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Tuesday, 10 November 2015
Page: 8162


Senator XENOPHON (South Australia) (17:28): Multinational tax avoidance and profit shifting have no place in Australia or the global economy. The Tax Laws Amendment (Combatting Multinational Tax Avoidance) Bill 2015 is an important first step towards combatting these unacceptable practices. The former Treasurer, the Honourable Joe Hockey, was instrumental in bringing about these much-needed reforms. He talked the talk and he actually walked the walk—

Senator Whish-Wilson: Next to the Australian Greens!

Senator XENOPHON: 'Next to the Australian Greens', Senator Whish-Wilson said. When he announced the government's intention to introduce this legislation, he said:

These 1,000 companies will need to consider the new rules if they have economic activities in Australia but book their Australian sales revenue offshore ...

With the introduction of this legislation, we are sending a clear message that Australia has no tolerance for tax avoiders. If you are avoiding tax, the Australian Taxation Office will catch you.

I commend the former Treasurer for the role he played in the development of this legislation. Australia is leading the way in combatting multinational tax avoidance, being the first of the OECD countries to do so.

I also want to commend not only my colleagues in the Australian Greens, who have long campaigned for this, but also Senator Sam Dastyari. In his former role of chairman of the Senate Economics References Committee, he played a pivotal role, with the energy that he put into this issue, in pushing for raising this issue and doing so with great energy. He raised the issue publicly. He raised public awareness with respect to the motion that was moved by former senator Christine Milne. Senator Dastyari seized this issue, grabbed it with both hands and ran very hard with it. I am grateful for his leadership in the Senate Economics References Committee in the way that he dealt with it.

We must acknowledge that these reforms have been the result of concerted efforts by a number of groups and individuals, including the Senate Economics References Committee, and the role that Senator Dastyari, former Senator Milne and others played in the committee in identifying the who, where and how of multinational tax avoidance.

The committee's corporate tax avoidance inquiry was established following the release of the Tax Justice Network Australia report entitled Who pays for our common wealth? This report made a number of highly concerning findings including that, overall, the effective tax rate of ASX 200 companies over the last decade is only 23 per cent. By the way, a lot of taxpayers on middle-level incomes would love to be paying a tax rate of 23 per cent. It also made a finding that if the largest Australian listed companies paid taxes at the statutory corporate tax rate of 30 per cent it would produce an additional $8.4 billion in annual revenues. The Tax Justice Network Australia report also found that among the ASX 200 companies nearly one-third have an average effective tax rate of 10 per cent or less, 57 per cent disclose subsidiaries in secrecy jurisdictions—that is, tax havens—and 60 per cent report debt to equity levels above 75 per cent, which may artificially reduce taxable profits.

The Senate Economics References Committee corporate tax avoidance inquiry shed light on the practices of some of Australia's biggest companies. A public hearing in Sydney on 8 April this year, with representatives from Google Australia, Microsoft, News Corp and Apple, was especially revealing. Mr Tony King, managing director of Apple for Australia and New Zealand, revealed that he had never been to Ireland for business purposes, despite the fact that Apple Ireland is Apple Australia's parent company. Not only that, but Apple Australia has transferred approximately $9 billion to Ireland, a tax haven. Based on the amount of money attributed to Apple Ireland's books, one would quite rightly think that Ireland was an essential hub for Apple, but apparently it is not.

Just as Senate inquiries have shed light on the shady world of corporate tax arrangements, so too have a number of journalists. I know that Senator Di Natale made reference to Michael West, who has been a fearless critic and has forensically looked at questionable corporate behaviour and subpar regulation in Australia. A central theme of Michael West's articles is transparency. Mr West says that it is only through increased transparency of the operations of large multinationals that we will be able to tackle tax avoidance.

This bill is an important first step on the long road to transparency. While I welcome the measures in this bill, I do not believe they will go far enough. That is why I will be moving an amendment in the committee stage of this debate that will require general purpose financial reports to be provided to the Commissioner of Taxation, which I trust will be an essential building block, a step, to having these reports made publicly available. This is not something that should be impossible to gather. It relates to companies with revenue of more than $1 billion globally. I think the Australian Greens' amendment says $500 million, but I have kept to the $1 billion figure based on the regime in this bill that looks at the $1 billion threshold. If you are big enough, whether you are an Australian-based company or a multinational, once you get to a $1 billion threshold there is no question that you would have the resources and the ability to provide general purpose accounts.

I will go into detail about my amendment shortly, but for now I will return to the provisions of the government's bill. This bill requires large multinational corporations to disclose to the Commissioner of Taxation important information about their operations—information relating to their business operations, their financial positions and their transfer-pricing policies. This is, in effect, information that can reveal whether or not these corporations are attempting to avoid paying taxes on profits made from their Australian operations. Senator Di Natale made a very good point that Apple—and I think he is using his Apple phone as I speak—

Senator Canavan: Not paying tax!

Senator XENOPHON: I am sure Senator Di Natale pays the appropriate rate of tax, Senator Canavan. I use an Apple phone as well, even though I have software problems with it at the moment. But the fact is that their pricing structure seems to be such that they are paying very little tax on their Australian operations, despite the fact that this is a very lucrative market.

Equipped with this information, the Australian Tax Office will be better able to detect instances of tax avoidance and profit shifting. Schedule 1 of the bill deals with defining and describing new concepts that will be included in the Income Tax Assessment Act. One of these new concepts is 'significant global entities'. These are entities that have an annual global income of $1 billion or more. A member of a group of entities that are taken together as a single group for accounting purposes will also be considered to be a significant global entity.

Let's be clear about the types of companies that will be captured by this concept. They are the juggernauts of the corporate world, the companies that are household names and that convince us to part with our money in exchange for their products. As the explanatory memorandum explains, approximately 1,000 entities will fall within the meaning of 'significant global entity' here in Australia.

Schedule 2 of the bill amends the anti-avoidance provisions in the Income Tax Assessment Act 1936 to introduce the multinational anti-avoidance law. The new multinational anti-avoidance law will ensure that multinational entities cannot use complex, artificial schemes to avoid paying Australian tax. It will ensure that companies who undertake significant work in Australia in direct connection to Australian sales do not book that revenue offshore. These are important measures that form part of what we hope will eventually be a robust suite of policies targeting companies who avoid their Australian tax obligations.

Schedule 3 of this bill will double the penalties imposed on significant global entities that enter into tax avoidance or profit-sharing schemes. Of course, in an ideal world no additional revenue will be raised through imposing these penalties because large multinationals will be doing the right thing and not entering into tax avoidance schemes. Only time will tell if this will be the case, and that is why it is important to continuously and regularly monitor the effectiveness of this legislation in doing what it is intended to do.

Schedule 4 of the bill implements action 13 of the G20 and the Organisation for Economic Co-operation and Development's Action Plan on Base Erosion and Profit Shifting in Australian law. Action 13 relates to reporting requirements and will give the Commissioner of Taxation greater access to information relating to transfer pricing. Schedule 4 requires multinationals to provide master files, local files and country-by-country reports. The information provided in these reports will give the tax office a better understanding of multinationals' overall transfer-pricing policies and where their economic activity is taking place.

While I welcome these measures, I believe they do not go far enough. That is why I have circulated an amendment that requires significant global entities, those with global annual income of over $1 billion, to provide general purpose financial reports to the Commissioner of Taxation. General purpose financial reports provide highly detailed information about a company's operations—effectively the same level of information that a publicly listed company needs to provide to the Australian Stock Exchange. It is not onerous, it is not unreasonable, particularly in the case of a company which globally has $1 billion in revenue.

The Australian Accounting Standards Board issues the Statements of Accounting Concepts. General purpose reporting is defined in Statement of Accounting Concepts 2 as 'a financial report intended to meet the information needs common to users who are unable to command the preparation of reports tailored so as to satisfy, specifically, all of their information needs'. They differ from special purpose reports, which are scant on detail and have been the preferred reporting method by large multinationals for the past few years. I think it is a fair point that Senator Di Natale made—that there are a number of companies that shifted, inexplicably, from general purpose reports to special purpose reports. Michael West, from Fairfax Business, wrote in August this year:

There has been a trend in recent years away from "general purpose" reports towards the skimpy "special purpose" type. The former are full accounts that include related-party transactions (where most of the tax skulduggery occurs). The latter, "special purpose" accounts rely on directors and auditors assuming that only the company's shareholders—and nobody else—is interested or is a stakeholder.

By requiring large multinationals to prepare and submit general purpose reports, this amendment will improve the transparency of business operations and tax arrangements. So I do support the bill. But for me the elephant in the room is the tax transparency bill that was passed in our last session. I do not accept the proposition put by some that this was rushed or snuck through the parliament by the coalition. I think it was a series of unfortunate events. I should have been in the chamber. The speakers list collapsed. I am not blaming anyone for it. I was genuinely embarrassed that I was not in the chamber at the time. Whilst I spoke briefly after that, to indicate my support, with reservations, about the bill, I do not think anyone tried to shut down the debate, it just happened. To quote Lemony Snicket, it was 'a series of unfortunate events'. It is a case where there was no conspiracy—certainly not on the part of the government or anyone else in this chamber. It just happened that other bills were dealt with more quickly than people expected and it got passed, without a division and without further debate, which is clearly unfortunate. I blame myself for that because I was not in the chamber when I should have been—and I am embarrassed about that.

I want to refer to an article by Heath Aston, a political reporter for Fairfax, which was published on 8 November, just two days ago. But before I do that I want to reiterate why I supported the government's Tax and Superannuation Laws Amendment (Better Targeting the Income Tax Transparency Laws) Bill. The argument that was put to me, which I accepted early on in the debate when this bill came up, was that, if you are a company with $100 million a year in revenue, you ought not to give the information required by the bill I supported previously which the Gillard government put up. The argument that was put to me privately by people in the food-processing sector is that, even if you are a fairly large food processor, providing this information could in some way compromise you and put you at a competitive disadvantage when dealing with, for instance, Coles and Woolworths, companies with a much larger turnover and much more market clout. I have always consistently been genuinely concerned about the market power of Coles and Woolworths, with their 75-plus per cent share of the grocery market in this country and the impact that has on the supply chain. That is why I supported the government's bill. But I am concerned that, since that time, more information has come to light that some of the arguments put by the government, which I do not accept—that there would be a risk of kidnapping if you release that information—were fatuous. There was no consideration given to this by the Australian Federal Police. It was a try on. It was an argument that did not make sense. But I still have a concern about that argument about the supply chain with respect to Coles and Woolworths.

It is worth putting on record Heath Aston's investigative piece headed 'The "institute" with no members embarrasses Senate committee'. I relied on advice. I relied on submissions made by the Family Office Institute Australia. As Heath Aston said, their submission formed large parts of a Senate report recommending that the government shield privately owned companies from increased transparency. It appears that the Family Office Institute Australia actually has no members. It appears that the institute was established in August by two lawyers and a Canberra lobbyist who represent some of Australia's wealthiest individuals with the Australian tax office. Now, there is nothing wrong with being extraordinarily wealthy and very successful—that is great. But I think it is fair to say that this was not a grassroots organisation; it does not represent hundreds, dozens or even a handful of family businesses; it appears to have no members. I am concerned that that was not clear. I am embarrassed that I was not aware of that—and I should have been. When a community group or organisation gives evidence before a committee, you generally expect that they are part of a larger grassroots movement or represent a number of businesses and are a genuine committee organisation. I cannot say that about the Family Office Institute. Heath Aston has done us all a service by exposing that, and it means that in dealing with organisations I have not previously heard of I will be much more wary in establishing their bona fides.

That process is something I am genuinely concerned about, and I should have checked it. And I think that Senator Whish-Wilson too, who opposed the government's legislation, was surprised by that organisation's lack of a genuine community basis, that it had no members. I should have been aware of it but I was not aware of it. And I said to Heath Aston that, at Senate inquiries, we normally hear from genuine grassroots organisations as a matter of course. What happened here seems to be what the Americans call 'astroturfing'. In fact, it looks like astroturf that has been through a drought.

I think that there is merit in what the Greens are putting up. I still have reservations about protecting those private companies that may have significant revenue of $100 million or more that are lower down in the food chain with respect to their dealings with the Coles and Woolworths. I am disappointed that I was not aware of the Family Office Institute's true nature. I am concerned that some of the arguments put by the government in terms of kidnapping were quite fatuous, but they were not arguments that I relied on. So I will consider this particular amendment in the course of the committee stage of this bill. I still have that reservation in terms of the Coles and Woolworths analogy in respect of the impact on those companies that may have a significant revenue but whose margins may be relatively low and are lower down in the food chain than Coles and Woolworths.

I do hope that we can get either my amendment or the Australian Greens amendment in terms of general purpose accounting passed in this place to go back to the other place. That will be a big step forward in transparency. Even if you were an Australian private company with a revenue of $1 billion a year or more, I do not think that that argument—the Coles Woolworths argument that you are a vulnerable large private company—would apply because, once you get to $1 billion in revenue, you are basically big enough and ugly enough to look after yourself.

With those comments, I support the bill. I give credit where it is due. The former Treasurer, the Hon. Joe Hockey, did some really good work on this, and he should be commended for that work. This will hopefully be a lasting legacy of his time as Treasurer—a very positive legacy. I hope that it works as intended. I will support it. I hope that the amendment that I put up or the Australian Greens amendment on general purpose accounting is put up. I will listen to the debate in terms of tax transparency—the other amendment put up by the Australian Greens—subject to the concerns I have had all along about those larger private companies being subject to predatory corporate behaviour by much bigger corporations.