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Monday, 9 February 2015
Page: 283

Chevron Scheme

(Question No. 619)

Mr Kelvin Thomson asked the Treasurer, in writing, on 14 November 2014:

(1) Is he aware of a report by Georgia Wilkins 'ATO alleges complex Chevron scheme slashed tax bill by $258m' (The Age, 9 October 2014) that Chevron created an entity in Delaware, United States, for the sole purpose of lending money to its Australian subsidiary in order to avoid tax.

(2) Is he aware that the process is alleged to have netted Chevron up to $862 million in tax free dividends over five years.

(3) Is he aware that the Tax Justice Network (TJN) estimates that up to $80 billion in tax payments has been avoided by the biggest 200 stock market-listed companies over the past ten years due to tax minimisation strategies.

(4) Is he aware that TJN representative Dr Mark Zirnsak has stated that artificial debt loading was a 'significant form of tax avoidance globally' and that the Chevron case highlights the need for Australia to be part of the work that the OECD is doing to address this particular type of tax avoidance.

(5) What action is the Australian Government taking, either directly or through international channels such as the OECD and the G20, to crack down on tax avoidance through the use of artificial debt loading.

Mr Hockey: The answer to the honourable member's question is as follows:

(1) and (2) Chevron case.

The Treasury will continue to monitor the progress of the Chevron case.

(3) and (4) Tax Justice Network report.

The Tax Justice Network's estimate of the revenue lost to tax avoidance by the ASX 200 companies is flawed. The report uses the amount of company tax paid as a percentage of accounting profit to calculate the effective tax rate and compares it to the statutory corporate tax rate of 30 per cent.

Taxes are not applied to accounting profit but to taxable income. There are significant and intended differences between accounting profit and taxable income, such as the treatment of capital gains and losses, recognition of foreign income, and treatment of franking credits. These differences mean that an analysis of the effective tax rate using accounting profits is misleading.

(5) Australian Government action to address tax avoidance through the use of artificial debt loading.

Australia has a robust set of domestic laws in place to deal with tax avoidance by multinational companies, including comprehensive controlled foreign company and thin capitalisation regimes, tough transfer pricing rules and a general anti-avoidance rule.

The Parliament recently passed two laws to further respond to integrity issues in the corporate tax system which address profit shifting through the use of debt in Australia. These changes involve:

Tightening and improving the thin capitalisation rules with effect from 1 July 2014, in particular by reducing all safe harbour limits to bring them more closely into line with commercial debt levels or to regulatory requirements in the case of banks. This will reduce the ability for multinational taxpayers to claim excessive debt deductions in Australia.

Changes to the exemption for foreign non-portfolio dividends. This will remove a significant tax planning opportunity that has arisen from a flaw in the current tax laws. This flaw has allowed multinational taxpayers to claim a tax exemption for interest income from loans to offshore subsidiaries, whereas this income should be assessable. The flaw has also undermined the efficacy of the thin capitalisation rules by allowing unconstrained amounts of debt to be allocated to Australia.

Governments around the world are co-ordinating their efforts to address tax avoidance in the form of tax base erosion and profit shifting (BEPS) by multinationals. Australia is a member of the OECD and the G20, which are working together on strategies to address tax avoidance and evasion.

As G20 President in 2014, Australia played a leading role in international discussions regarding BEPS. At the recent meeting of G20 Leaders in Brisbane, the G20 Leaders welcomed the significant progress achieved to date on an Action Plan to address BEPS. The Action Plan will be finalised by December 2015.