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Tuesday, 2 April 2019
Page: 14511


Mr THISTLETHWAITE (Kingsford Smith) (18:15): Labor supports the Treasury Laws Amendment (2019 Petroleum Resource Rent Tax Reforms No. 1) Bill 2019. This bill follows the Senate Economics Legislation Committee inquiry into corporate tax avoidance, which Labor tasked with investigating concerns about the petroleum resource rent tax regime. The government commenced shortly after their own review, which was led by Mike Callaghan. The bill gives effect to some of the government's response to that review of the petroleum resource rent tax, or the PRRT.

The bill lowers the uplift rates that apply to certain categories of carry-forward expenditure and removes offshore petroleum projects from the scope of the PRRT. The petroleum resource rent tax is a profits based tax on petroleum production. A person is subject to tax on the taxable profit they receive for a year of tax in relation to a petroleum project. The taxable profit is the person's assessable receipts less the sum of their deductible expenditure and exploration expenditure transferred to the petroleum project.

Categories of deductible expenditure are: general project expenditure; exploration expenditure; resource tax expenditure, which is grossed up by the PRRT rate of 40 per cent to give credit for royalties and excise paid on a petroleum project's output; acquired exploration expenditure and starting base expenditure, which recognises investments made in projects that transitioned to the PRRT regime; and closing down expenditure, which can give rise to a refundable credit to the extent of prior PRRT liabilities. PRRT liabilities are calculated on a project basis, meaning deductible expenditure can generally only be used to offset assessable receipts from the same petroleum project and generally cannot be transferred to other projects of the taxpayer. Exploration expenditure is an exception to this principle.

The explanatory memorandum to the bill states that the future second tranche of amendments will seek to implement during 2019 other changes announced in the government's response—namely, improved rules will be introduced to identify petroleum projects to ensure the true scope of each project is recognised; more corporate groups will be able to access the benefits of grouping, including group lodgement obligations and broader access to functional currency rules; greater certainty will be created for deductible expenditure arising before a petroleum project starts to derive assessable receipts by taxpayers being required to lodge an annual PRRT return, and receive assessments, after they start holding an interest in an exploration permit, retention lease or production licence rather than when they start generating assessable receipts from production; taxpayers will be able to use a substituted accounting period for PRRT purposes if they have adopted the period for income tax purposes; there will be a new power for the tax commissioner to administratively exempt projects from PRRT obligations where they are clearly unlikely to pay PRRT in the foreseeable future until they start production or the PRRT becomes payable; and the PRRT general avoidance provisions will be strengthened to reflect changes made to part IVA of the Income Tax Assessment Act.

Petroleum projects generally experience periods of negative cash flow during exploration and construction before a project becomes cash flow positive. Taxpayers may carry forward unutilised expenditure to offset future positive cash flow periods. This is a principle that's long been established in Australian taxation law. The PRRT applies an uplift rate to carry forward expenditure. The uplift rates are specific to different types of expenditure. Given LNG projects are characterised by long development time lines, this increases the delay between the initial investment and positive cash flow. This in turn increases the total uplift applied to expenditure over the course of the project. The Callaghan review found that PRRT uplift rates for deductible expenditure are now overly generous.

This bill proposes the following changes. For petroleum projects that successfully apply for a production licence from 1 July 2019 based on the date specified in a production licence notice, the general expenditure uplift rate will be the long-term bond rate plus five percentage points until the financial year 10 years after the financial year in which a project first derives assessable petroleum receipts. From that financial year, the uplift rate for remaining deductions will equal the long-term bond rate. For exploration expenditure incurred or transferred from 1 July 2019, the uplift rate will be the long-term bond rate plus five percentage points until the financial year 10 years after the year in which the expenditure was incurred. From that financial year, any remaining amount of exploration expenditure is maintained in real terms by applying the GDP factor until the expenditure is deducted. Where exploration expenditure incurred before 1 July 2019 is deducted within a petroleum project, the current uplift rate equal to the long-term bond rate plus 15 percentage points will continue to apply until 1 July 2019. From that date, the uplift rate will equal the long-term bond rate, plus the five percentage points will apply.

In terms of onshore petroleum projects, the PRRT originally applied only to certain petroleum projects in Commonwealth waters. Onshore projects were subject to other resource taxation arrangements, including state and Commonwealth royalties, crude oil excises and the resource rent royalty. From 1 July 2012, the then Labor government extended the PRRT to onshore petroleum projects, including coastal waters within the state and territory jurisdictions and at the North West Shelf. The Callaghan review found the extension of the PRRT to onshore projects also meant that these projects can transfer exploration expenditure to other PRRT paying projects within a wholly-owned group of companies, which is likely to have lowered PRRT revenues in 2012. This bill would remove onshore petroleum projects from the scope of the PRRT. Onshore petroleum projects are generally not expected to result in PRRT liabilities but can reduce taxpayers' PRRT liabilities for offshore projects because of the transfer of exploration expenditure. The EM states:

Removing onshore petroleum projects from the PRRT addresses the integrity risk posed by transfers of exploration expenditure and removes the regulatory burden associated with the PRRT for these projects.

As I stated at the outset, Labor supports this bill, but we do take a broader approach to taxation reform than the government. Our multinational tax avoidance approach is stronger than the government's, we're closing tax concessions that relate to negative gearing and capital gains tax that have overwhelmingly benefited those that are well off and we are also making a fairer regime when it comes to taxing family trusts.

All in all, a Shorten Labor government will tighten debt deduction loopholes used by multinational companies, improving the budget bottom line by $3 billion over the medium term; close a debt deduction loophole that ensures consistent treatment of related party financing arrangements; automatically deny deductions for companies for travel to and from tax havens and clamp down on unsubstantiated allowance relating to tax havens; increase penalties for individuals and entities promoting tax evasion and avoidance; crack down on citizenship shopping, by requiring all individual Australian taxpayers to notify and declare to the ATO if they have residency or citizenship of other jurisdictions and the name of that jurisdiction; introduce public reporting of country-by-country reports, ensuring the release of high-level tax information about where and how much tax was paid by large corporations; provide protection for whistleblowers who report entities evading and, where the whistleblower's information results in more tax being paid, allow them to collect a share of that tax penalty; introduce a publicly accessible register of the beneficial ownership of Australian listed companies and trusts, allowing the public to find out who really owns firms; introduce mandatory shareholder reporting of tax havens' exposure, requiring companies to disclose to shareholders a material tax risk if the company is doing business in a tax haven; appoint a community sector representative to the Board of Taxation; introduce public reporting of ATO transaction reports and AUSTRAC data reports to require the annual public release of international cash flow data; require all firms tendering for Australian government contracts worth more than $200,000 to state their country of domicile for tax purposes; develop guidelines for tax haven investment by superannuation funds; require that the ATO's annual reports provide information on the number and size of tax settlements; and restore Labor's $100 million threshold for public reporting of tax data for private companies, which was raised to $200 million by the Liberals and the Greens in a move which exempted two-thirds of private companies from that tax transparency.

As you can see, Mr Deputy Speaker, Labor has a comprehensive tax plan, a comprehensive set of reforms, that will ensure greater scrutiny, transparency and accountability for large multinationals and ensure that, ultimately, more revenue is raised from those multinationals to, importantly, fund proper services, particularly around health, education and infrastructure in this country.

With that in mind, we support these bills, but I move:

That all words after "That" be omitted with a view to substituting the following words:

"whilst not declining to give the bill a second reading, the House:

(1) notes that a Senate committee inquiry into corporate tax avoidance made recommendations for reform of the Petroleum Resource Rent Tax, including some of the measures proposed by this bill; and

(2) calls on the Government to act on other areas of concern highlighted by the corporate tax avoidance inquiry, such as tackling in a comprehensive manner multinational tax loopholes and tax havens used by the top end of town".

The DEPUTY SPEAKER ( Mr Vasta ): Is the amendment seconded?

Mr Champion: I second the amendment and reserve my right to speak.