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Monday, 19 October 2015
Page: 11630


Mr MORRISON (CookTreasurer) (19:34): Firstly, I want to thank all those members who have contributed to this debate on the Tax Laws Amendment (Combating Multinational Tax Avoidance) Bill 2015 and I want to thank the opposition for their support for the bill. The government will not be supporting the amendment to the second reading, and I will come to those matters shortly.

Multinationals need to pay their fair share of tax in Australia. We all agree with that. That is an important principle. It is one that is being pursued through multilateral forums. For some years Australia has been in the vanguard of that approach. It has led that approach, and the former Treasurer, who introduced this bill to the House, was the principal driver of that agenda for the government. I acknowledge his contribution in bringing this bill before the House because it brought to a head the matters that he had been championing through the G20 and other forums.

This bill implements the government's 2015-16 budget measures to combat multinational tax avoidance. These measures will force multinational companies with significant activities in Australia to pay their fair share of tax. This is what it does, this is what this bill is, and that is why it is a bill worthy of support. This will level the playing field for taxpayers and ensure that families and small businesses are no longer unfairly carrying a greater tax burden because those large multinational companies are not carrying theirs.

The new, broader multinational anti-avoidance law will target, at this stage, 80 large multinationals that the ATO has identified as having significant activities in Australia and as potentially using contrived structures to book billions of dollars of Australian sales overseas to avoid Australian tax. Before this bill was introduced there were only 30 such companies that were actually working with the ATO. Now that these measures are being put in place, this has more than doubled the net that the tax office has been able to put out in terms of ensuring multinational organisations will be paying their fair share of tax. So it has already had a significant impact and it is yet to pass this place. The Commissioner of Taxation will be able to force them to pay tax on profits from economic activities undertaken here in Australia. Multinationals will no longer be able to justify contrived schemes to avoid paying tax.

This rule will strengthen our anti-avoidance rules for multinationals by catching arrangements that are designed to obtain both Australian and foreign tax benefits to stop companies claiming they are only seeking to avoid foreign tax and by lowering the purpose test from sole or dominant purpose to one of the principal purpose, making it easier to apply. This means that they will now pay tax on profits from their Australian activities. That is the objective, and that is what this bill is designed to address and will address. Penalties for large companies that enter into tax avoidance or profit-shifting schemes will be doubled from 1 July 2015. These are measures with teeth.

Country-by-country reporting, a key recommendation of the BEPS process that has been worked through by the OECD, will be required, where large multinationals will need to report additional information to the ATO about what tax they are paying and where. This is a significant improvement in transparency and will help the ATO undertake targeted assessments of transfer-pricing risk. While we have not put a figure in the budget—and I note that that is one of the issues raised in the opposition's second reading amendment—I have been advised by the Commissioner of Taxation that the amount of revenue to be raised is in the hundreds of millions of dollars.

Contrary to the unfounded accusations of those opposite, this approach is actually consistent with responsible budget practice in respect of measures that are not readily quantifiable. I note that the opposition took this approach when they amended part IVA of the Income Tax Assessment Act 1936 in the 2012-13 budget, when they amended the transfer-pricing rules in 2013 and when they introduced the petroleum resource rent tax in 1987. In each instance, those opposite, when they were in government, put no revenue in the budget. That is a standard practice for these types of measures, and the government is following the same practice. But those in opposition are seeking to score, I think, quite cheap political points about this, when at the end of the day the government is following exactly the same practice that those opposite followed when they were in government.

Another thing they did when they were in government was, when they first published the mining tax measure, in the 2010-11 budget, they put a revenue figure in. They were very proud about the revenue figure. They budgeted for $12 billion of revenue over the first two years of its operation. Twelve billion dollars was going to come from the mining tax measure outlined in the 2010-11 budget. But they did not just put the revenue in; they booked the spending off the back of the revenue as well. They irresponsibly locked in billions of dollars of spending against revenue that vanished before their eyes. This government does not operate like that. This government actually carefully considers these measures. We do not get ahead of ourselves and look for the grand big press conference where they stand there and thump the table and say, 'This will raise X billion dollars.' They tried that and they got themselves into awful trouble, and this government has had to unpick these things since we came to office. The actual revenue was not $12 billion from the mining tax. Before the measure was repealed, it had raised a mere $200 million, creating a significant budget shortfall.

We are not going to repeat the folly of those opposite when it comes to these very important measures. The government is taking a strong and balanced approach to dealing with multinational tax avoidance. These measures are not about plugging a budget hole but are about achieving meaningful behavioural change around corporate tax avoidance. I want to commend the Commissioner of Taxation on the positive approach he is taking with these multinational companies domiciled in Australia. They are engaging. They are working the issues through. With the advancement of the broader multilateral approach to this issue, multinationals are recognising that it is time to bring it to account—it is time that they will have to pay tax where they earn the revenue—and they are working with tax authorities, particularly working here with our tax authorities, to ensure that these matters are resolved.

The opposition have proposed a number of measures which they claim will deal with multinational tax avoidance. That is principally by limiting interest deductions by applying worldwide gearing ratios to all multinationals. This is a very blunt instrument for the opposition to apply, and I would encourage them to think through the implications of what they are putting forward. Unlike the government's actions, these proposed changes to the thin cap rules will deter investment and cost Australian jobs. That is not just the view of the government; that is the advice I have received—that they will actually deter investment and cost Australian jobs. Investors who are principally equity funded would be particularly affected. Investors such as large pension and infrastructure funds, who invest in critical sectors such as infrastructure and are typically debt funded at the project level, would be unfairly impacted and disincentivised from investing into Australia because of the very blunt approach that the opposition are proposing, as opposed to the bespoke approach which the government is actually following, where you look at the actual project, the actual investment and the actual nature of the business activities being pursued by that company and then you tailor the tax treatment to reflect what they are actually doing.

The opposition do not do that. They just want to apply a blanket, broad based rule which takes no account of the sensitivities and nature of the investments and will, frankly, scare pension funds and others off from investing in Australian infrastructure and scare off the jobs that come with them. I do not know why they are so wedded to this particular proposal, when the measures that the government is already following deal with exactly the same issues that they are raising around thin cap rules around the world. We are leading the world on these issues. Why would they seek a point of difference on this? The only point of difference is: what the opposition are proposing to do will actually deter projects and investments and jobs. This would clearly adversely impact the legitimate activities of many multinational companies headquartered in Australia and could actually drive them offshore from where they are currently located here in Australia. Their policy on multinational tax avoiders does not really go to the heart of the issue either. The policy primarily targets debt deductions while ignoring the fact that the government has already taken action to significantly tighten Australia's defences in this area, as I just mentioned. As such, the opposition's policy does not focus on areas where there is the greatest potential to address profit shifting by multinational companies.

Our encouragement is: stay focused on the ball. You have got to follow the ball, not the man. Playing the man is what the opposition are trying to do. They played the man very much here in this very chamber the other day, raising questions about this issue and drawing links to the Cayman Islands and the Prime Minister. They are playing the man, not the ball. The ball is: ensuring that we are going after the tax revenue of multinational companies, which is what our measures do. Those opposite want to play the man. They want to play the politics of envy and they want to play the politics of xenophobia when it comes to foreign investment. They can do that, but it demonstrates that they are not being part of a constructive agenda. I recognise that they are going to support the measures in this bill—as they should, because they are good measures and they will do the job—but I would encourage them to stop their process of playing the man rather than playing the ball when it comes to the issues of tax and broader economic policy in this country.

The government's measures as outlined in this bill are well considered and balanced and will, effectively, strengthen our taxation system to ensure it is fair and sustainable. We are closing the digital tax loophole also to ensure that the goods and services tax applies to digital products and services that are downloaded in Australia, and this government has taken action to tighten Australia's thin-cap rules to limit the scope for multinationals to claim excessive debt reductions.

We have asked the Board of Taxation to work with businesses to develop a voluntary code for greater disclosure by companies of their tax information. I met with the chair of the Board of Taxation today to discuss these very measures. As G20 president in 2014, the former Treasurer led the global response to tax avoidance by multinational companies. Under Australia's leadership, the first of the OECD G20's base erosion and profit shifting, also known as BEPS recommendations, were delivered last year. The OECD finalised last week its report to G20 finance ministers on the outcomes and final recommendations of the BEPS action plan.

The multinational anti-avoidance law, which is being debated here in this House this week, is entirely consistent with the final OECD report and recommendations, and the final recommendations provide a strong platform for further action to strengthen the integrity of our tax system and ensure it is fair and sustainable. We will continue to take the lead in the OECD and G20 to restore fairness in the international tax system and ensure entities pay tax where they have earned their profits. I commend the bill to the House.