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Monday, 19 October 2015
Page: 11622

Ms MARINO (ForrestChief Government Whip) (18:55): I rise to support the Tax Laws Amendment (Combating Multinational Tax Avoidance) Bill 2015. I cannot ignore the comments by the member for Griffith. They were quite embarrassing when you consider it. She spoke about a range of issues around this policy but totally ignored the absolute failure of the Minerals Resource Rent Tax. When discussing what could or could not be earnt, we know that Labor not only made some incredible projections with the mining tax, which basically did not raise anywhere near what Labor said it would. Not only that, they actually spent the money before they got it. Therein lies one of the challenges that face this government.

The member also made reference to debt. I know what debt and deficit are, and they were left to us by Labor. Looking at what Labor left us with, I came across this quote by Dwight D Eisenhower—and this is what Labor did:

As we peer into society's future, we—you and I, and our government—must avoid the impulse to live only for today, plundering for our own ease and convenience the precious resources of tomorrow. We cannot mortgage the material assets of our grandchildren without risking the loss also of their political and spiritual heritage. We want democracy to survive for all generations to come, not to become the insolvent phantom of tomorrow.

Labor basically spent our grandchildren's inheritance. They left intergenerational debt for children in this country. That is what they left us with.

As we know, with tax there is a conflict as old as civilisation. As long as there has been both money and government, there has been a fight conducted by those who make it to keep it from the government, which both wants and needs it—perhaps these two in differing amounts. It was Einstein who said:

The hardest thing in the world to understand is the income tax.

We have heard about the tax system going back to ancient Egypt. Early taxation is also described in the Bible. It was in Genesis, I think:

But when the crop comes in, give a fifth of it to Pharaoh. The other four-fifths you may keep as seed for the fields and as food for yourselves and your households and your children.

But as long as there has been tax there has been tax avoidance. In fact, many historians have suggested that tax avoidance played a role in the collapse of major civilizations.

As we know, 70 per cent of Commonwealth revenue in Australia comes from personal and corporate income taxes. The ATO notes that 69 key taxpayers, with a turnover of more than $5 billion annually, represent 42 per cent of the entire corporate tax base, and that financial services and the mining industry represent over half of all corporate tax revenue. Our 30 per cent corporate tax rate is similar to the average corporate tax rate of that of the 10 largest economies.

As we know, there are major disrupters to Australia's tax system, as well as international tax systems—disruption caused by the exponential improvements in the reach and efficiency of the internet, as well as significantly increased globalization. All mean that we have an interconnected marketplace in which multinational companies operate.

The bill before the House today implements the government's 2015 budget commitment to combat multinational tax avoidance. This delivers on our promise to ensure that Australia is at the forefront of the international fight against tax evasion. We already have some of the strongest taxation integrity rules in the world, and we are determined to make these rules stronger still. We know that some multinationals continue to try to avoid paying tax on Australian profits. This undermines the public's faith in the tax system and leaves families and small businesses to unfairly carry the taxation burden.

Australia has been at the forefront of the global response to multinational tax avoidance. Under this government's leadership, the first of the OECD-G20's base erosion and profit-shifting recommendations were delivered. Australia is continuing to work with the OECD and G20 to promote greater integrity in the international tax system and ensure that entities pay tax where they have earned their profits. The OECD will report to the G20 finance ministers in October 2015 on the outcomes and final recommendations of its action plan on base erosion and profit shifting.

While our international efforts are important, it is vital that we take appropriate action now, as this government has done, to better protect Australia's tax base. Last year, the government took action to tighten Australia's thin capitalisation rules to limit the scope for multinationals to claim excessive debt reductions. In the 2015 budget, the government announced a package of measures that will level the playing field for local businesses and ensure that competitors pay their fair share of tax. This bill represents part of that package and implements a new multinational anti-avoidance law, stronger penalties for large companies that engage in tax avoidance and profit shifting, and country-by-country reporting to give tax authorities greater visibility of multinationals' tax structures. These three measures will apply to over 1,000 large multinationals operating in Australia with an annual global revenue of $1 billion or more. The measures are consistent with the government's commitment to deregulation and our support of small business.

Schedule 1 to this bill amends the Income Tax Assessment Act 1997 to include a standard and centralised set of concepts that can be used to determine whether an entity is a 'significant global entity'. An entity is a significant global entity for a period if it has annual global income of A$1 billion or more. It may be a significant global entity as well if it is a member of a group of entities that are consolidated for accounting purposes as a single group and the global parent entity of the group has an annual global income for the period of A$1 billion or more. A global parent entity is one that is not controlled by another entity according to accounting principles or, where accounting principles do not apply in relation to the entity, commercially accepted principles related to accounting. A global parent entity will usually be a member of a group of entities where the global parent is the one that is not controlled by any of the others. Subsidiaries of the global parent may be located in other jurisdictions. However, it is possible for a global parent entity to be a single entity that does not control any others. So, if a global parent entity is a member of a group that are consolidated for accounting purposes as a single group, the global parent's annual global income for a period is the total of the annual income amounts of the consolidated group as shown in the total or disclosed in parts in its latest global financial statement for that period.

Schedule 2 of this bill implements a new multinational anti-avoidance law from 1 January next year. This will stop multinationals artificially avoiding a taxable presence in Australia, delivering on our 2015 budget commitment to target major entities with significant Australian activities that avoid booking profits in Australia. The tax office estimates that around 30 large multinationals are engaging in commercial activities in Australia but use contrived structures to book billions of dollars of revenue overseas and avoid Australian tax. The new multinational anti-avoidance law will allow the Commissioner of Taxation to force those companies to pay tax in Australia on profits from economic activities undertaken here. This is the right and fair thing to do, as Australian taxpayers and small businesses would say. We have strengthened the law by removing the condition for multinationals to operate in a no-tax or low-tax jurisdiction. All significant global entities with revenues over $1 billion that book their revenue offshore will need to consider these rules and may need to review their structures. This simplifies the law and makes it easier for the tax office to apply, removing the need to prove an additional requirement. As a result, if a multinational has a structure with a principal purpose of avoiding tax, the tax office will have the tools to catch it and ensure it pays its fair share.

By removing the no-tax or low-tax condition and relying solely on a principal purpose test, the government is sending a very clear message that, if a company deliberately and artificially avoids paying tax in Australia, this is not acceptable. This rule will complement our existing anti-avoidance rules for multinationals by clarifying that the specific arrangements used by multinationals selling into Australia are considered to be tax avoidance. This new measure 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 by lowering the purpose test from 'sole or dominant purpose' to 'one of the principal purposes'. This new measure will force entities to book their revenue here, in Australia, where they have significant sales activity. Where a tax avoidance scheme is identified, the Commissioner of Taxation will be able to apply the tax rules as if the multinational had booked the profit from Australian sales in Australia. The company will have to pay the tax they owe on these profits, plus interest, and double the existing maximum penalties for tax avoidance and profit-shifting schemes. This new measure will protect our tax base by acting as a deterrent to companies to engaging in complex schemes. Companies that pay their fair share of tax will no longer be at a competitive disadvantage.

Schedule 3 to this bill doubles the penalties for large companies that enter into tax avoidance or profit-shifting schemes. The maximum penalty applicable will be 120 per cent of the amount of tax avoided under the scheme. Schedule 4 implements country-by-country reporting from 1 January 2016. Australia is leading the way, and we expect the country-by-country measures to be implemented by other jurisdictions around the world. Country-by-country reporting will require large multinationals to report to the Australian Taxation Office their income and tax paid in every country in which they operate. This will be exchanged between tax authorities to assist in the assessment of transfer pricing risk and targeting of audit inquiries.

Consistent with the OECD s guidance, this schedule will also require two more reports to help manage transfer-pricing risk. Companies will be required to lodge a master file, which will require detailed information on the multinational's organisational structure and financial activities. Companies will also be required to lodge a local file, which will focus on specific information on transactions between the reporting entity and related entities in other countries. This will include the entity's detailed analysis of the transfer pricing determinations they have made.

The government's measures are well-considered and balanced and will effectively strengthen our tax system to ensure that it is fair and sustainable. The government will report to G20 finance ministers in October 2015 on the outcomes and final recommendations of our tax avoidance agenda. This government will continue to take the lead in the OECD and the G20, and the final recommendations will provide a strong platform for even further action towards strengthening the integrity of our tax system and making sure that those entities that earn profits in Australia pay tax in Australia.