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Thursday, 14 March 2013
Page: 2153


Mr HOCKEY (North Sydney) (12:24): It is rare for us to oppose a bill such as this, the Tax Laws Amendment (Countering Tax Avoidance and Multinational Profit Shifting) Bill 2013, because it is meant to be a matter that goes to the integrity of the tax system. However, if we were to be in a position where we could witness the dying days of the Whitlam government prior to its dismissal, but without the dismissal, then we would be witnessing it now because this government is lurching from announcement to announcement, completely disregarding process along the way. It is a real test for the Independents as to whether they are going to agree to a process where Australians face a more aggressive and empowered Taxation Office without having any public hearing into the Taxation Office or holding any public servant to account for the additional powers that are going to be given to them by this parliament. I find it extraordinary. I do not know what the government's motivation is—I seriously do not.

The House Standing Committee on Economics was not afforded the opportunity to have a public hearing into this legislation. The government used its own numbers on the committee, including the vote of the now independent member for Dobell, Mr Craig Thomson, to prevent a feasible hearing date from being set. I thought, when the deal was done between the Independents and the Labor Party, that we were going to have this grand era of transparency and accountability, that the sunshine was going to come in, so that everyone could see what was happening in the bowels of this chamber and in the bowels of this parliament. Yet the government—I suppose the Independents will vote with this; I would hope they do not, but I suppose they will—will try to roll this massive additional power for the tax office through the parliament without any scrutiny, treating the House of Representatives with utter contempt.

If the government and the Independents choose to do that, so be it. But, if there is a change of government, let's not have them come whingeing to us about the treatment they may get in the future or have them lecture us about how the parliament was treated in the past. I do not want to hear them whinge about it—because this will be one of the signature examples used. I am not really interested in the denial of democracy by the Labor Party, because it is a consistent theme, but denying a parliamentary committee from simply having a hearing on what was previously a noncontroversial bill makes it a controversial bill.

So the coalition are going to oppose this bill and we call on the Independents to join with us in opposing this bill until such time as this House has the opportunity to see whether there is justification for the Australian Taxation Office to have a massive increase in its powers and to see how the Australian Taxation Office justifies claiming that, with these additional powers, it will achieve a billion dollars of extra revenue. A billion dollars of extra revenue: that is what they are claiming. 'No problem. Give us these extra enormous powers and don't worry; we'll claim an extra billion dollars of revenue.'

With all the integrity measures over previous years, where did that revenue come from? You ask for a tightening up of this law, you ask for new prosecutorial powers, you ask for all this additional influence, so prove to us—whether it was under the Liberal Party or under Labor—that with the additional powers you actually did improve the integrity of the system and increase revenue.

Schedule 1 to the bill seeks to amend the general anti-avoidance provisions in the 1936 Income Tax Act—provisions that are commonly referred to as part IVA. Former Treasurer John Howard was responsible for inserting part IVA into the tax act. Part IVA applied to schemes that were entered into after 27 May 1981. When introducing part IVA, John Howard said:

The proposed provisions seek to give effect to a policy that such measures ought to strike down blatant, artificial or contrived arrangements, but not cast unnecessary inhibitions on normal commercial transactions by which taxpayers legitimately take advantage of opportunities available for the arrangement of their affairs.

In 2000, when introducing the GST, the coalition included division 165 in the legislation, a general anti-avoidance rule. Division 165 resembles part IVA in many aspects, although of course it is dealing with a transaction based tax, rather than a tax on a profit or income earned over a period.

We have consistently demonstrated that we are firmly opposed to tax avoidance behaviour. We firmly support the need for a strong set of provisions that deter abusive tax arrangements. The legislature—

Mr Bradbury interjecting

Mr HOCKEY: If the Assistant Treasurer wants to intervene again, he can get up here and explain how his good mate Eddie Obeid got away with shuffling money between trusts. Is that what you want to do, keep interrupting me, Sunshine? We know how close you were to Eddie Obeid.

The DEPUTY SPEAKER ( Mr Cheeseman ): Order! If the member for North Sydney has imputations of the nature that he has just made that he wishes to make, there is an appropriate avenue available to him under the standing orders. He should use that.

Mr HOCKEY: It is okay, mate. If you give me a lecture across the table on integrity, I will give you a lecture about your relationship with Eddie Obeid. We must not countenance a change—

Mr Bradbury: I rise on a point of order on relevance.

The DEPUTY SPEAKER: The matter being raised is of no relevance to the debate. I draw your attention to the fact that the bill that we have before us relates to countering tax avoidance and multinational profit shifting. The member should direct his attention and his comments to that.

Mrs Bronwyn Bishop: On that point of order, there was no real point of order raised by the minister across the table. The fact of the matter is that this bill is about tax avoidance and Mr Obeid is involved in some of those issues. It is very relevant.

The DEPUTY SPEAKER: I believe that these matters are before relevant tribunals. I will get advice from the clerk as to whether these matters ought to be left before those tribunals as opposed to being raised in this chamber. I have sought advice from the clerk. It is my intention to ask all members participating in this debate to remain relevant to the particular bill before us. If we could have cooperation on that, that would be appreciated.

Mr HOCKEY: I would ask you, Deputy Speaker, to support me in that regard. We are focused on the concerns expressed by a number of individuals and corporations about whether the ATO is properly using its powers in relation to deterring abusive tax arrangements. In the Australian Financial Review this year, an article said that draft change to part IVA, on which the amendments in this bill are closely based, would 'determine whether a company is guilty of avoiding tax by looking at how else it could have done a deal if tax implications were not considered'. There is an extraordinarily large disconnect between the way in which business is properly conducted and the way in which the government, the Treasury and the Australian Taxation Office would require business to be conducted.

To taxpayers, profit after tax is a crucial metric. Suggesting otherwise introduces a sense of artificiality, even unreality. This point was made by the Corporate Tax Association, which said:

The reality is that business and individuals operate in an after-tax world, and from a practical and corporate governance perspective, it would be highly problematical to ask board members to put their minds to what the company would have done in the highly artificial world where tax is assumed not to matter.

Similarly, the Law Council of Australia observed 'Ordinary taxpayers, small business and large corporations will be required to assess their tax obligations by reference to the tax which would have been paid if they had done something that in reality they never would have done.' This bill is going to overlay complexity and compliance costs onto normal commercial transactions, whether business transactions, new investments or corporate restructures.

We really must start this debate by asking whether these amendments are required at all. Submissions to the Economics Committee from pre-eminent professional and industry groups whose members have deep expertise in taxation law argue that these amendments are just not necessary. For example, the Corporate Tax Association states:

… we have consistently maintained that the proposed changes represent an over-reaction to the Taxation Office losing a number of court decisions that have quite limited application.

CPA Australia made a related submission:

… we believe that the proposed amendments to Part IVA contained in Schedule 1 of the Bill are confusing and deficient and do not result in an anti-avoidance regime which is comprehensible to tax practitioners let alone the broader community.

From the Tax Institute:

The Courts have applied the current rules appropriately to find that a tax benefit exists in only those cases where the taxpayer's actions have resulted in a loss to revenue. Recent cases have not resulted in the effectiveness of Part IVA being compromised and as such the amendments in the Bill are an unnecessary overreaction.

I repeat: an unnecessary overreaction. More red tape for business—when is it ever going to stop? More compliance costs for business—when is it ever going to stop? I only wish the Labor Party would have the same tough structure for itself that it is trying to apply to people who work hard and earn a buck—the same corporate government procedure in itself and within the Labor Party, particularly New South Wales and particularly the New South Wales Right. I wish they would do that instead of just applying to everyone else a higher standard than they are prepared to apply to themselves.

Mr Stephen Jones: Whilst the member for North Sydney is making some devastating points, which I would probably agree with in another forum, I fail to see how they are relevant to the legislation before the chair. I would be quite happy to join with the member for North Sydney in this discussion somewhere else, but not on this legislation before this parliament at this point in time.

The DEPUTY SPEAKER ( Mr Cheeseman ): Order! I would ask the member for North Sydney to remain relevant to the bill.

Mr HOCKEY: I do wonder how Treasury determined that schedule 1 to this bill 'is expected to prevent the loss of over $1 billion a year'. It is a nice round number: a billion dollars. It has a whiff of convenience to it, don't you think? We were of course denied an opportunity to ask Treasury officials for an explanation. The government controlled committee did not hold a hearing. The Treasury later put in an undated submission just before the bill came into this place. So it looks as though a government that does not want to be held to public hearings in relation to one of its bills has something to hide. They are doing it on the media, they are doing it on so many things, just like in the dying days of the Whitlam government. It is just a repeat. Everything has a political agenda.

I welcome integrity measures, especially when it comes to taxation. The fact that they do not want to have hearings suggests to me that there is another agenda. The coalition will vigorously pursue these matters in the Senate committee inquiry into the bill. So we are going to try in the Senate, and if the Greens are true to their word they will support a full inquiry in the Senate.

Building up the jurisprudence around fundamental parts of a taxation system can take many years. It was 13 years before the High Court delivered its first judgement on part IVA, in the Peabody case. If the amendments to be made by schedule 1 are passed then there will be a period, probably extending over a number of years, before there is a settled judicial view as to their correct application. Uncertainty is the enemy of investor confidence, of business confidence and of consumer confidence.

Even for the experts these amendments are not easy to interpret, and their application is not predictable. Last year the Inspector General of Taxation reviewed the ATO's management of litigation and found that the ATO's success rate before the courts was 56 per cent in 2009-10, 47 per cent the year after and 45 per cent to May the year after that.

The Joint Committee of Public Accounts and Audit also had questions for the ATO regarding their litigation success rate—that is, the actual litigation. I do not think that includes all the assessments the ATO issues and then intimidates people into settling. The commissioner acknowledged—the previous commissioner, I would imagine—to the JCPAA that the ATO success rate was still very positive in terms of numbers. But he had concerns about the court's approach to the general anti-avoidance provisions. So it was all the fault of the courts.

The inspector general went on to note that some industry stakeholders held the view that the reason for the ATO's losses on general anti-avoidance-rule cases may be due to the ATO's poor case selection of matters they considered appropriate to litigate. Stakeholders also informed the inspector general that they had concerns about whether officers internal to the organisation could objectively review the facts and evidence in a case to determine, independently of the compliance section, whether the matter should be settled, defended or appealed.

This is a matter that I have raised on previous occasions, and I sense that a lack of objectivity in decision making inside the ATO is starting to have a significant impact on tax policy. The poor decisions about which cases to litigate, which have led to losses in court, are now driving the government's legislative agenda. And unfortunately there will be a cost imposed on a large number of taxpayers who must comply with a new general anti-avoidance rule.

I cannot fathom how the Treasurer can possibly justify the statement in the explanatory memorandum to this bill that the compliance-cost impact of the amendment will be low. Where do they get this from? The Law Council do not agree. They see the schedule as thrusting additional costs onto taxpayers—red tape:

The consequence of legislating this Bill will be to create significant difficulties, for ordinary taxpayers, small businesses and large corporations (both Australian and foreign) in understanding their tax obligations.

Who says it is low? On what basis do they say that the regulatory impact is low? Who writes this? And where is their accountability? How much have they consulted with businesses big and small, who are drowning under red tape? Yet the suggestion is that the regulatory impact is low.

Justice Pagone of the Supreme Court of Victoria, an author of a leading work about part IVA, has explained how onerous a new approach to the general anti-avoidance rule would be for taxpayers, since the onus of proof rests on them:

The question about what needs to be established arises in the context of the legal burden of proof falling upon the taxpayer to disprove what would have happened or might reasonably have been expected if the scheme had not been entered into or carried out. …

The ability of the Commissioner to rely upon something which did not happen, would not have happened, but which nonetheless might reasonably be expected to happen, may be difficult for taxpayers to disprove.

Do you reckon? Does the Assistant Treasurer understand this legislation? Can he get his mind around it? This is saying that business needs to start to model every alternative use, every alternative tax scenario, before it actually goes down this path—don't just get on with the job of doing your business but consider this impact on your business if you went down a different path, and prepare yourself. And the advice is that the regulatory impact is low.

Finally, the amendments' proposed starting date of 16 November 2012 must be changed. Where did they get 16 November from? This bill is different from the draft version that was released on 16 November last year. The changes made by the bill should not begin before royal assent. This is typical of Labor. They want to regulate yesterday; they introduce the bill now. And they say, 'All this is applying.' What is applying? 'Oh, well, the bill.' What bill? We haven't got a bill. It is like media; the process is no different. You guys are a shambles. But the problem is that the taxpayers are paying the price. This is not the way to govern a country; it is just not. How could anyone plan anything on a bill that has not been passed, has not even been debated and yet is meant to apply from 16 November last year?

I do not know what is going on here. If there is a change of government in September, the mountain of hard work will just get higher and higher to try and get back some certainty, stability and predictability into government. For crying out loud! I have never seen anything like it. I said that this is like the dying days of the Whitlam government. If Gough Whitlam had not been sacked, this is what it would have looked like—exactly this: a shemozzle appealing to every union official; a shemozzle all about protecting the leader. There is no good policy here. It is bad policy. What is more, it is incompetent and malicious.

Schedule 2 of this bill inserts new subdivisions into the Income Tax Assessment Act as well as the Tax Administration Act that the government says will modernise transfer pricing rules. Our transfer pricing rules have been rarely amended and they have largely stood the test of time. Last year, the government sought to make retrospective changes to the transfer pricing law that took effect from 1 July 2004. Typical. The bill sought to retrospectively amend legislation to include transfer pricing articles within Australian tax treaties. It also sought to clarify the interaction between transfer pricing and thin capitalisation rules, which had previously only been dealt with through administrative arrangements.

The coalition opposes retrospective tax changes as a matter of principle. That is why we oppose the bill. How can anyone get on with the job of living their daily life, complying with the law as it stands, when along will come Labor in the future to introduce laws that say they broke the law today? That is why the Liberal Party is, in principle, always going to oppose retrospective changes. We understand that retrospective legislation can change the substance of transactions struck between taxpayers who have made every effort to comply with the prevailing law at the time of the agreement. It can expose taxpayers to penalties in circumstances in which taxpayers could not possibly have taken steps at the earlier time to mitigate the potential for penalties to be imposed. It may change a taxpayer's tax profile, which in turn can materially impact the financial viability of investment decisions and, of course, the pricing of those decisions.

Most importantly, the retrospective application of the change will heighten Australia's level of perceived sovereign risk. 'We have trashed everything else so let's give sovereign risk a go,' says Labor. At the time, the government refused to answer questions around the quantity of revenue at stake. It was only after questioning at Senate budget estimates last year and a subsequent response to a question on notice that the ATO advised that there was $1.9 billion of primary tax in dispute in relation to transfer pricing issues for audits current at the time.

We find ourselves in a very similar position today. We have a bill before the House dealing with significant changes to important legislation that has not been given due process in this parliament and has not been given proper scrutiny. But Labor wants to ram it through. It does not have any regard or respect for taxpayers. That is why we are going to pursue it in the Senate.

The bill before the House seeks to replace the existing transfer pricing rules in division 13 by inserting these into three subdivisions in the Income Tax Act 1997—companies, branches of companies, and trusts and partnerships. It also inserts a subdivision into the Tax Administration Act in relation to record keeping and penalties that may be applied by the commissioner. The amendments within this schedule align with the internationally consistent transfer pricing approaches as set out by the OECD. These amendments apply to both tax treaty and non tax treaty cases. These amendments also contain specific rules relating to transfer pricing documentation.

These new rules are self-executing—that is, taxpayers will now apply the new transfer pricing laws on a self-assessment basis. The commissioner may challenge a taxpayer's calculated tax result, to which the taxpayer may then respond. To the extent that taxpayers may apply these complex rules when they did not previously, an increase in compliance costs is likely.

The complex and costly compliance rules impose a much greater requirement to keep contemporaneous documentation on small and medium business impacted by the de minimis thresholds that apply to the bill—more red tape. The de minimis threshold at which entities need to apply these complex and costly compliance rules at face value appear to be too low relative to the revenue risk. My colleague the member for Dunkley has raised this issue as well. I am not sure if he is speaking on this bill.

Mr Billson: I am.

Mr HOCKEY: There is no-one in the Labor Party who has ever worked in a small business, is there?

Mr Billson: No-one.

Mr HOCKEY: And they have had quite a few small business ministers in the last five years.

Mr Billson: Five.

Mr HOCKEY: Five small business ministers in five years.

Mr Billson: Four in the last 15 months.

Mr HOCKEY: Labor has had four small business ministers in the last 15 months.

Mr Stephen Jones: I rise on a point of order. While like any member here I enjoy banter between the member for North Sydney and the member for Dunkley, I would ask you to direct the speaker to make his contributions through the chair.

The DEPUTY SPEAKER: I ask that the minister direct his comments through the chair and ask him to remain relevant.

Mr HOCKEY: I am directing my comments through the chair and I am directly relevant. That is why I just talked about the red tape impact on small business. I cannot see how that is not relevant, Mr Deputy Speaker. I am mindful of the fact that the government has made such a mess of this bill and maybe one of the reasons is that it has had five small business ministers in five years and four small business ministers in the last 15 months. That might be related to the fact that hardly anyone in the parliamentary Labor Party has ever worked in small business—hardly anyone. Has anyone in the Labor Party worked in small business? I cannot hear a word. No. They would not know what the red tape burden is. I can tell you what the red tape burden is: it costs money; it costs jobs. Many submissions to the House economics committee inquiry argued that the de minimis threshold should be raised and that doing so would not put revenue at risk. It would result in large savings in compliance cost and reduce complexity, especially for small- to medium-sized enterprises.

We are just asking why the government is so committed to this bill. Why is it so rushed? We are concerned that the design and drafting of this schedule may have been rushed. It requires further testing. That is consistent with the submissions from the Corporate Tax Association, PricewaterhouseCoopers, KPMG and the Tax Institute. For example, on page 7 of its submission to the committee, the Tax Institute said: 'We are concerned that the bill as currently drafted would not yield many of the lauded simplicity and certainty benefits and will increase the compliance burden, especially and disproportionately on small to medium enterprises.' Is anyone listening? These are submissions that are saying that this will mean more red tape for small- and medium-sized business and that you have got it wrong.

We find it difficult to fathom how the financial impact of this schedule is estimated at zero extra tax dollars per year whereas the financial impact of schedule 1, relating to general anti-avoidance provisions, is expected to prevent the loss of over a billion dollars per year. Where does that number come from? It has been plucked out of the air. We have an impressive record in relation to tax simplification. We have an impressive record in relation to tax reduction. But it is the Labor Party that is introducing bills while refusing to facilitate proper scrutiny, and they just keep getting it wrong: exhibit A, the mining tax; exhibit B, the carbon tax; exhibit C, the 27 new or increased taxes Labor has introduced. We will oppose this bill because it is bad legislation and the format in the House is a disaster.