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Monday, 19 October 2015
Page: 11625


Dr GILLESPIE (Lyne) (19:08): I rise to speak on the Tax Laws Amendment (Combating Multinational Tax Avoidance) Bill 2015, and I commend it to the House. Everyone has heard of the 'Who's on first, What's on second and I Don't Know's on third' routine of the famous Abbott and Costello, which has been seen on YouTube by millions of people. Before YouTube, I saw it when I was a child, and even then I understood: that is humour. But when you look at this bill, that is what comes to mind—when you hear of the double Irish-Dutch sandwich, the mechanism by which multinational tax corporations have avoided tax by shifting money between corporate identities that bear no relationship to where products are made or sold. But it has been a legal way of avoiding tax, which, as one prominent Australian outlined at an inquiry many years ago, is Australia's national pastime.

But really the things you have heard about tax avoidance in Australia look quite mickey mouse when you see some of the tricks that very clever accountants and tax lawyers have been up to in avoiding tax, not only in Australia but around the world. And because of this very issue the OECD has been very active, and we have been leading the pack. But as well as the double Irish-Dutch sandwich, there is the use of hybrid securities and various forms of thin capitalisation whereby, in essence, equity in a company is dressed up as massive debt, which then generates a massive interest payment that then goes offshore to the parent company via various other entities in other countries and, funnily enough, it might even end up in a low-taxing or no-taxing country.

There is frequent use of intellectual property fees, whereby a company operating in Australia is charged a massive IP fee which, coincidentally, matches the amount of income or profit that the local Australian identity is due to pay. Hence they avoid paying tax in Australia, and the tax is then transferred as a fee to another entity in another country, and it might do the merry-go-round as well, in the sandwich formation, and again end up in a low- or no-tax-paying entity and/or country. The old chestnut is trading hubs, whereby a product made in Australia or produced in Australia is sold for a low-profit fee but the same product, without any value adding or value creation, is resold in and out of a trading hub in another destination, or a low-tax, no-tax destination.

These are all legitimate manoeuvres, but the whole aim of the exercise is to have Australian companies that generate their profits in Australia pay tax on those profits in Australia. It is ultimately morally imperative and justifiable to have a system in place that achieves just that. We are not being mean, tricky or nasty; we are just applying common sense, because this very issue occupies the minds of many treasurers, not just the Australian Treasurer. The OECD and the G20 have had many meetings on many occasions, quite recently, and Australia has been at the forefront. The former Treasurer, the member for North Sydney, led this agenda at the G20 meeting and its subsequent meetings. The aim of the exercise is to raise money through the Australian company tax rate on profits that are made here.

Transfer pricing, trading hubs, IP fees, thin capitalisation and other forms of hybrid securities—there are a few other little tricks that they employ. It is a bit like 'Who's on first, What's on second and I Don't Know's on third' all over again. That is, you can be an entity and be resident in two countries, and when you go to pay tax in one country you say, 'No, we'll pay it over there', but then when you go over to the other country you do not pay it there, and you might even move it around. All these manoeuvres need to be addressed by multiple nations. We cannot just jump on board and do things by ourselves.

That is the whole idea of the base erosion and profit shifting conventions the OECD is employing, which they have brought to bear, and we are leading the pack. Recently, 30 multinational companies have been observed by the Australian tax office. If they are earning more than A$1 billion in revenue, they are being observed to make sure that they do not employ structures that have a principal, sole or dominant purpose for avoiding tax being paid on their profits in Australia.

With this bill, tax rules will be applied if they fail that test—or what might better be described as passing that test. If they have set up structures that have a principal, sole or dominant purpose for avoiding tax on profits on products or services made in Australia, tax rules will be applied. The tax will be levied in Australia, and there will be an interest payment and/or a fine of up to 120 per cent.

You would be surprised to hear that the lot of these things were not enforced. They make so much common sense. In the world of legislation, a complex issue often takes hours to get your head around, but this is a pretty straightforward issue. I do not think there is much objection on either side of the House or in the community—this passes the pub test, the sniff test and barbecue conversations. People are in universal agreement: that is, people should pay their fair share of tax.

I do not think we will have any objections to these rules being applied, having these treaties in place with enforcement of country-by country-reporting transparency and a common reporting standard across all these countries. Having them enforced in Australia is existentially and financially a very sound thing for the Australian tax office to do.

I am surprised we have not had a common reporting standard before. If you have all these rules in various entities in various countries, I am surprised that people have not ventured down this avenue before. It seems like the logical thing to do so that there is one rule for all. I am sure the Australian tax office will be pleased to achieve these simple, straightforward measures as $1.1 billion is a lot of money that could be applied to reducing our debt, balancing our books, providing services like Medicare or pharmaceutical benefits, providing equipment for our Defence Forces or building parts of the Pacific Highway.

One of the first things you have to do as a government is defend your nation. Two, you have to supply security for the nation. You have lots of other commitments in Australia. In Australia, we have a massive social security safety net, which takes over $140 billion of our tax revenue. What we are hoping to do is not overtax people; just make sure that these corporate or private entities using these manoeuvres are compliant with a tax regime, particularly, a tax regime in Australia when they are operating in Australia. So $1.1 billion raised from this is the estimate, but it may be much more and that would be great. It is a lot better to get some tax than a lot of nothing, which is what happened in the past.

Coming back to where I started: I hope this is the end of the double Irish-Dutch sandwich, the subway of tax accounting. We want fair and reasonable taxes paid in this country. If transparency and simple uniform procedures are achieved around the world, it would be a great thing for all countries but, in particular, Australia leading the way is a very good outcome and something that we can be proud of. I commend this bill to the House.