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Monday, 19 October 2015
Page: 11600


Mr PASIN (Barker) (17:16): I rise today to speak on the Tax Laws Amendment (Combating Multinational Tax Avoidance) Bill 2015. This bill seeks to address the challenges and the increasingly globalised market created for sovereign taxation collection. It is often said—indeed, the member for Moreton said it himself—that two things in life are certain: death and taxes. But it is becoming increasingly clear that some multinational companies are effectively avoiding the latter.

Taxes are a fundamental prerequisite for effective governance. Without tax, governments cannot fulfil their roles. Taxes have been with us since ancient Egyptian times and were formalised under the Roman Empire. These taxes initially were raised to aid the state in arming various militias and armies in defence of the state. The Greek historian Herodotus claimed taxes in Egypt provided a better standard of living, based on overall health of the people, than most other civilizations he had seen. Documentation dating back the first dynasty in Egypt, between 3000 and 2800 BC, shows evidence that pharaohs appeared before the people to collect taxes. The royal tour, called the Following of Horus, made it clear that tax revenues were due to the Pharaoh as the head of the state. Unable to handle the process themselves, pharaohs appointed ministers called viziers who acted as tax supervisors. The viziers kept records of taxes collected and ensured that the needs for labour and grains were met.

'No taxation without representation' was the cry which unified the forefathers of our close ally the United States to seize their independence from the British. Tax, indeed, has quite a long and chequered history.

Tax avoidance is a problem that has confronted authorities since taxes were first imposed by authorities. In ancient Egypt, the Pharaoh had to send auditors to ensure that people were not seeking to avoid their tax on cooking oil. In modern times, it is essential that we, too, ensure that taxes are paid. The rapid globalisation of the world economy has delivered new mechanisms for those that wish to avoid their responsibilities. This is especially true of large multinational corporations who can leverage their size and multinational structure to manipulate profits and artificially minimise those tax liabilities.

Taxes have always been a mechanism to redistribute resources to fund the governance of a given nation, and taxes are often a reflection of the values of a community. I am in agreement with Herodotus that effective taxation coupled with responsible government delivers better outcomes for all citizens. An effective taxation system is, indeed, a fundamental requirement in the governance of any nation. It is, of course, a finite and precious resource. Indeed, in the coalition we understand our obligation to apply these finite resources wisely. Whilst this government is cutting back on unnecessary spending, we must also address the issue of multinational tax avoidance. This government treats this issue with the upmost seriousness, as each and every dollar that is forgone through tax avoidance is a missed opportunity. We are opening our markets through our free trade agreements with China, Korea and Japan, alongside the recently announced Trans-Pacific Partnership. Australia is firmly situated in an enviable global position. Part of ensuring that our businesses are not disadvantaged in this new and freer market is to police multinational tax avoidance.

The coalition is committed to lower and simpler taxes. Australians understand the importance of tax, and the vast majority of taxpayers pay their fair share. Australian taxes enable our comprehensive social welfare and healthcare systems. Australian taxes deliver capabilities which ensure our national security through our potent Defence Force and our profession national security community. It is Australian taxes that deliver our world-class education system through funding for the early childhood, primary, secondary and tertiary education sectors. It is Australian taxes which enable this government to unlock the potential of each and every Australian citizen.

Australians families pay their taxes, Australian farmers pay their taxes and Australian small businesses pay their taxes. It is only fair that we ask large multinational companies to pay their fair share. Currently, large corporations simply are not doing enough, and that is why we have taken measures in this bill to enhance the government's response to this important issue. Whilst there has been much rhetoric on this issue, especially from those opposite, we are taking the necessary action to deal with this issue. This bill delivers on our commitment to deal with this issue.

At this point I would like to reflect on the member for North Sydney and his time as Treasurer. He delivered a budget in 2014 and another in 2015 and he took a leading role in this space in the G20. I spoke in my maiden speech about political courage. I would like to acknowledge the political courage of the member for North Sydney in his time as Treasurer of this nation. We see some of the dividends of that courage in this bill and in the way that he has led the globe in addressing this issue of multinational tax avoidance.

Some multinationals are artificially structuring to avoid Australian tax by booking revenue from Australian sales offshore. This means they have an unfair advantage over local businesses, families and small businesses, who have to shoulder more of the tax burden, and it undermines confidence in our overall tax system. We are committed to ensuring Australia has a fair and sustainable taxation system. That requires a steady, constant and consistent approach. Whilst we have delivered lower taxes for Australians, we must also ensure consistency in the manner in which businesses are taxed. The current system benefits big business and ultimately hurts the Australian taxpayer.

This bill implements three 2015 budget measures to level the playing field and ensure multinationals pay their fair share of tax: the multinational anti-avoidance law, to encourage entities to book their revenue in Australia when they have significant sales activity here; stronger penalties to combat tax avoidance and profit shifting, to deter taxpayers from taking aggressive tax positions; and country-by-country reporting and new transfer-pricing documentation standards, to give the Australian Taxation Office a greater ability to assess transfer-pricing risks. These measures will apply to large multinationals with annual global revenue of $1 billion or more. It is these large multinational companies that represent the highest risk to the Australian tax base.

If we do not take the action required and deliver the measures in the bill, we are missing an opportunity and letting down our citizens most grievously. This bill is utterly consistent with the government's commitment to levelling the playing field for small business. These actions will strengthen Australia's taxation system, but further effort is still required. We acknowledge that there is more work to be done in this space and we are working towards innovative and effective tax reform. Yet it is absolutely evident that we must take measures to combat multinational tax avoidance.

The multinational anti-avoidance law will allow the Commissioner of Taxation to treat these large multinationals as though they have a taxable presence in Australia and subject them to Australian tax. The package implements a new multinational anti-avoidance law from 1 January 2016, to stop multinationals artificially avoiding a taxable presence in Australia. This bill delivers on our 2015 budget commitment to target major entities with Australian activities who avoid booking profits in Australia. Whilst we made this undertaking in the budget, this bill, introduced on Wednesday, 16 September 2015, is an even stronger piece of legislation. This should highlight the government's resolve in ensuring tax is correctly calculated and paid.

The multinational anti-avoidance law will be broadened so all 'significant global entities' with revenues above $1 billion will be included. That is over 1,000 companies that will need to consider these rules. This means that, if you are structuring with a 'principal purpose' of avoiding Australian tax, the Australian tax office will have the tools to catch you and ensure that you pay your fair share. By removing the 'no or low' tax requirement and relying solely on a 'principal purpose' test, we are sending a clear message that it is not acceptable to deliberately and artificially avoid paying Australian taxes. Removing the 'no or low' requirement will also provide additional certainty and minimise disputes around whether a company operates in a 'no or low' tax jurisdiction where it is clearly structured for the purpose of avoiding tax. The new law targets the specific behaviour of around 30 companies that are believed to be artificially booking revenue in 'no or low' tax jurisdictions and avoiding Australian and foreign taxation. These companies are undertaking significant work in Australia, selling to Australians but using contrived structures to book revenue overseas and avoid paying Australian taxes. It is simply wrong for those companies to take advantage of the stability and affluence of the Australian market without paying their fair share of tax.

There is a strong moral and economic imperative to paying adequate taxation. Taxation fundamentally enables this government's capacity to govern this nation, further facilitating the prosperity of this nation. Without adequate tax revenue, government cannot govern and prosperity will be negatively influenced. It is crucial that multinationals pay their fair share. This bill and the measures within it complement the existing general anti-avoidance rule by clarifying that the specific arrangements used by multinationals selling into Australia are considered to be tax avoidance and will make it easier for the ATO to establish a case by catching arrangements that are designed to obtain both Australian and foreign tax benefits, and lowering the purpose test from 'sole or dominant purpose' to 'one of the principal purposes', making it easier to apply. This effectively delivers a better outcome for the taxpayer. This measure will allow the Commissioner of Taxation to treat these large multinationals as though they have a taxable presence in Australia and are subject to Australian tax. Multinationals will now be required to pay tax on profits from Australian activities. The legislation will also protect Australia's tax base by acting as a deterrent to companies from engaging in complex schemes.

The coalition understand the importance of responsibility. We understand the importance of delivering adequate and proportional penalties across the legislative space. The status quo is simply not good enough when it comes to large multinational companies and tax compliance. The government has taken a hard but necessary stance in strengthening penalties. It is a stance completely consistent with our values. Consistent with the government's position on tax avoidance, this bill doubles the maximum administrative penalties that can be applied by the Commissioner of Taxation to large companies that enter into tax avoidance and profit-shifting schemes. We take tax avoidance seriously and we know that these penalties will deter multinationals from entering into contrived tax avoidance and profit-shifting schemes. Deterrence is recognised as a key element in the fight against tax avoidance behaviour. It is crucial that we impose significant costs on doing the wrong thing. Currently, doing the wrong thing delivers a financial benefit to big business. It is through measures such as strengthening and doubling the penalties that we shift the cost-benefit analysis and change the status quo. Multinationals have dedicated resources for tax minimisation, greater opportunities to avoid tax through offshore activities and larger potential gains to be made if they are successful in avoiding tax. Stronger penalties are required to help deter major taxpayers from taking aggressive tax positions.

As always, this government is not seeking to punish those doing the right thing. Companies that are not engaging in illegal tax avoidance will not be affected. This government is not looking to punish those who have sought to do the right thing and obtain professional advice that can be considered reasonable. This government is committed to a safe, secure and prosperous Australia. This bill delivers on that commitment. Through claiming forgone revenue we strengthen our revenue base and secure it against disruption caused by the globalised economy. This bill levels the playing field and ensures that big business multinational companies are paying their fair share. This bill takes steps toward bringing our tax system into the 21st century.