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Monday, 19 October 2015
Page: 11582


Mrs PRENTICE (Ryan) (15:58): I rise to offer my support for the Tax Laws Amendment (Combating Multinational Tax Avoidance) Bill 2015. I am always pleased to support legislation that fulfils three key criteria: firstly, it is necessary; secondly, it is considered; and, thirdly, it is proportionate to the problem it seeks to resolve. This bill ticks all three boxes. It is in keeping with the government's broad and determined commitment to ensure that companies that earn income in Australia and benefit from the Australian economy pay their fair share of tax here. It is a simple principle but, for reasons that I will outline, it is increasingly difficult to administer in the modern, global, connected community.

This is fundamental question of fairness and equity. Companies that earn income in Australia should pay their fair share of tax in Australia. Most are happy to comply with their obligation, in this regard. Small- and medium-sized Australian businesses or businesses with a significant bricks-and-mortar presence in Australia do not, generally, have the ability to significantly reclassify revenue for the purposes of tax avoidance. Small- and medium-sized companies do not fall within the scope of this bill. Instead, it specifically targets revenues earned by large multinational corporations, companies that conduct business in Australia and overseas.

With advances in technology, in recent decades, the geographical location of a company and where it does business has become blurred. For example, 30 years ago it would have been rare for customer service and support to be provided by an overseas call centre. Twenty years ago it was rare for an Australian, living in Australia, to purchase retail goods from an overseas retailer. Ten years ago we could not have envisaged using mobile apps based overseas to book car journeys or private accommodation in Australia.

The increasingly globalised and digitalised economy is a net benefit for relatively small, modern, open, trade oriented countries, such as Australia. The downside is that these market conditions make it easier for companies to use convoluted accounting tricks to minimise their tax obligations in relatively high corporate-tax jurisdictions, such as Australia. By way of example, in recent months the political lexicon has been treated to a profit-shifting measure known exotically as the 'double Irish Dutch sandwich'. I will spare the House the complexities of this arrangement but, suffice to say, it is a method by which multinational corporations engage in channelling profits from Australia and elsewhere through a variety of Irish and Dutch subsidiaries. The profits then end up in a tax haven beyond the reach of the Australian Taxation Office.

This sort of creative accounting by multinational corporations fails the fairness test. It allows them to dramatically reduce their overall corporate tax rate, which denies revenue to the Australian government to fund necessary services for Australians. This means that more of the burden of taxation must be borne by other companies and individual taxpayers. It also gives multinationals operating in Australia an unfair competitive advantage over smaller competitors that either lack the multinational reach to engage in similar practices or are unable or unwilling to do so.

The coalition government made a clear commitment to address tax avoidance as part of the 2015-16 budget. This bill delivers on that commitment. Schedule 1 to the bill defines the bill's scope. It targets large foreign multinationals. The bill defines these as 'significant global entities' with a global turnover of more than $1 billion dollars per annum. The Australian Taxation Office has identified about 30 companies that are targeted by this law. In total, about 100 companies may need to review compliance with the new laws.

Schedule 2 to the bill introduces the multinational anti-avoidance law. This law will take effect on 1 January 2016 and will target artificial or contrived arrangements to avoid the attribution of business profits to Australia—arrangements such as the double Irish Dutch sandwich earlier described. Multinationals found to be avoiding Australian tax under the new anti-avoidance laws will not only have to pay back the tax they owe but also will face additional penalties of up to 100 per cent of the value of the tax owed.

Schedule 3 to the bill doubles the penalties for tax avoidance and profit shifting. Schedule 4 to the bill implements Australia's commitment to country-by-country reporting under the Organisation for Economic Cooperation and Development's action plan for base erosion-and profit-shifting.

This has been a multilateral effort, over several years, to achieve a coordinated approach to monitoring and reporting transfer pricing. The extent of transfer pricing undertaken, across national boundaries, by multinationals is not fully understood by governments, which limits effective monitoring. With the implementation of these new documentation standards, governments will have more visibility over transfer-pricing practices, which will aid enforcement and improve compliance.

As has been the case, previously, the ATO will retain a policy that rewards proactive disclosure and will look favourably upon companies that take positive steps towards complying with the new laws. The former Treasurer noted, in introducing this bill, that the tax office has already been contacted by some companies seeking information about how they might restructure their activities to improve compliance. This is a good sign that the proposed changes are well targeted and will achieve the intended effect.

The contents of this bill will not come as a surprise to industry and other stakeholders. Exposure drafts covering the contents of this bill have been released publicly and stakeholder comments invited. Feedback from the consultations has been taken into account and is reflected in the contents of the final bill. This bill is just the next step in the coalition government's ongoing reforms of Australia's taxation system. The government is pursuing tax reform to make our system more competitive and efficient and to reduce its complexity.

Already, we have introduced a suite of small-business-friendly measures, including tax cuts, extensions to tax write-offs and other initiatives to reduce red tape for small businesses. We have also secured in-principle agreement from the states and territories to apply the GST to products purchased online from overseas—another initiative that will level the playing field for small- and medium-sized businesses in Australia.

In closing, I reiterate that this bill should be supported because it is necessary, it is considered and it is proportionate. That it ticks all three boxes is a credit to the former Treasurer, the member for North Sydney, who has long been a champion for reform of taxation relating to multinational entities. If this legislation is to form part of his legacy then it is a fine legacy, indeed. I commend the bill to the House.