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Tuesday, 19 June 2012
Page: 7052


Mr BUCHHOLZ (Wright) (19:24): I rise to associate myself with the comments of the shadow Treasurer and the member for Wentworth on their support for the Tax Laws Amendment (Cross-Border Transfer Pricing) Bill (No. 1) 2012. As with all tax law amendment bills that this government has tabled, this bill is one which the coalition will scrutinise for its intentions and for its consequences for businesses here in Australia.

This bill will seek to provide consequential amendments to the Income Tax Assessment Act 1936 and the Income Tax (Transitional Provisions) Act 1997. The government seeks to legislate to clarify the transfer pricing rules after a decision in the Federal Court in 2011. The Commissioner of Taxation's understanding and application of treaty rules for transfer pricing adjustments was challenged in this case.

Even though this piece of legislation seeks to clarify the transfer pricing rules in tax treaties, there is always a sting in the tail with this government when it comes to taxing business in Australia. Although it has been stated by the government that no impact will result to the budget with the passing of this bill, it is hard to believe that a taxing windfall for the government has not already been apportioned to the recently tabled budget.

So let me revisit that. Here we have a comment from the so-called experts in Treasury. The Prime Minister in this House on many occasions has referred to the expert advice that we get from Treasury. We do not have to look too far back to find expert advice from Treasury in terms of its forecasts of this year's enormous deficit. In protecting the $1.5 billion surplus as we move forward, we see that this will have no impact on our budget! But why is it that the retrospectivity of this bill is so important that we have to go back to 2004 or 2006 and start taxing these bodies? It will be a liability that will be brought about by this bill.

As an opposition we fundamentally oppose retrospectivity. It is the right of any business in this nation to do business, pay their tax bills in good faith and know that when they start trading in the next financial period they start with a clean slate. This bills refers to liability. It is a contingent liability and maybe those businesses have been applying for it. The Treasury is saying that this will have no impact on budget revenue but that can only mean one thing: that the tax office has already accumulated the contingent liability and brought it into their forward estimates to be expended and received in this financial year to help save a wafer-thin surplus.

I refer to the retrospectivity of this bill, which goes back to 1 July 2004. The coalition opposes retrospective taxation in principle, and opposes the retrospectivity of this bill. The coalition will seek to amend this bill to give prospective effect to the bill, because that is fundamentally what we believe in. We reckon that if you pay your tax when it is due then that should be that—it is imperative to the security and sovereign risk of our nation. The government should not be able to go back and have another crack.

If the opposition amendment is unsuccessful we will oppose the bill. You would have contemplated the fact, Deputy Speaker Adams, that over the last eight years business taxpayers have operated on the existing tax laws of the day. In the current global economic uncertainty, business should not have to forecast or mitigate the financial imposts that expose them to penalties and retrospective charges from 1 July 2004. We are in a pretty difficult time from a manufacturing perspective, a tourism perspective and a construction perspective. Yet, with our two-speed economy, our mining sector is going gang busters and we do have a lot of things as a nation that we could celebrate. But, with the current global financial crisis and the lack of market confidence that exists, not only in this nation but also across a lot of our European partners who are suffering at the moment, you do not have to go too far—pick up any of the local papers—to know that jobs are at risk. Fairfax is putting off 1,900 staff, Macquarie Bank put off a heap the other day and Qantas are making announcements to that effect. The top end of town is doing it tough. Not all, but some, of those companies may be picked up in these retrospective clauses.

Perhaps it is a position that this government, in its attempt to deliver a surplus next year, does not understand. Perhaps they do not understand what this new measure will do to foreign investment prospects for this nation—that changing a taxpayer's tax profile and obligations retrospectively may impact and result in financial and investment decisions being compromised or, worse, abandoned in Australia.

At the end of the day we thrive, we rely, as a nation on foreign investment. That is how we have managed to maintain the quality of life that we have. It is fundamentally underpinned by foreign investment. This government, as we all probably well know, the other day—with no announcement or lead-in time—doubled the foreign investment trust tax bracket from seven per cent to 15 per cent. Admittedly, under the Howard regime, it was 30 per cent. But, when we started to drop that foreign investment trust tax bracket, we gave the market notice. This government did not. Foreign investment companies, making conscious decisions as to where they are going to park their funds—bang!—woke up on Tuesday morning to hear the government saying, 'Righto, your foreign investment trust tax bracket has been raised from seven per cent to 15 per cent, and you may even be up for a tax bill that goes as far back as 2004.' That is something that I do not think we as a nation can afford if any more of the industry and manufacturing sectors suffer further financial pressures within this country and from abroad. You can imagine some of Australia's largest companies getting a penalty notice adjusting tax obligations covering the last eight years. The figure could run into the hundreds of millions of dollars.

When will this government learn that we cannot tax this nation into prosperity? I think we are now up to nearly 30 new taxes. We need to create a fiscal environment where we have businesses making profits, because, when they make profits, they pay taxes. I believe these measures in this bill are solely for the purpose of trying to secure and protect the wafer-thin surplus that this government so critically needs to hang on to political credibility.

The transfer pricing rules exist to ensure that taxation is collected on the contribution of profits from Australian operations to multinational companies and to ensure that profits are not shifted between related parties across borders without appropriate taxation. I actually support that in principle. It is not in our nation's interest to have businesses making genuine profits from the resources, banking or financial sector here in Australia and then, through complex international holding bodies that they may have offshore, being able to offset expenditure to reduce their tax liability in Australia. I support in principle that we as a nation are duty bound to secure tax that is generated here in this country for the benefit of our nation. But, as a coalitionist, I cannot support the retrospectivity of this bill—going back nearly eight years.

Transfer pricing rules are contained within division 13 of the Income Tax Assessment Act 1936. Australia has also incorporated international tax treaties into Australian law. During the Federal Court case in 2011, the Commissioner of Taxation considered these treaty transfer pricing rules contained in treaties as an alternative basis for transfer pricing adjustments in parallel with the relevant provisions of the Income Tax Assessment Act 1936. In 2011 the full Federal Court cast doubt on the second basis for transfer pricing adjustments, in Commissioner for Taxation v SNF (Australia) Pty Ltd. While this case was argued only on the basis of division 13, the government believes that, as a result of this case, division 13 does not always adequately reflect the contributions of profits from Australian operations to multinational groups and, as such, in some cases treaty transfer pricing rules may produce a higher level of taxation.

Whilst that may well be so, to retrospectively assess the tax liability through a change in playing field is hardly conducive to strengthening businesses positioning in global markets or the contribution they make to the employment of Australians and the tax they already contribute. The government has already stated during Senate estimates that it has no idea of the size of the retrospective tax impost and that it has no impact on the budget, but I beg to differ—of course they know. They will have brought it into account to assist in backing up their surplus claims for next year. Again I make the point that the government continually claims that we get expert advice from the taxation department and the Treasury, yet it beggars belief that in this particular case—with a court case that has been going since 2004, and hearings that went down in 2011—that we have no idea of the size of the retrospective tax impost it is going to have on business. I suggest that they do know because, I tell you what, the businesses who are lining up to pay that tax liability know to the very cent how much they are going to be in for. I suspect that the government have already made provision for that, to protect their wafer-thin surplus. The coalition will not support an amendment that forces on taxpayers retrospective obligations that did not exist one year ago, let alone eight years ago.

I do not believe for one moment that this government has given any thought to the perceived increase in the sovereign risk of this nation. That argument was quite diligently laid out earlier on by the shadow Treasurer in his opening remarks, in which he spoke extensively about the sovereign risk issues. Sovereign risk is one of the most critical measures of our position in global economics and the harm caused due to uncertainty to ongoing developments and investments in Australia.

Certainty and confidence in the business marketplace are already at lows that we have not seen for years, outside of our resources sector, where we have a one in 140-year spike in capital investment. But when you take that sector out and you look at our manufacturing sector—for example, our car manufacturers and some of our financiers—it will be affected by this bill. Transfer-pricing arrangements in this bill do not adequately address the real issues facing the nation at the moment. The member for Wentworth spoke briefly about the impact of Amazon and Google trading substantial amounts of money and business through Australia and paying relatively low amounts of tax to the nation.

The coalition will oppose the retrospective taxation in principle. The coalition will seek to amend the bill to give prospective effect to the bill. If the coalition amendment is unsuccessful then we will oppose this bill.