A review of the bill would touch on a number of issues. We would need to look at how many successful tax avoidance cases the ATO has concluded under the new rules. We would want to know how much additional revenue has been collected in Australia because of the new rules and we would like to know how much time and money the Australian Taxation Office has spent in court pursuing cases under the new rules. Also, we would want to know how many disputes or conflicts with foreign tax laws have occurred as a result of the new rules. We call on the Treasurer to make a public commitment to carry out this review and name the date by which it would be completed. Labor has consistently said that the tax package does not go far enough because it does not target debt deductions.