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Tuesday, 10 November 2015
Page: 8093


Senator KETTER (Queensland) (13:42): I rise to make a contribution in respect of the Tax Laws Amendment (Combating Multinational Tax Avoidance) Bill 2015. Before I go into my prepared comments I cannot miss the opportunity to respond to the contribution of Senator Macdonald earlier in the proceedings. Senator Macdonald generally makes contributions that I find somewhat entertaining. I note that Senator Macdonald is occasionally prone to the odd rhetorical flourish and some extent of hyperbole, but when Senator Macdonald comes into this place and makes some comments that are blatantly factually incorrect, then one cannot allow the record to remain uncorrected.

At the outset of his contribution, Senator Macdonald made the comment that during the course of the previous Labor government no attempts whatsoever had been made to do anything about multinational tax avoidance. As Senator Ludwig has just alluded to in his contribution, there are some examples of the contribution that Labor has made in seeking to address this area. In 2012-13 the Labor government introduced the Tax Laws Amendment (Countering Tax Avoidance and Multinational Profit Shifting) Act 2013, which plugged loopholes in Australia's transfer pricing rules and anti-avoidance provisions. Perhaps Senator Macdonald should go back and have a look at that provision.

The interesting thing to note about that is that, in opposition, the coalition voted against these measures, which is quite extraordinary, and I know other speakers have made reference to the particular fact that there have been some conflicting positions put by the coalition. In fact—and I think it has already been referred to, but I cannot resist the opportunity to reiterate the point—when we sought to tighten the provisions of part IVA of the Income Tax Assessment Act in 2013, Mr Hockey announced that our reforms were:

… an unnecessary overreaction. More red tape for business—when is it ever going to stop? More compliance costs for business—when is it ever going to stop?

We know that the coalition has been, in my opinion, dragged kicking and screaming to the current debate. They accept, because of movements internationally, that there is a need to do something.

As I stand here today, the opposition is not opposing the approach being put by the government. But I think it is fair to say that our approach is tinged with disappointment because there is so much more that could be done in this space. When we have an environment where there is a bipartisan mood to address this issue and to do it in a much more comprehensive manner, the coalition has really dropped the ball and is doing, one could argue, as little as possible in this area.

I want to reflect on the fact that, in the spirit of bipartisanship, the Labor Party has offered a fully costed and carefully calibrated package of measures that would keep $7.2 billion worth of tax in Australia over the next decade. We talk about having a 'budget emergency' in the 2014 context, and this was something that was offered as a genuine attempt to address not only the budget issues but also a real problem in our taxation system. The Labor package included changes to the arrangements for how multinational companies claim tax deductions, greater compliance work by the ATO to track down and tackle corporate tax avoidance, cracking down on multinational companies using hybrid structures to reduce tax, and improved transparency and data matching. This approach has been costed and we know that the approach proposed by Labor would work. It is a responsible approach in this area. Unfortunately, the coalition has seen fit to reject it and has gone down a different track.

As I indicated, we do not oppose this bill, but we do express our extreme disappointment that the opportunity for something more substantial to be done has been lost, particularly when we have the groundwork that has been laid by the Senate Economics References Committee, which looked at this issue over the past 12 months, and when the community sentiment is that something more significant needs to be done. Unfortunately, this is not evident in the bill that we have before us.

Taxation avoidance by global companies operating in Australia is a scourge that must be eradicated. The globalised nature of the world economy has led to a natural tendency for corporate giants to operate on a global scale while exploiting the opportunities presented by national taxation systems. The problem is pervasive and extensive, and it is hard to disentangle global supply chains to work out where profits are actually generated. Some technology companies are able to seamlessly operate on a global scale and reap massive profits through internet based businesses that are not visible to the local tax authority. Even the production of goods—TVs, mobile phones, cars et cetera—is performed through a global production system where it is difficult to track where the production of individual components occurs, where value is added, where loan finance is raised and paid, and where marketing operations are based and so on. We know that companies adopt financial strategies that shift most of the earnings of the wealthiest companies operating in Australia to other jurisdictions where their tax burden will be lower. The issue is to ensure that the tax that they pay in Australia is representative of the profits they earn in Australia.

Evidence has come to light that multinational companies in Australia have been using cost-shifting strategies to avoid paying tax in Australia. As a member of the Senate Economics References Committee, I have had the privilege of being present in a number of the inquiries where, for example, the tech companies were involved. These companies are the subject of the Senate Economics References Committee's report. Firstly, I want to touch on one company. It was very, very disappointing to me as an Apple customer to see what I considered to be the fairly aggressive taxation planning approach by this company operating in Australia. We know from what has come through the committee that Apple paid just $80 million in the 2013-14 financial year on local revenue estimated at around $6 billion. That compared, as we know, with the Australian company Harvey Norman, which paid $89 million on revenue of $1.5 billion. These examples have electrified the community. We have seen people outraged by these examples of aggressive taxation planning. We also saw Google come forward and provide information about their approach, which involves offshore arrangements for profit. Another example is James Hardie, which managed to record a net taxable loss, despite annual profits of over $200 million and being able to pay $600 million in dividends to its shareholders over the past two years. Then there is the mining company Glencore. It is alleged that Glencore paid no tax in Australia over the past three years despite earning revenue of $15 billion.

Tax avoidance is an issue that affects everyday Australians. It is not an academic debate and it is not an arcane technical debate; it is a debate which has real impact on ordinary Australians. Firstly, the tax raised as revenue for Australia needs to fund all of the services that keep this great country of ours going. Multinationals operating here are taking advantage of our world-class education system, communications, electricity, roads, bridges and basic services. Without these we would be an impoverished society that would not generate the profits that are able to be earned. Now we have a situation where the burden of tax is falling on local families and businesses disproportionately. While everyday Australians are faithfully paying their fair share of tax and buying the products that multinationals are selling, they have no idea that every cent that they spend is leaving the country for good. To take the James Hardie example, their loss is claimed as a tax deduction linked to the compensation fund set up for the victims of asbestos—something they tried to avoid altogether, and now Australian taxpayers are subsidising James Hardie's compensation to asbestos victims.

What do we need to do about this? We only heard this week about another resource company operating in Australia which is able to avoid tax in very substantial measure. The proposed multinational anti-avoidance law would force multinational companies with significant interests in Australia to pay their fair share of tax. At this stage, 80 large multinationals have been identified as having significant activities in Australia. These companies will have to report to the ATO fully on their economic activities in Australia and will be forced to pay tax on profits from these activities. While this is a step forward, we in the opposition would like to see more done to prevent the strategies that make tax avoidance a possibility in the first place. At the moment we are simply addressing the symptoms of the problem when the ATO notices something is not right, but we would like to see more done to restrict the types of transactions that are used in the first place.

The PBO's work indicates our package would add $7.2 billion to the budget bottom line over the coming decade. We do not have access to the financial records of international mining companies, so we will leave it to the ATO to decide how much tax they would be paying when significant projects came online. These reports highlight the need to look closely at the role debt deduction plays in complex multinational tax structures. Labor's package targets these deductions because they provide a way for companies to shift profits from Australia to low-tax jurisdictions overseas. So far the Abbott-Turnbull government has refused to even consider closing these loopholes. Their only answer is to jack up the GST. Labor is supporting the government's multinational tax bill through the parliament because we believe protecting Australia's revenue base should be above party politics. The government should take the same approach and urgently implement Labor's $7.2 billion package.

I want also note that, given that we are adopting an approach which is untested throughout the world, we believe that there is a need for this untested approach to be reviewed at the appropriate time. We are saying that the government should commit to a formal review of the bill by 2018, as recommended by the Senate Economics Legislation Committee recently. The committee's report, which I recommend to senators, reflects Labor's reservations about the government's untested approach to tackling multinational profit-shifting. The committee's report recommends that the bill be evaluated within three years of its 2016 start-up date to determine whether it has successfully stopped companies siphoning profits offshore. With Treasury unable to say how much revenue the government's plan might return to Australia and no other country having successfully implemented Australia's approach, it is right that the tax bill should be subject to serious evaluation in the future.

A review of the bill would touch on a number of issues. We would need to look at how many successful tax avoidance cases the ATO has concluded under the new rules. We would want to know how much additional revenue has been collected in Australia because of the new rules and we would like to know how much time and money the Australian Taxation Office has spent in court pursuing cases under the new rules. Also, we would want to know how many disputes or conflicts with foreign tax laws have occurred as a result of the new rules. We call on the Treasurer to make a public commitment to carry out this review and name the date by which it would be completed. Labor has consistently said that the tax package does not go far enough because it does not target debt deductions.