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Economics Legislation Committee - 22/10/2014 - Estimates - TREASURY PORTFOLIO - Australian Taxation Office

Australian Taxation Office

[17:43]

ACTING CHAIR: Welcome, Mr Heferen and officers from the Revenue Group of Treasury and the Australian Taxation Office. Would either Mr Heferen or the Acting Commissioner like to make an opening statement?

Mr Heferen : No, thank you.

Mr Olesen : No, thank you.

Senator DASTYARI: Thank you for all being here. I acknowledge and appreciate that we are running a little bit late at the moment. I acknowledge we have received correspondence from Mr Jordan, who made it quite clear that he is at a summit in Geneva.

Mr Olesen : He is at the Forum of Tax Administration in Dublin.

Senator DASTYARI: Mr Mills, I am sure you are aware there has been a fair bit of public discussion recently around matters relating to multinational taxation. I am also sure you know that part of this committee is going to conduct an investigation into these matters.

Mr Mills : Yes.

Senator DASTYARI: I assume that the ATO will be making a submission to that inquiry.

Mr Mills : I believe we will, yes.

Senator DASTYARI: I do not want to cover too much ground that we are going to cover as part of that process, because there is an appropriate channel to go through that. What I wanted to ask, because I think this is something that is on a lot of people's minds at the moment, is: how is it the case that you can have Australian registered corporations that are paying an effective tax rate of zero or close to zero per cent?

Mr Olesen : I can take the lead on that question and we can move around as necessary. There has been a pretty big debate on that, and what I wanted to start by doing is, firstly, deal with the impression it creates that large public companies in Australia are not meeting their obligations under the tax law. Secondly, the impression it creates that we are not active in that space. Thirdly, the impression that we may not have the capability to do our role properly in that space. Now, none of those three things are true. What concerns me about the debate around that is the impression it can create that corporates are not paying their fair share of tax, because perceptions like that are quite damaging for other people who might see their own taxpaying behaviour. I am not saying that there is not a risk.

Senator DASTYARI: You acknowledge there is a problem?

Senator Cormann: Can we just pause. I think it is going to be very important for Mr Olesen to be able to provide a proper answer.

Senator DASTYARI: Shall I treat it as an opening statement?

Senator Cormann: If I can just put a bit of context here. I assume that your line of questioning is based on the paper that was released by the Tax Justice Network and United Voice?

Senator DASTYARI: Not just that.

Senator Cormann: There were some fundamental flaws in that paper. For example, it considered what effectively was gross revenue to assess the tax that was paid rather than actually considering the proper corporate tax base. You have to make sure that you do not try to draw conclusions from that. There are issues that need to be dealt with, but it is very important for these sorts of debates to be properly informed, so it is going to be very important for us to know what you are basing your decisions on.

Senator DASTYARI: I have not made any reference to anything.

Senator Cormann: You did talk about zero per cent tax.

Senator DASTYARI: What I said was that there has been an ongoing public discussion where others, including the Treasurer, have been very vocal. The Treasurer has been very vocal on this himself, and I note that the correspondence this committee wrote to some of the largest Australian corporations cited and actually included a copy of the Treasurer's speech on this matter.

Senator Cormann: The government is very committed to ensuring that all companies that generate profits in Australia pay their fair share of tax in Australia. Nobody is disputing that. But when you make an assertion such as companies are paying around zero per cent tax, then obviously you need to be able to source that. The only recent report that I have seen make a claim such as this one was a very low quality report that was released by the Tax Justice Network and United Voice.

Senator DASTYARI: Mr Olesen, I think you were going through giving a broader explanation. The point I want to make, as you make that explanation, and the point you are making, which I think is actually an important point, is there is a distinction between the question of legality and the question of appropriateness. That is where the debate falls as well. I want to go back to ask the question: what kind of measures and tools are out there to allow these Australian based companies to be paying such low levels of tax in some cases?

Mr Olesen : The point I was trying to make is that I am worried about the perception it creates for the rest of the community that people are not paying their appropriate share under the laws as they stand. That is an unfair impression to leave, and a damaging one from a tax administrator's point of view, because perceptions of fairness of the system and how it operates with people paying their fair share is an important element of the success of any tax system.

Where I was going to go next on that is that companies pay tax at 30c in the dollar on their taxable income. To the extent that some conclusions are drawn about rates of tax, having a look at accounting profit as opposed to taxable income is meaningless to the extent that taxable income and accounting profits are two fundamentally different concepts, so you cannot draw a conclusion.

Senator Cormann: That is a very important point.

Senator DASTYARI: I am not disputing that.

Senator Cormann: It is a point that the Tax Justice Network and United Voice missed.

Senator DASTYARI: That is a matter for them.

Mr Olesen : The next layer of that is then to say, why are they different? There is a whole range of reasons why taxable income as defined in the tax laws is different from accounting profits. There is any number of reasons. It can be, for example, timing differences around capital allowances, or it might have to do with exempt foreign dividends, or it might have to do with express concessions in the tax law, say, around offshore banking units. It might have to do with trusts and the way that income flows through trusts. There is any number of reasons why you get a big difference between accounting income and taxable income, but the truth is when you are looking at taxable income all companies pay tax at 30c in the dollar.

Senator DASTYARI: Is there a problem with Australian companies and international companies operating in Australia using tax minimisation schemes—I am not saying they are breaking the law in doing this, but to find avenues to minimise their taxation; is this a major problem?

Mr Olesen : As you would appreciate, our role is to administer the existing set of laws. There is a range of risks we look at, and we allocate our resources according to the risks we see. Absolutely we see risks in multinational enterprises and Australian companies that have offshore operations in those dealings. That is not because there is necessarily anything inappropriate, but there are complications, and reasonable minds can differ on how Australia's tax laws apply when you have international dealings. For example, we are interested in prices that get set for trades in goods and services. We are interested in the price set for the transfer of intellectual property offshore and the royalties that might be charged for access to that. We are interested in debt levels, because Australia has some rules around interest deductions. We are interested in a whole range of things like that, and we can see through the data that we have access to there are reasons for us to keep a close eye in those areas, which we do.

Senator DASTYARI: Can you explain what you mean by that? What data?

Mr Olesen : If you look at some of the analysis that I have seen, if you look at the growth in international trade at an economic-wide level in Australia and you compare the growth against some of those items that we can see that is happening between related parties, we can see there is sometimes a mismatch between the related party growth in certain flows and the equivalent growth that you would see at an economy wide level. So, when you see that kind of differential it gives you cause to go, 'Maybe we need to have a closer look and be satisfied that those flows and the mismatch are appropriate.'

Senator DASTYARI: Is it a problem?

Mr Olesen : It is a risk.

Senator Cormann: I need to intervene here again, because I am looking at your press release with the shadow Assistant Treasurer earlier in the week, which stated, 'This week the committee chairman, Senator Sam Dastyari, has written to a range of major firms which have been alleged to pay as little as 10c in the dollar on their local earnings.'

Senator WONG: Point of order. Is this an answer?

Senator Cormann: I am responding to the question.

Senator WONG: Is this a response? This sounds like a statement, not an answer to a question.

Senator Cormann: I am providing context.

ACTING CHAIR: A point of order has been raised. Do you want to speak to the point of order?

Senator DASTYARI: Let's just deal with the matter.

ACTING CHAIR: I think the minister is responding to matters that were raised.

Senator WONG: It is always very important.

Senator Cormann: It is very important for you to have the right context. Senator Dastyari, the only organisation that has made such a claim is the Tax Justice Network, and it is an erroneous claim, because they inaccurately and inappropriately mixed up different concepts of profit in order to come up with misleading representations.

The other point I would make is that what was obvious in that particular report is that in Australia we actually rank second highest in the OECD behind Norway when it comes to company tax revenue as a share of overall revenue. If there is a proposition somehow that there is a general problem with the level of revenue that is raised from company tax, that is not accurate. There are always issues.

The next important point to make is that Australia's anti-avoidance laws are amongst the toughest and the most stringent in the world. Having said that, of course there are always developments in the market. There are always risks at any point in time that need to be managed, and of course the tax office deploys all of its professional skills to ensure that these risks are properly managed. If there are policy and systematic issues the government works very hard to address them even as required, and we are, of course, providing leadership in that regard. The Treasurer, Joe Hockey, is providing leadership in that regard through the G20 presidency as we speak.

Senator DASTYARI: Thank you for that political intervention.

Senator Cormann: I was being helpful.

Senator DASTYARI: I am sure you were.

Senator Cormann: Your questions are not political questions, are they? You are not making political assertions?

ACTING CHAIR: Senator Dastyari, you have the call.

Senator DASTYARI: You used the term 'risk'. Further to that, you also raised concern in your opening remarks about the perception it creates, and a perception that companies are not paying their fair share of tax in Australia. Do you also accept statements by Richard Goyder and others that it also fundamentally hurts the confidence if there is a perception or view—

Senator Cormann: 'If' there is? That is a hypothetical question, as Senator Wong very helpfully outlined earlier. You cannot ask hypothetical questions.

Senator DASTYARI: I did not realise that this issue of multinational taxation had suddenly—I thought there was bipartisanship on this issue, which suddenly seems to have disappeared when your comments are so at odds with what the Treasurer has been saying about this.

Senator Cormann: The Treasurer and I are completely at one, but the standing orders of this committee require that you do not ask hypothetical questions.

ACTING CHAIR: Senator Dastyari, please do not debate this.

Senator Cormann: You intervened before, Senator Wong.

Senator WONG: Just ask him to rephrase the question.

ACTING CHAIR: Senator Wong. Senator Dastyari has the call. Please ask a question.

Senator DASTYARI: What recent steps has the ATO taken to increase its activity on this issue around multinational taxation?

Mr Olesen : We have taken significant steps.

Senator DASTYARI: I note the Treasurer said last week or the week before that he was going to ask the ATO—and I am quoting him here at the moment, but my words may be off by a word or two—that you were going to double your efforts.

Mr Olesen : Yes. We have a very significant program running at the moment to examine international restructures and potential profit shifting arrangements that are happening amongst Australian companies and multinationals operating inside Australia. We have been through that exercise focusing very heavily on the available data that would give us an insight to the level of risk that might exist in that area. We are working quite systematically through those risk assessments and as we work through those risk assessments there are some of those groups that we are looking at that we will be commencing audit activity on. That is a significant ramping up from what we had been doing previously. That has happened over the last couple of years and we are in the midst of that program at the moment.

There are other activities that we have done. We have been working very actively with other revenue authorities around the world to understand better and share intelligence between ourselves about the different business models that are used by so-called ecommerce companies.

Senator DASTYARI: To minimise their taxation?

Mr Olesen : The tax planning that they use around the globe; that is right. We have been understanding through cooperative efforts with other revenue authorities to better understand those business models, and that has helped us enormously in the work we do locally to have a close look at how those business arrangements are in fact operating. That is another thread to what we are doing.

Senator WHISH-WILSON: Isn't the issue that some of these avoidance measures taken through tax planning are not actually illegal and that we have to look at ways of perhaps changing legislation or rules and regulations? There are all these loopholes in different countries.

Mr Heferen : If I could intervene. I think it is important in this discussion, given the overall importance, as acting Commissioner Olesen has said, the impact or the effect that it might have on people's confidence in the system to have the concepts clearly separated. Clearly in the international debate led by the G20, and supported by the OECD, there is the work at the multinational corporation level, and the issue that the world finds itself in with a range of large multinationals parking money in tax havens, not repatriating that back on shore and then utilising conflicting rules. The common case often argued is with the United States and with Ireland about tax residence and where the taxpayer needs to remit tax, and then you have large multinationals that have a zero rate of tax but clearly make profit.

Mr Olesen : Yes.

Mr Heferen : So, there is that issue, which Senator Whish-Wilson was getting at, but my urge to this committee and any other committee that follows it is to conceptually separate that from observations that there are Australian companies on the ASX 200 that have a zero or 10 per cent rate of tax. It has nothing to do with that issue. It is all about, well, they did not make any profit so they should not pay tax, or they made some accounting profit but because of their accelerated depreciation or their research and development or their carried forward losses or their foreign source income they are actually not subject to tax. The report that talks about zero and 10 per cent tax rates is actually an analysis of what is an appropriate tax treatment for those, given the tax system we have.

Senator Cormann: We have reached an appropriate conclusion.

Mr Heferen : It is a separate issue from the one I think we are getting at. The worry where I sit, the same as where the ATO would sit, is that when they conflated on one hand you have got some that looks pretty egregious and, on the other hand, you have got, 'Well, this is how the system ought to work.' When they are conflated, because they are so difficult, complicated and hard to pick apart, it can colour the debate.

Senator CANAVAN: I have a follow-up on that. I know a few years ago Treasury made a lot of comments about the effect of the economic downturn on accumulated losses and its subsequent effect on tax, particularly corporate tax revenue. How is that washing through the system now? Is that still impacting on companies' liability for tax, those forward tax losses, accumulated over the years?

Mr Heferen : I am sure there are still some companies that will have losses that are still being carried through the system and, of course, there will still be companies that post the GFC would still make losses in a particular year. With those losses, of course, the company has to carry those losses forward to a future year under the tax system until they have the profit to offset that against, and so there would no doubt be an element that would carry over from the GFC and there would be some generated in years after the GFC.

In an accounting profit sense those losses are accounted for then, but in the tax world they have to be carried forward. Hence you can easily see a situation where a company in a particular year, and particularly as some reports have looked at, say, in the 2012-13 year or the 2011-12 year, would be at the sharp end of still having to account for their carried forward losses.

Senator CANAVAN: So, given that relationship any analysis which relied on gross profit and not taxable income would have even larger errors given the recovery process?

Mr Heferen : It is more fundamental than that. It is not just an error. It is just comparing an apple with an orange and not being about fruit. With accounting profit and taxable income for some businesses some of the time there could be a degree of similarity, and, in fact, a recent report said that if you used accounting profit a lot of firms are earning 26 per cent rather than 30. I must confess I was surprised it was so high. But when you get right down to it, there are intended significant differences. Research and development tax concessions are a classic. Accelerated depreciation is another standard. The carried forward loss is another one.

For our ASX 200 companies, for the large ones, what would be critically important would be the fact that if they have foreign income, so they have an investment overseas, when the dividend comes back it typically would have been paid in the other country, so when it comes into Australia it is treated as non-exempt, non-accessible income. Yet from an accounting profit point of view, it could still show up as a profit. Once you go to that level then it is a situation where for a company to work out its taxable income, which starts with the accounting profit and then says, 'What do we need to deduct?'. The other one is interest cost.

Senator CANAVAN: Is it your understanding that the Tax Justice Network report did not cover those factors?

Mr Heferen : It did not go anywhere near them.

Senator Cormann: They did not look at taxable income, because if they had looked at taxable income it would have shown that these top 100 ASX companies actually paid the corporate tax rate of 30 per cent. That was very misleading.

Senator DASTYARI: The point that is being made that I think needs to be explored, and I think a point future meetings of this committee will explore—but let us be clear here with what we are not saying. No-one here is saying or making the allegation that at this point there were not deductions that were legitimately able to be made to allow some of these companies to pay an effective tax rate that is quite low. We will leave it at that, because we are going to explore it. You said there were two separate things. There is the international multinationals that are well documented, the Googles and the Apples of the world, that use international lawyers and structures to minimise tax. Back in the day it used to be the Cayman Islands and now it seems to be Ireland.

Mr Heferen : It is still the Cayman Islands. Ireland is just part of that.

Senator DASTYARI: Then, on the other hand, you have Australian firms that make a series of deductions. The point you are making is that they are legitimate deductions in that they are deductions that exist in the current tax regime. The question is: is there an exploration or at the moment as part of the tax white paper process that we are going through to look at what these currently legal exemptions are to look at ways in which we can ensure that they are not being misused tactically by firms to pay less tax than they otherwise would even though they are not committing a crime by using those loopholes?

Mr Heferen : The government and the Treasurer are starting to think about the process for the white paper, but as far as the white paper goes in relation to corporate tax the sorts of things that are commonly used to convert accounting profit to taxable income are not really the sorts of things that a white paper would examine, such as the ones I listed before—research and development tax breaks, accelerated depreciation, which I must say in the Australian system is pretty well cleaned out. The Howard government's response to the Ralph review back in 2000, when the rate went from 36, 33 down to 30, the big trade-off there was broadening the base and reducing the rate. A lot of the accelerated depreciation is out of the system. There is still a bit for oil and gas pipes, tractors, planes and buildings, but I think people who work in this area, either tax experts or public policy people, are pretty content that that is probably a sensible spot to be. In essence, like the 30 per cent rate, there is still an element of arbitrariness about them, but they have landed in a spot and they have been there for quite a while.

I guess the main one that you might be alluding to would be interest deductions, where those interest payments are to a foreign parent. In those cases I do not think anyone would run an argument to say our corporate tax system should disallow interest deductions. The question is: how much should that interest payment be? That is when it falls back into the transfer pricing rules.

There is a case at the moment that is in the press—and I will not name the company—but there is an active dispute with the commissioner at the moment about whether the interest payment back to the parent was commercial, at arm's length or too high, and the current rules facilitate that. When you think about a reform, there is really no reform there to be had. There is a question of maybe better documentation, and clearly the country-by-country documentation. That is an issue that the G20 has on its work program.

Senator DASTYARI: I will have to pull you up there. Just to go back. You said there is not a reform that needs to be had?

Mr Heferen : Yes.

Senator DASTYARI: So, your belief is that the current Australian taxation deduction regime, as it applies to domestic Australian firms, needs no reform?

Mr Heferen : I do not want to pretend that I am in the world of the policy making as opposed to policy advising. Clearly that sort of thing rests with ministers. I was making the observation when one thinks about a reform, like a change in the way something is done, whether the write-off period should be 10 years or five years for something is not really in that world. These are arbitrary things. So, a black hole deduction, for argument's sake. A capital payment where there is not a depreciable asset written off over five years, which I think is the black hole. If you took it to 10 you would raise money; if you took it to one you would give away money.

Those sorts of things are not the kinds of things that you would examine through a reform process, but they might be the kinds of things that governments look at to say, 'Does this need for examination?' All governments, ever since I have been doing this, would examine those issues.

Senator Cormann: The important point here is that we are actually, right now, trying to pursue a budget measure of the previous government, which is to ensure that tax deductions for research and development are appropriately targeted and do not go to the biggest companies and that they can't deduct excessive costs. But the Senate of course right now, the opposition and the Greens, are not facilitating passage of what was a Labor initiated budget measure to limit tax deductions for research and development to make sure it is more appropriately targeted. There is a whole range of deductions. That is the whole point. That is about protecting the taxpayers.

Senator WONG: That was part of the Gonski school funding, which you have walked away from. He wants to make a political statement. It is another broken election promise, and thank you for your drawing everyone's attention to it.

Senator DASTYARI: Mr Heferan, I will take a step back. You initially said that there were two sets of issues when it comes to taxation. You said that there is a multinational tax avoidance structurally huge problem, well documented, G20 is trying to deal with it, and hopefully there can be a way—you are herding cats. Park that to one side. That is a big problem and that is acknowledged to be a big problem. But your submission is the domestic problem with Australian firms. You can look at their accounting profits and you are saying that there is a difference between the accounting profits and taxable income. The point being that the concern that some of us have and that we want to explore is that what constitutes taxable income involves a whole set of deductions made prior to that that effectively allow some Australian companies, through how they structure themselves, to be able to pay a minimal amount of taxation.

Senator Cormann: Such as research and development.

Senator DASTYARI: Your submission, though, is that that is not really a problem?

Mr Heferen : That is right. In fact, I will go further. I would say that to me it is clearly not a problem.

Senator Cormann: It is as intended by the parliament.

Mr Heferen : The intention of those elements—where a firm undertakes the eligible research and development activity—

Senator DASTYARI: I was not saying research and development per se. I was saying the whole series. You listed them yourself.

Mr Mills : I can answer the question and just by way of example, if you have an Australian company where most of its operations are actually based in the US it will pay tax in the US. We will not seek to try to tax it again when it comes back to Australia. Its apparent rate of tax might be zero, but in fact it has been paying 35 or higher in the US. That will not necessarily come through, depending on what the structure is. That is why there is a lot of noise in this thing. The other point that I wanted to make is—

Senator DASTYARI: We are worried that it is more than just noise.

Mr Mills : Unfortunately there is a lot of noise. I do want to make this point.

Senator DASTYARI: So, you guys are saying there is no problem?

Mr Mills : No. I want to make a few points about the structure. Because of changes over recent years we have probably the strongest anti-avoidance and transfer pricing rules in the world. We have a system where companies, particularly listed companies, like to return profits and they like to tell the world that they are making profits. That then goes, in part, although they are different bases, it goes to an encouragement of ensuring that there is a taxable income. Why? Because they pay tax. Why does that matter? Because they can frank dividends. The market wants them to frank dividends and they will punish them if they do not. We actually have some of the structural things in place that encourage Australian companies to pay Australian tax.

Senator Cormann: In response to your proposition that we do not think this is a problem, is this so serious an issue in terms of the integrity of raising revenue for government and our economic prosperity into the future that we need to be very clear on what the actual problem is or is not? Mr Heferan very candidly and in a very detailed way sought to explain to the committee where the problem actually was as opposed to where the problem is not. It is very important that we are clear on that.

Senator DASTYARI: I am not sure whether the question of staff cuts is for Mr Olesen or Mr Mills. I have a figure here of how many staff you are shedding over the next four years, but what is your understanding of the figure over the next four years?

Mr Leeper : Compared with a base of budget 2013, decisions by previous and the current governments have us looking at a staffing adjustment on current estimates of 4,700 by 2017. Next month we will have completed the 3,000 that we were expected by the government—

Senator DASTYARI: Is that 4,700?

Mr Leeper : Yes.

Senator DASTYARI: Out of how many?

Mr Leeper : FTE in head count terms, 22,000 to 23,000.

Senator DASTYARI: So one in four roughly?

Mr Leeper : One in five.

Senator Cormann: Initiated by the former government and supported by us.

Senator DASTYARI: I am asking the Taxation Commissioner a question. So, one in five staff are getting cut?

Mr Leeper : One in five if the forward estimates remain at their current levels. At the moment we have reduced by 3,000 as at the end of this month. That is the task in front of us.

Senator DASTYARI: No organisation can lose one in five people without it having some kind of an impact on the organisation as a whole. I refuse to accept that one in five people were doing nothing. I suppose the question has to be asked: if you are losing one in five people where are you losing them from? Is this across-the-board in every division and every department?

Senator Cormann: The mining tax administration area, given that the mining tax is gone, there are more than 100 people there.

Senator DASTYARI: So, you have 4,600 to go. Keep going.

Senator Cormann: It is well over 100.

Senator DASTYARI: Let us give you 200. Where are the other 4,500 people coming from?

Mr Leeper : From a range of job families, a range of areas in the tax office. As previously advised to this committee, we are focusing hard on layers of management, back office functions, which we are in the process of bringing together while we do the reduction. There are some losses in the accounting and auditing areas.

Senator DASTYARI: Let us stop there. Do you have a breakdown of how many accounting and auditing in the forward estimates?

Mr Leeper : I do not have the forward estimate figure, but at the present time to the end of September this year we are showing redundancies of about 2,200. That is the baseline figure of where we are up to.

Senator DASTYARI: In which division?

Mr Leeper : Across the ATO. The standout areas there would be in our auditing area approximately 500 of that 2,200.

Senator DASTYARI: What did you say about the auditing? How many were there?

Mr Leeper : It is 500 or so out of the 2,200.

Senator DASTYARI: You seem to be reading from a table. Are you able to table that?

Mr Leeper : That is a decision for the minister.

Senator Cormann: I will have to consider that. I have to take advice.

Senator WONG: It is not a decision of the minister.

Senator DASTYARI: It is not a decision of the minister.

Senator Cormann: We are taking it on notice. I need to assess whether the—

Senator WONG: Can I just follow up on—

Senator Cormann: If I had asked Senator Wong to table it—

ACTING CHAIR: Senator Wong first.

Senator WONG: Mr Leeper, I think in answer to a question from Senator Dastyari you confirmed the 4,700 figure, correct?

Mr Leeper : Yes, that is right.

Senator WONG: Which is a forward estimate cumulative figure?

Mr Leeper : Yes, that is right.

Senator WONG: Of FTE reductions?

Mr Leeper : Head count. I would stand to be corrected, but I think it is FTE.

Senator WONG: So would the head count be higher?

Mr Leeper : The head count would be higher.

Senator WONG: Do we have the equivalent head count figure for the 4,700?

Mr Leeper : It is head count.

Senator WONG: So, it is head count, not FTE?

Mr Leeper : Yes.

Senator WONG: Are you able to give me the FTE figure, the equivalent?

Mr Leeper : I do not have that with me.

Senator WONG: Perhaps take it on notice.

Mr Leeper : Yes.

Senator WONG: As a shortcut, if the minister is concerned about tabling it, perhaps over the dinner break you could just look at whether or not you could give or are able to just read out what the 4,700 comprises?

Senator DASTYARI: That is what they were just doing.

Mr Leeper : The 4,700 is a figure which is implicit in our budget bottom line.

Senator WONG: I appreciate that.

Mr Leeper : In response to Senator Dastyari's question I was about to say that of the 2,200 redundancies that we have currently done I could provide the three or four major areas where that was being sourced from. But the 4,700 ahead of us is a budget adjustment. It is our task to find where they need to come from over the next two to three years.

Senator WONG: So the 4,700 is on top of the 2,200?

Mr Leeper : No. It is the total adjustment task to the end of 2017.

Senator WONG: Are you saying as part of the budget task you have not worked out where the remaining 2,500 are?

Mr Leeper : Our focus at the present time has been—

Senator WONG: Have you or have you not?

Mr Leeper : Our focus at the present time has been to reduce by the 3,000 by the end of October that the government's decisions required us to do. We are on track to do that. We do not need to make further adjustments for a further two years.

Senator DASTYARI: Can we have the 3,000 breakdown?

Senator WONG: You must have the 3,000.

Senator DASTYARI: You must have the 3,000.

Mr Leeper : I have 2,200 at the moment.

Senator WONG: If you have already worked out where the 3,000 are from, which is what your evidence was, then surely you can give us from which areas the 3,000 comes and how they are distributed.

Mr Leeper : Given that 416 of them are still to exit the organisation and it is still technically possible for people to withdraw, I actually could not give you the 3,000 with any certainty. I was using the 2,200 as an approximation.

Senator WONG: This is a very long way of doing this. You can do it with a caveat. People have already been advised or have put in voluntary redundancy?

Mr Leeper : In large part, yes.

Senator WONG: An expression of interest. Why not give us to date where the 3,000 is up to and from which areas? We accept the caveat that people can make the decision to change it.

Mr Leeper : What I was saying to Senator Dastyari is that the figure I have at the present time sum to about 2,200 and I would not expect those proportions to change materially. I can give you the three or four major job family headings in that. That was auditing, 509; administration, 305; operations and processing, 250; law, 221—

Senator WONG: Law?

Mr Leeper : Yes. The next largest one is management, 149. There are others.

Senator DASTYARI: What was management?

Mr Leeper : There were 17 job families. Law was 221.

Senator DASTYARI: Let us cut to the chase. Would the investigative component of what the ATO does when it goes out largely fall into auditing?

Mr Olesen : Yes.

Senator DASTYARI: So, the largest group cut is the group whose job it is for enforcement?

Mr Olesen : The largest group of people we employ in the organisation happen to be people that do that kind of work. Out of 20,000-odd we have about 10,000 of those doing that kind of work.

Senator DASTYARI: You have already cut 509 auditors. By your own submission, if the proportions relatively stay the same, one in four of the people you are cutting are from front line of enforcement, effectively. I am sure out of those 221 lawyers some of them are working in enforcement.

Mr Olesen : There is another dimension to it. There is a simple dimension about who are the people who have sought voluntary redundancies, have accepted those and have either now left or are about to leave—and next Friday is the end of the process—but as part of that overall process we have been looking, in particular, at our back office administrative functions.

Senator DASTYARI: But can you just tell me—

Mr Olesen : The reason it is important is some of the people that found their way into what you would call our back office functions originally came from the front office. As we work through the rebalancing process of what we in fact need to run our back office, what we are discovering or rediscovering is that we need fewer of those people.

Senator DASTYARI: If you lose 4,700 staff members at the ATO—and I do not think you are saying this—

they are not all going to be back office. That is not what you are saying, is it?

Mr Leeper : No, absolutely not. I am saying that there is some potential to use the back office staff in the front office.

Senator DASTYARI: What impact does this have on the ability of the ATO when it comes to enforcement?

Mr Leeper : We said in our evidence last time, as I recall, that we were confident there would be no significant impact on revenue and no impact on our service provision.

Senator DASTYARI: You believe that you can lose 4,700 of your own staff and it is going to have no impact on the services being provided? Will you be conducting the same level of investigations?

Mr Leeper : To a significant extent, yes.

Senator WONG: It is extraordinary how you can—

Senator DASTYARI: Where are these 4,000 people coming from?

Senator Cormann: I will intervene here. This is feigned outrage from the Labor Party in relation to savings the Labor Party initiated and banked in the budget.

Senator WONG: This is not even relevant.

Senator Cormann: All we are doing here is bringing forward some of the savings that the Labor Party initiated and banked in the budget. I am not sure why you are jumping up and down and trying to suggest that the world is going to fall apart, because these are things that we are implementing. We are doing the hard yards.

Senator DASTYARI: Before you told us that there is no problem in the taxation space.

Senator CANAVAN: In the 2012-13 budget my understanding is that the former government reduced ATO staffing levels by more than 1,000 but in the same budget booked a compliance program saving of around $200 million and over the forward estimates nearly a billion dollars. I do not know whether you can remember that, Mr Heferan. Was that reasonable enough to do given they were reducing numbers and still book a compliance saving?

Mr Heferen : If it was in the budget it was very reasonable.

Senator Cormann: Apparently it is no longer reasonable.

Senator DASTYARI: I just feel that if there was any fat in the system it has already been taken out. That is the point that we are trying to make. We removed the back office staff and now they are going after enforcement.

Senator CANAVAN: They left us a perfect tax system.

Senator DASTYARI: Apparently the tax system is perfect, from what the minister tells us.

ACTING CHAIR: Senator Leyonhjelm has a couple of questions that he wants to ask and then he has to go.

Senator LEYONHJELM: I am going to change the subject to tobacco. The Department of Health has a publication called Tobacco key facts and figures, and its webpage reproduces this and was last updated on 17 July this year. It states, 'The Treasury has advised that tobacco clearances (including excise and customs duty) fell by 3.4% in 2013 relative to 2012 when tobacco plain packaging was introduced.' Are you familiar with what I am referring to? I am not sure who I will be talking to here.

Mr Heferen : This side of the table is from the Treasury, so if we advised the Department of Health—

I suppose there are two things. Firstly, did we actually do it?

Senator LEYONHJELM: Or they misquoted you.

Mr Heferen : I am sure they would not have done. I am sure we said that. We may have some officers here who are familiar with that. If you could continue with the question.

Senator LEYONHJELM: You may need to consult somebody, and I acknowledge that. If there is no-one here who can answer it, we will put it on notice. The question is: did the process where branded packs were destroyed and replaced by newly imported plain packs boost tobacco clearances in 2012?

Mr Heferen : I am not aware. We will have to take that one on notice.

Senator LEYONHJELM: There is a follow-up to that. Were tax refunds for the destroyed products issued in 2013 and, if so, did this depress clearances in 2013?

Mr Heferen : Again, we would have to take that on notice, noting that the excise payment is paid on the clearance. So, once it is cleared out of customs or the excise store that is when the tax is paid.

Senator LEYONHJELM: We understand. It is just that the impact would suggest that tobacco clearances fell, as I said, by 3.4 per cent in 2013 relative to 2012. I am trying to understand whether that was real or whether it was as a result of refunds.

Mr Heferen : Also when clearances fall, there is always the case that, if there are increased taxes, that has some effect on demand but it also has an effect on timing. So, when excise changes are scheduled to occur that may have some effect. It may be the case here, but that is something we will take on notice.

Senator LEYONHJELM: Just to follow that up. In Budget Paper (No. 1), page 518, it shows rising estimated nominal receipts from tobacco duty each year. I have the figures here, if you need to refer to them. My question is: is this solely due to rising rates of duty or is tobacco consumption estimated to increase?

Mr Heferen : I suspect it is rising rates of duty. We do not assume any increase in consumption.

Senator LEYONHJELM: You do not assume any increase in consumption?

Mr Heferen : No.

Senator LEYONHJELM: And you do not assume tobacco consumption per capita is estimated to increase?

Mr Heferen : No.

Senator LEYONHJELM: So, no overall consumption?

Mr Heferen : Correct.

Senator LEYONHJELM: No consumption per capita increase?

Mr Heferen : That is right.

Senator LEYONHJELM: The other questions I will put on notice. Thank you very much.

ACTING CHAIR: You said that you had a few questions and then we will finish up.

Senator DASTYARI: We will finish on that and then there are other things we can talk about when we come back. We went through the breakdown you gave us. Your proposition is that largely the proportions insofar as the 2,200 is roughly the proportions that we could anticipate for the 4,700?

Mr Leeper : No. It is for the 3,000. We have to make decisions about how to get from the 3,000 reduction to a further 1,700. We have two years to plan our way through that. We have not decided where to make those reductions at this point. We have scaled it on the 3,000. I would say the 2,200 is indicative of those numbers.

Senator DASTYARI: It defies belief that you as an organisation could be losing that quantity of staff, that you could be losing so far at the end of this month in the vicinity of 700 or so people in auditing, and yet it would have no impact on the level of investigation or activity.

Mr Olesen : I am happy to try to explain that to you as I have been trying to do.

Senator DASTYARI: Can you? It does not make sense.

Mr Olesen : There are a few reasons for it. The level of staffing that you have got is one side of the equation. The other side of the equation is the way in which you go about the work that you do, and another part of the equation is the kind of structure that you have in the teams that you have operating. If you look inside, for example, the people who are in the auditing job family and are leaving us, a substantial number of those are at the senior officer levels. When you look inside the team structures we have had in the past, we have had relatively small spans of control and—

Senator DASTYARI: That is not true in the structure you gave us, because you had management as a separate category, but keep going.

Mr Olesen : I am not sure what you are referring to.

Senator DASTYARI: You and others.

Mr Olesen : It is the case that we have had a reduction in layers of management and we are trying to increase team sizes.

Senator DASTYARI: There are 191 jobs there. They are not the auditing jobs, though. The auditing jobs are a separate category of 509 jobs.

Mr Olesen : Maybe I am confusing you and confusing myself in the process. What I am trying to say is that amongst the auditing jobs that we are losing some of those people who have been in management positions and as we reconsider the structures that we have in those auditing teams we need fewer of those people at that level, and so you end up with managers with broader spans of control, different team structure requirements and resourcing to do the work they did before.

Senator Cormann: This is because the Tax Commissioner, Chris Jordon, on 5 June actually answered the exact question you just put in response to a question put by Senator Bishop. He asked, 'Are you putting to us that the revenue collection you would be providing to government is not going to be materially affected by a reduction of almost 5,000 people over four or five years?' Mr Jordan: 'Yes, that is what I am putting to you.' Secondly, I refer you to the actual measure in the budget, page 214 of Budget Paper (No. 2). What you will see there is the government's total staffing reductions of 4,700 were to occur—

Senator DASTYARI: What page?

Senator Cormann: Budget Paper (No. 2), page 214. The ATO is bringing forward staff reductions that were already to occur as a result of decisions made by the previous government. All we are doing is bringing forward the staff reductions that were otherwise happening in 2015-16. So, over the forward estimates the efficiencies in terms of staff in the Australian Taxation Office are entirely consistent with what was initiated by the previous Labor government. It is just that we are in government while these things are being implemented.

Senator DASTYARI: With any organisation surely there is a point. I refuse to accept that you are not at that point already, but that is your submission. You are entitled to give the evidence that you want. I do not have to accept it. With every organisation there is a point at which the loss of staff starts having a fundamental impact on the ability of the organisation, and in this case the ability to collect revenue. There is a point; you would accept that?

Mr Olesen : At some point inevitably.

Senator DASTYARI: You are not of the view that we are at that point?

Mr Olesen : No.

Senator DASTYARI: And your view is that you can comfortably take another 1,700 job cuts?

Mr Olesen : As Mr Leeper has been saying, we have another two years to work through what the impacts of the budget might be, and we will work through that systematically over the next two years.

Senator DASTYARI: So, 1,700 is not an issue?

Mr Olesen : The other way for me to answer your question is to say that what we are doing is monitoring closely our business performance this year.

Senator DASTYARI: So, you are effectively saying—

Mr Olesen : Our business performance this year is consistent with prior years. Revenue is being collected. Our audit results are higher than at the same time last year. Our service standards are being met and complaints are down. If I use business data to give us a sense of whether we are currently dealing with the reduction in staff, the evidence before me is that we are. We will naturally continue to monitor that performance and make adjustments as we need to.

Senator DASTYARI: Your message to the remaining 1,700 or so that you are trying to find, your submission to this Senate inquiry and to your own staff and the 22,000 or 23,000 people who still work for the ATO is effectively this: 'We can lose 4,500 of you. We can continue to lose in the next two years another 10 per cent'?

CHAIR: Is that a question?

Senator DASTYARI: I am coming to a question. 'In the next two years we can lose another 10 per cent of you and it will have no impact on the functions or material impact on what the ATO does.' That is what you are telling your own staff?

Senator Cormann: That is the evidence that the ATO consistently provided in the estimates in June.

Senator DASTYARI: I am asking Mr Olesen a question.

Senator Cormann: The tax commissioner has answered that as a yes.

CHAIR: It is the prerogative of the minister to take the call.

Senator Cormann: I have just indicated that the tax commissioner himself has already answered that question with an unambiguous and very crisp, yes, full stop.

Senator DASTYARI: That says a lot about what you think of your own staff.

CHAIR: A follow-up question?

Senator Cormann: We should always aim to do things in an efficient way.

CHAIR: A follow-up question?

Senator BUSHBY: In a speech earlier this month I understand the commissioner said, 'More than 95 per cent of revenue received comes in voluntarily with relatively little assistance or intervention from us.'

Senator DASTYARI: Why do we need enforcement at all?

CHAIR: Order!

Senator BUSHBY: Less than five per cent comes in from compliance enforcement measures.

Senator DASTYARI: Because—

CHAIR: Order! Senator Dastyari, do you want to go into a private meeting?

Senator Cormann: He wants us to send a tax officer—

CHAIR: Senator Bushby you have the call.

Senator Cormann: A personal tax compliance officer for every household.

Senator BUSHBY: As the ATO's processes become more efficient with better use of data you already have to pre-fill tax returns and greater use of standard business reporting software, are your programs and resources to counter tax avoidance and tax evasion also becoming more effective?

Mr Olesen : As I was trying to explain before, yes, we are changing the business processes that we use to do the work that we do around enforcement. Some of those changes occur because of some of the things that you have just mentioned, because they effectively evaporate demand on us in other parts of our business and free up resources for us to apply resources where risks are still present. At a more fundamental level we are revisiting the way in which we go about auditing work or investigative work, including the cycle times we take to do that. We are certainly using data and analytics in a more sophisticated way to better target the activities that we do. Those things combined are some of the reasons why we are able to maintain our performance notwithstanding that we are having to let go a number of people.

Senator CANAVAN: I was not here obviously for earlier estimates. Just to clarify, Senator Dastyari mentioned there will be 4,700 staff reductions. They were decisions made by the former government; is that right? Were they projections in your forward estimates of staff reductions?

Mr Leeper : Yes. The minister has already provided that. It is on page 214 of Budget Paper No. 2. The measure indicates that the impact on the ATO in this budget was the bring-forward of staffing reductions which were already factored into the forward estimates. In practice, 1,600 were brought forward from 2015-16 into 2014-15, otherwise the profile of staffing reductions, which is consistent with the accumulation of efficiency dividends, was already in our forward estimates.

Senator CANAVAN: So, when those efficiency dividends and of course subsequent staff reductions were baked in the cake, so to speak, from the former government, did the former government make any downward revisions to its revenue projections based on those staffing reductions?

Mr Heferen : No.

Senator CANAVAN: I have one final follow-up. I would like to go back to the Tax Justice Network report that we were talking about earlier. The leader of the opposition had an opinion piece in the Sydney Morning Herald a couple of weeks ago stating, 'Because successful businesses are always looking for a competitive edge some multinational corporations are leading the way in tax avoidance too. As we have seen in the pages of The Herald over the past few days'—which is reference to the reporting on the Tax Justice Network report—'these efforts can substantially erode a nation's company tax base.' Mr Heferan, you said earlier that the assumptions of that report were way off. Is it, in your view, reasonable to use that report as evidence of an erosion of the nation's tax base?

Mr Heferen : I have not read the piece by the Leader of the Opposition, but what I said before I would stand by, that there is clearly a serious issue about the tax paid by a range of multinational corporations where there is pretty well documented material that the G20 has considered and an enormous OECD work plan has tried to come to grips with that issue. That is the multinational staff led by a range of in particular US multinationals and often in the IT area. That is an issue that the world needs to grapple with and it goes to the question of the sustainability of the corporate income tax system that most developed countries use, more multinationals, greater emphasis on intangibles, the capacity to locate the intangibles in low tax jurisdictions, and loose anti-avoidance rules, unlike Australia, in a range of other countries. That is clearly something.

I do not want to come across in any way as playing down the gravity of that, because that then plays directly into the concerns that Commissioner Olesen raised about the public perception of the validity of the system. I do not want to be interpreted as in any way underplaying that risk. It is there. It is clear. Action is needed. The previous government and the current government pursue that through the G20.

Senator CANAVAN: But you did not see anything in that Tax Justice Network report that would indicate an erosion of the tax base?

Mr Heferen : The Tax Justice Network deals with something completely different. It is not even in that debate or discussion. It is fundamentally a misunderstanding of what taxable income in Australia ought to be about. On page 8 of the report in the findings it states, 'The research presented here suggests that the tax planning activities of the ASX200 allow Australia's largest publicly listed companies to avoid up to an estimated $8.4 billion in corporate tax annually.' That is patently false.

Senator Cormann: I wonder whether the Sydney Morning Herald is going to correct this front page story.

Mr Heferen : To me that is patently false. When someone reads 'tax planning activities' in the common parlance that is about a scheme, arrangement or some sort of, if you like, funny business going on. What they mean by 'tax planning activity' in the context here is that a firm has sat down and filled out its tax return. It has filled out its tax return. It has figured out how much money it made. It has figured out its allowable deductions. It has lodged its return and it has paid its tax.

Senator DASTYARI: The point is—

Senator Cormann: No, it is not the point. A business generates revenue and it incurs legitimate business costs as it is generating that revenue. Unless you are suggesting—

Senator DASTYARI: There are genuine business costs and deductions and an opportunity for further—

Mr Heferen : Senator, if I could?

CHAIR: Mr Heferen has the call.

Mr Heferen : My point is that it talks about an estimated $8.4 billion in corporate tax annually. It does not say in some other taxes. It is in corporate tax. The fundamental proposition of corporate tax is that revenue outlays are deductible and with capital outlays you can have a deduction for depreciation or in some cases a special deduction through capital allowances and black hole deductions. I think they are making the proposition that if our tax system was changed to no longer be a corporate tax but something that has been mooted, a comprehensive business income tax, where you do not get that range of deductions, then maybe there is a discussion to be had, but that discussion I think as we have seen in the past belongs with the theoreticians and not in a practical sense.

I apologise if I am labouring this, but I do think it is a very important point, because it goes to the heart of the public acceptance of what is going on, and where there is a proper meaningful debate to be had through the G20 and the OECD to get it, if you like, almost coloured by something like this is extraordinarily unfortunate, because people will quite rightly look at this report and say, 'Hang on. Is the proposition that you get rid of research and development tax breaks?' You do the double taxing across different countries? I am talking about completely. You no longer have the capacity to carry forward losses. You actually tax capital gains on an accrual basis, as they do in accounting profit or declare, rather than on realisation, and in that world our tax system would be unrecognisable. It would not be unrecognisable but very difficult to recognise from the one it is today.

Senator CANAVAN: Very simply, do you think the report was misleading?

Mr Heferen : Yes.

Senator Cormann: Mr Heferen is being very generous in suggesting that that is probably what they are trying to get across, but they are not being explicit about it. They are making it look as if this is because something dodgy is going on within our current tax system and as if the government is not properly administering our tax laws when—

Senator DASTYARI: That is not what they are saying.

Senator Cormann: That is exactly the impression that is created and that was the reporting. It was inaccurate reporting on the front page of the Sydney Morning Herald.

Senator DASTYARI: That is not what they were saying at all.

CHAIR: You can give your answer.

Mr Heferen : In answering the question, there is one more element that I would like to mention. Again, on page 8 it had, 'Key findings on the ASX200 companies include nearly one-third have an average effective tax rate of 10 per cent or less.' I would make the point that that did include companies that made no profit, and so their effective tax rate is zero. It also included some trusts. Trusts should have an effective tax rate of zero, because it is taxed in the unit holder's hands. There is an issue there about the legitimacy of that. I think importantly—

and this is a bit of a techie issue, so I apologise in advance—but one of the contested issues in the corporate tax system, and I think capitalisation rules, that is, where you have a multinational putting too much debt in Australia and claiming an excessive amount of debt.

We have these rules in place to say that you cannot be too thinly capitalised so, therefore, there needs to be a certain amount of asset other than debt, and there was a safe harbour of 75 per cent and that has now been reduced to 60 per cent. But that is only for companies who are not financial institutions—banks or non-bank approved deposit institutions. They have a very different one. As you would expect with a bank it has to have a different one because clearly it could not get by with such a high rate of equity. I think there have a 20:1 ratio or something in that order. The final dot point: '60 per cent of companies on the ASX200 report debt levels in excess of 75 per cent of equity, suggesting that high levels of debt may artificially lower taxable profits.'

Mr Mills : The calculation that is made is wrong. We have had independent people look at it and it is more like 43 per cent just based on the numbers.

Senator Cormann: It is a dodgy report.

Mr Heferen : In fact, even the debt to equity definition they use needs some testing, but the fundamental point is that there is a whole bunch of companies out there, financial companies, banks and so forth, that have a different ratio, and to bundle them all in gives a very misleading representation of that. I think further in the text in the report it might allude to it but it never actually teases it out. I guess, disappointingly, it does not qualify that in the findings.

CHAIR: Senator Milne.

Senator MILNE: I wanted to follow up on what Senator Dastyari was saying in terms of the number of people that are going to be leaving. At the G20 there is the plan to tackle profit sharing and tax avoidance by multinational corporations. If the tax office is so confident that you are as efficient as ever, in fact more so with less people, why have you asked for a delay of 12 months in providing the information sharing that at least 26 other countries have agreed to be early adopters of, and we have had to ask for a delay of 12 months? If losing all these people makes no difference why can't we be one of the early adopters and get people on the job?

Mr Heferen : If I could, as it is a bit unfair for the ATO to go to that, because it came from us. There are a couple of things there. One is that that report is about individuals. It does not go to the corporate tax issue.

Senator MILNE: It goes to the number of people in the tax office to be doing this work.

Mr Heferen : The point of the delay that Australia needs is that the countries that are early adopters in fact already have this in train. The bulk of the early adopters come from the European countries, which already have the common reporting standard and they already share information on that basis. There are a range of other countries who have agreed to be early adopters. I think it would be fair to say that when those countries are examined in a few years time where they did the full early adoption that would be problematic for those countries.

The main thing is the cost for Australian business to put those systems in place, because what those systems will entail is that where you have an Australian financial institution and they have people from other countries who have money deposited in them the automatic exchange will be that the Australian bank—if you like to make it easy—has to provide the information to the tax office and the tax office automatically provides it. It is an automatic exchange with the tax office. It is provided to the tax office and there is the automatic exchange from the tax office to the tax jurisdiction of the signatory countries. What is critical is that the bank, insurance company, building society or whatever it might be has the systems in place to be able to identify who are residents of other countries.

I have recently gone through a process with the US under what is known as FATCA—I cannot remember the spelt out version—and that is where we had to do that with the US. The US insisted that all countries did that with the US. Australia, like many other countries, has done that and complied. So, there is a model in place but at the moment it is only for US citizens. The next step is all the financial institutions, insurance companies, building societies and so forth have to do it for residents of other countries, and that takes time. Systems have to be built in some cases and certainly in some cases redesigned. This is not so much a resource issue from the ATO. There will be some, of course, but the key reason why Australia was not able to be an early adopter was the cost it was imposing on other Australian firms. Bear in mind that this is about people who have money in the bank or money in the institution. It does not go to the question of a profit that a firm is making. It does not go to the issue of—

Senator MILNE: The point I am making is that you are losing thousands of people from their jobs and we have asked for a delay of one year to implement this system. What I was asking is: why? If we have so many people who can do all of this so efficiency why are we asking for one year? You are saying we are asking for one year because business wants another year, not because the tax office cannot do the work? Is that what you are saying?

Mr Heferen : I am not saying business wants another year. I am not aware of business actually requesting more time.

Senator MILNE: Then why are we giving it to them? Why are we not an early adopter?

Mr Heferen : Because the systems would not be in place in time for this to occur.

Senator Cormann: What Mr Heferan has pointed out is that businesses in other parts of the world, systems in other parts of the world, are already geared for this. We need a bit of a run-up. If we were to impose a more rapid or more accelerated timetable, it would impose excessive costs, so it is much better, in terms of getting things right, to do it in a proper orderly fashion. That is generally a better way of running government administration.

Mr Heferen : I would make the point that this is about Australia being part of the international grouping, so other countries are aware of their citizens who are in Australia with money in Australian banks and about Australian citizens overseas with money in their banks. This is going to pure evasion, not tax avoidance.

Senator MILNE: Business did not ask for it and we have the capacity to do it so why are we not doing it by 2017 if they have not asked for the delay?

Mr Heferen : The Australian system does not have the capacity to do it. When we have consulted with business, business are making the point and basically saying, 'We would not be able to do it. We would not be able to get our systems done in time.' In that environment would you say, 'We will do it and people will get penalised for doing something which they patently could not do?' or would a more rational response be to say, 'Let's try to get this …' This is a system that is going to be built hopefully for a long time. The judgment was made—and I think it is the right one—to say, 'Let's make sure this thing works', rather than putting something in that is destined to fail and is never going to provide the good quality information that we need to be part of that system. I will make the point that the countries who are the early adopters already had this in place. The countries who do not have this in place and who are serious about putting this in place are not early adopters, but there is a commitment to do it as soon as feasible. I think certainly the finance minister's communique is very sharp on that point. So, the G20 has committed to doing this. Countries will do it as soon as they possibly can. This is outright tax evasion. This is not the multinational voice. It is outright tax evasion by high wealth individuals hiding money in bank accounts in countries other than their own. The last thing the system needs is some rushed implementation where you get a bunch of countries sign up, cannot do the thing properly and then we look back as the G20 or whoever in three or four years time and say, 'That one was a failure.' The G20 countries, in particular, need this to be a success, because it is such an important issue and to take the time to enable the system to be put in place seems to be a pretty sensible thing to do.

CHAIR: I will just let everybody know that we will be suspending at 7 o'clock or when the line of questioning is finished, which is in five minutes time. Senator Canavan.

Senator CANAVAN: I just wanted to clarify something that was said earlier. Minister Cormann raised originally the blocking of the R&D tax credit changes and Senator Wong said they were actually in response to or to fund the Gonski reforms, which is my understanding. I think this is a question for the minister. Wayne Swan in February last year announced their innovation plan, stating:

When the government announced our plan to support innovation in our economy we also announced the savings that will pay for this. We said we would remove the R&D tax concession for large companies with a $20 billion Australian turnover or more, to ensure innovation spending is directed to where it will have the biggest benefit. This saving will also deliver benefits to the bottom line over and above funding the package—so it's a down payment on the repair that the budget needs.

Minister, is that your understanding, that the former government wanted to use the R&D tax credit change to help repair the budget bottom line over the forward estimates?

Senator Cormann: That is a statement of fact. When former Treasurer Swan announced the measure to remove the R&D tax concession for large companies with A$20 billion turnover or more that was described by former Treasurer Swan as a measure to repair the budget. The general point I would make in response to this is that the current opposition, the former government, not only are they opposing savings measures and revenue measures that the current government has put forward but they are actually opposing their own savings and revenue measures which they initiated when in government, which they banked in their last budget and which we are setting out to implement. This is a very explicit example.

If members of the opposition, senators from the opposition are concerned about the erosion of our tax base, one of the things they could do is to implement the Labor budget measure to ensure that research and development tax incentives are properly targeted to businesses that are below $20 billion in turnover.

Senator CANAVAN: Thank you, Minister.

CHAIR: We are going to suspend, but with your indulgence can we come back at 8 o'clock with ACNC? We will deal with them and then we will go back.

Senator Cormann: We are always happy to assist.

Mr Heferen : Does that mean you have not finished with Revenue Group?

CHAIR: No.

Proceedings suspended from 18:57 to 20:00