Nick Xenophon (SA, Nick Xenophon Team) Share this | Link to this | Hansard source

Prior to question time, I was speaking about Apple and how, through Apple Sales International and a tax haven in Ireland, it can get away with an average tax rate of just four per cent. The huge multinationals Facebook and Google seem no different. Although Google earned an estimated $2.5 billion in income from local Australian online advertising in 2015, it only declared revenue in Australia of one-fifth of that. Google paid just $16 million of tax that year, a paltry 0.64 per cent of its estimated revenue of $2.5 billion. This means that Google is only paying $1 in tax for every $157 they earn in revenue. This is a tax rate that any person in this chamber, and certainly any Australian, would either be envious of or appalled by, or maybe a bit of both. It is wrong, and it needs to change. Facebook Australia is wholly owned by Facebook, its parent company in the United States. By market capitalisation, Facebook is a $400 billion company, and it makes more than $1 billion in profit every three months.

These figures are absolutely staggering in their size. Yet, in 2015, Facebook Australia's gross revenue figures were reported to be a measly $33.5 million. Investment bank Morgan Stanley estimated that Facebook Australia actually earned between $500 million and $600 million from advertising in our country in 2015, yet Facebook Australia only paid $814,000 in tax. Many would find that absolutely disgraceful.

Facebook, Google, Apple and a plethora of other multinationals are absolutely dudding the Australian people. So, what can we do? Well, a diverted profits tax is an important reform to ensure companies in sectors like high-tech and pharmaceuticals are not able to shift profits offshore by using schemes like having inflated charges for their intellectual property located in low- or no-tax jurisdictions. This deals with that intellectual property being based offshore in order to avoid paying tax.

When it comes to a company like Facebook, we have another problem—one that will not be dealt with by the diverted profits tax, and one that ought to be dealt with sooner rather than later. This applies to Google as well. That is a business model where local news content is being overtaken by news content hosted and driven by an offshore company, where that offshore company does not have to follow the same rules and regulations, such as local media content standards, as onshore-based news content makers and distributors. Effectively, these companies can cannibalise Australian media content paid for by Australian media companies employing journalists, whether it is TheGuardian, News Limited, Fairfax, the television networks and a whole range of other media companies that have a strong Australian presence here; and whether they are locally owned or overseas offshoots of media companies that do provide a lot of local content, such as Guardian Australia, BuzzFeed and Huffington Post.

We need to level the playing field, and one way that can be done is to have a withholding tax that is targeted at the revenue generated by online news content makers and distributors operating in Australia but based offshore. I note that the European Union is now looking at changing modern EU copyright rules for European culture to flourish and circulate, and we ought to look at what is happening there. The European Commission's press release issued out of Strasbourg on 14 September 2016 indicates the level of concern that the Europeans have in relation to this. Any withholding tax should be set at a rate that means these companies are making a payment on the revenue they generate and will have a sufficient amount to be able to cover their costs and still have a reasonable profit, but they need to be transparent about it. This is something that is posing an existential threat to Australian media in this country. If the withholding tax is at too high a level in a year, then the company can apply to the ATO to demonstrate that, and be able to gain a refund so that they are not having the withholding tax eliminate their profit altogether or even eat into the revenue needed to pay for their costs.

The reason why this is not covered by regular corporate tax is that this is not revenue going to their Australian arm, so regular corporate tax will not capture the profits made by the company. The reason why this may not be captured by the diverted profits tax is that this is likely to be a regular transaction—in other words, it is not one designed to avoid paying tax on their profits in Australia but a genuine transaction by customers to their offshore company.

When you consider that, for every new online advertising dollar, 90c of that is going to Facebook and Google, that is almost a duopoly the likes of which Coles and Woolworths would be envious of. That is something that needs to be dealt with. It cannot be dealt with in the context of this bill. It ought to be dealt with in the context of media reform laws in this country, but it is indicative of the approach in this bill that there may be a useful way forward, looking at the approach that the government has had in respect of the diverted profits tax.

These measures in this legislation are an important step in the right direction. They are a step towards ensuring that everyone who directly benefits from the Australian economy pays their fair share of tax so that those who do the right thing do not have to bear an unfair burden compared to those who do not.

Mathias Cormann (WA, Liberal Party, Minister for Finance) Share this | Link to this | Hansard source

Firstly, I would like to thank those senators who have contributed to the debate on the Treasury Laws Amendment (Combating Multinational Tax Avoidance) Bill 2017 and the Diverted Profits Tax Bill 2017. The legislation continues the government's strong stance against multinational tax avoidance. It implements three new measures announced in the government's 2016 budget. Most taxpayers, of course, comply with Australia's tax rules and pay the right amount of tax. However, there are some who do not. There are some who try to avoid paying Australian tax by diverting Australian profits to low-tax countries. The measures in this legislation will help ensure that the Australian tax payable by significant global entities properly reflects the economic substance of the activities that those entities carry on. This legislation also encourages multinationals to provide relevant information and cooperate with the ATO to ensure faster resolution of tax disputes.

The diverted profits tax will strengthen Australia's anti-avoidance rules and complement our transfer pricing rules by targeting multinationals who enter into agreements with offshore related parties that lack economic substance to avoid Australian tax by diverting profits to lower tax countries. It is expected that the diverted profits tax will apply in very limited circumstances. Most companies do the right thing and meet their tax obligations. The diverted profits tax is focused on tax avoidance arrangements that are artificial or contrived.

The diverted profits tax will, firstly, allow the commissioner to impose the diverted profits tax on the basis of a reasonable assessment of the available information and, secondly, impose an up-front tax liability payable on the amount of the diverted profits at a penalty rate of 40 per cent. Thirdly, where a multinational challenges a diverted profits tax assessment through an appeal to the Federal Court of Australia, it will generally be unable to introduce information that was not previously made available to the ATO.

We will also introduce tough penalties for multinationals who fail to comply with their tax-reporting obligations. From 1 July 2017, large multinationals that breach their tax-reporting obligations will now face penalties of $525,000 rather than $5,250. The increase is much more in line with the financial size and capacity of large multinationals and will provide greater incentive to comply with their tax-reporting obligations.

The transfer pricing rules will also be updated to give effect to the 2015 OECD transfer pricing recommendations. These changes will ensure that our transfer pricing rules remain in line with international best practice and, together with the diverted profits tax, will help ensure that profits made in Australia are taxed in Australia.

These changes also send a clear message to multinationals and the international tax community that Australia is absolutely committed to combating multinational tax avoidance. We continue to be a leader on the world stage in this regard. We have been at the forefront of international progress in implementing the OECD's base erosion and profit-shifting agenda. We have been an early adopter of the Action Plan on Base Erosion and Profit Shifting recommendations and are taking steps to ensure that our rules not only comply with our agreed minimum standards but are effective across all BEPS issues. We continue to implement the OECD Base Erosion and Profit Shifting Package and are currently progressing work on new rules to enhance the ATO's ability to detect tax avoidance by requiring advisers to report aggressive tax schemes to the ATO.

The government is taking a strong and world-leading but balanced approach to multinational tax avoidance. The Turnbull government has said that enough is enough when it comes to multinationals diverting profits offshore and failing to meet their tax disclosure responsibilities. I commend this legislation to the Senate.

Question agreed to.

Bills read a second time.