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Monday, 19 October 2015
Page: 11526


Mr NIKOLIC (Bass) (12:24): I always listen with interest when the member for Fraser is speaking; but at the end of his contribution I heard him speak about debt and deficit, which is dangerous ground for the members opposite, given that when we came to government debt was on a trajectory to $667 billion a day, our country was borrowing hundreds of millions of dollars each week more than it was earning in revenue and we had spent the legacy that had been bestowed by the Howard government at the end of 2007.

Nevertheless, I appreciate the opportunity to contribute to the Tax Laws Amendment (Combating Multinational Tax Avoidance) Bill 2015. That is because the issue of multinational tax avoidance is one that hurts every country regardless of its size or the nature of its economy. Without fair and appropriate tax revenue, no government can progress its agenda or provide the wide array of services that matter most to its people and which are amongst the hallmarks of a civilised society. These services include health, education, employment services, social security, research and development funding, defence and national security. Each of these, and a myriad of others, are both vital and expensive. Inevitably, too, they occupy the heartland of tax and tax related reform.

In Australia's case, the issue of fair tax revenue is made even more important, even acutely so, by declining revenue from the most recent resources boom. Over the last decade or so, this boom has provided strong, reliable income for many Australian companies, delivering significant tax revenue to government. It is vitally important that a fair share of tax is paid on income earned.

Let me be very clear about this: those who, by whatever means, seek to avoid their taxation responsibilities are an unacceptable drain on our society. Those engaging in such behaviour are all too often short sighted. This is because, in an often futile effort to advantage themselves, they inevitably short change their own future opportunities and, on the balance of probabilities, will likely be caught anyway by a raft of increasingly sophisticated measures, technologies and ever tightening legislation, of which this bill represents a current case in point. When—rather than if—such individuals or organisations are identified, they will be appropriately dealt with by our laws. A wide range of penalties may be imposed, including those of a financial and punitive nature.

But let me start with a rhetorical question of sorts: where does this bill sit in the hierarchy of modern tax reform? It is, of course, not the be-all and end-all of tax control, legislation and/or reform, nor will it be the last such reform to warrant wide consideration, discussion and action in this House and in the Senate. But, nevertheless, it does constitute an important step in compelling large profit-making entities in Australia and further afield to pay their way and to contribute fairly to the betterment of the lives of all Australians.

I would like to provide a grassroots view of this matter, which strikes to the heart of why this bill is important, the extent of the community feeling it arouses and the way in which it reflects and may even assuage strong community sentiment. Each of us in this House is privileged to represent a unique part of the Australian federation. While each of our electorates is very different, I would hazard to say that they do have at least three things in common. This is the common ground of financial livelihood, a reality felt keenly in and across each and every Australian electorate from north to south and east to west.

First, each of our electorates is populated by a majority of people who might well describe themselves as being average, everyday Australians. They would also likely say that they are doing their level best to improve their family's lot in life. This means keeping the most of what they earn to expend on their cost of living. Second, many of these Australians tell me that alleviating cost-of-living pressure is their key concern. I hear this all the time in calls, emails, survey responses and other encounters. It is a very strong message that everything seems to be getting more expensive everywhere. Third, again to a person, most would refer to their tax burden as being too high, particularly for those being paid average wages. The system of tax must address the conduct of those individuals and companies who try to avoid paying their fair share of tax. If anyone doubts these observations, come and join me in Launceston, Scottsdale, George Town or any number of beautiful places in my electorate of Bass, and we can start a discussion along these lines. These views will be put often and often very forcefully.

This then is the overarching intent and point of this bill. It seeks to inject greater fairness back into the system, so that those who can most afford it are no longer afforded the dubious luxury of evading their tax responsibilities. To put it another way, it means that the future tax base will not be disproportionately borne by the mass of those who can least afford to do so. This is putting the fair fiscal go back into what it means to be an Australian.

To those who might say that this reform is late in coming, I would simply say that the issue of tax reform, like most other public policy or even life itself for that matter, remains a continual and often dynamic work in progress. To this end, this bill represents a constructive reform for all Australians. By its passage, it will exert a material impact on the schools, hospitals and other public facilities and infrastructure of the 21st century for all Australians.

In introducing further facets to this bill, the government has in fact employed a pragmatic carrot-and-stick approach. The carrot derives from the enhanced clarity which will be afforded through the introduction of new OECD standards on transfer pricing documentation and country-by-country reporting. Of course, the stick relates to the introduction of larger penalties for profit shifting and tax avoidance. Without the dual and complementary elements of this carrot-and-stick approach, it is unlikely that the desired rate of compliance would be achieved.

Allow me now to make a few additional observations about each of these carrot-and-stick measures. The issue of country-by-country reporting is a key plank in reducing and even closing existing opportunity for large multinationals operating in Australia to evade their tax responsibilities to this Commonwealth. The key weapon being used here is that of clarity, borne of the future lawful requirement for relevant high-earning multinationals to report annually by way of a statement to the tax commissioner with key information sufficient to enable that statutory officeholder to carry out transfer-pricing risk assessments. This information will likely include some or all of the following three key elements: first, a country-by-country report containing information on the location of the economic activity undertaken by that multinational group; secondly, a master file which provides a high-level description of the multinational group's business operations; and, thirdly, a local file describing the Australian entity's, operations and cross-border related party transactions.

The absence of such annual information until now has in effect supported the ability of large entities to evade, at least in part, their fiscal responsibilities to Australia and its overall common good. In turn, the combination of both the omission of such a reporting requirement together with the natural tendency of large corporates of every kind and nationality to seek to maximise profit has cost Australia and its people significant revenue flow, shifting the tax burden elsewhere. In retrospect, such financial losses are significant, regrettable and even amoral. Accordingly, closing the administrative reporting shortfall that allowed them to occur in the first place does this government and this parliament much credit.

The government's adoption of the OECD's country-by-country reporting standards, starting after 1 January 2016, requires multinational companies to provide the ATO with a much more comprehensive picture of their worldwide operations, including subsidiaries wherever they are located. The new transfer-pricing documents will show the revenue, profit, tax paid and the numbers of employees in each country the multinational operates in. The ATO can then use this information to assess the risk more effectively.

In addition to the future regime of the reporting just described, the other edge of this government's weapon against such revenue loss is punitive in nature; it enforces compliance. These amendments double the maximum administrative penalties for large companies that are found to have entered or to have engaged in tax avoidance or profit-shifting schemes. These increased penalties apply only to companies with annual global revenue exceeding $1 billion and that do not adopt a tax position that is reasonably arguable. Judgements about whether or not a multinational has a reasonably arguable position about a related party transaction turns on factors like whether the transaction is a genuine arm's length price and whether appropriate processes were followed.

It is worth nothing that multinationals with revenue over $1 billion covers around 90 per cent of all multinationals' revenue in Australia which will be subject to the stronger anti-avoidance rule. This will capture artificial or contrived arrangements that are designed to avoid a taxable presence in Australia. We expect this new rule will apply to approximately 30 large multinationals. It is anticipated that significant diverted profits will be brought back into the Australian tax net. In so doing, the government, through this bill, seeks only to be fair and to achieve an equitable state of balance. This is a balance between the need to curb multinational tax avoidance whilst also continuing to encourage multinational business activity in Australia. Future business activity by multinationals will continue in so many ways to stimulate and support our economy, including, not least, the provision of employment opportunities, which are themselves the source of individual tax revenue.

It is worth noting that, in addition to the government's multinational tax avoidance agenda, we are also moving on other fronts to boost compliance. That includes efforts to ensure a level playing field for domestic suppliers of intangible services like movie downloads, which the member for Fraser mentioned, where we are applying the GST to digital services sold into Australia from offshore. This is expected to raise $350 million over the forward estimates—all of which goes to the states. This measure complements the work being done through the OECD and the introduction of similar rules in a range of countries, including Japan, South Korea and EU member states.

I also highlight the announcement in this year's budget that $128 million will be allocated to establish a new interagency task force to tackle serious financial crime. Agencies involved in this effort include the Australian Crime Commission, the Australian Federal Police, ASIC and the ATO.

In conclusion, allow me to reiterate to the House the importance of this bill, which is aimed largely at securing the lifeblood of Commonwealth expenditure for the future wellbeing and benefit of all Australians. This lifeblood is in fact the 'common wealth' of the Commonwealth of Australia. As such, it is only right and proper that every reasonable and prudent step be taken to garner and protect it now and in the future. I commend the bill to the House.