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Monday, 27 March 2017
Page: 2218

Senator XENOPHON (South Australia) (13:51): The Treasury Laws Amendment (Combating Multinational Tax Avoidance) Bill 2017 and the Diverted Profits Tax Bill 2017 are a step in the right direction. I have a very different view from our colleague Senator Leyonhjelm in relation to this because, if a company is not paying tax at a fair rate compared to Australian companies by virtue of the arrangements it can make to avoid or minimise tax through complex arrangements, trusts and intermediaries overseas, that is not fair. That is actually costing the Australian government revenue that could be spent on hospitals, schools and essential services. Yet it also impacts on Australian businesses that have to compete on an unlevel playing field.

My colleagues and I support the general thrust of this legislation and acknowledge the work that has been undertaken by the government to combat multinational tax avoidance. This first started some two to three years ago when the then Treasurer, the Hon. Joe Hockey, now the ambassador to Washington, so maybe I should call him His Excellency. You are nodding, Mr Acting Deputy President Back, so maybe I should call him His Excellency. The fact is that what Mr Hockey did was very useful, but he did play a very significant role in the G20 to push this issue forward, and he should be genuinely commended for doing so.

Senator Whish-Wilson: He was pushed.

Senator XENOPHON: Senator Whish-Wilson said he was pushed. You could be pushed into worse places than the Australian embassy in Washington!

In relation to this bill, it is important to bear in mind that the additional burden that hardworking Australians and taxpaying businesses bear as a result of multinational tax avoidance should not be understated. However, as my colleague in the House of Representatives, the member for Mayo—and there still is a seat of Mayo despite whatever the duopoly may want to do to wipe out the seat of Mayo. That is something that can be resisted with great urgency. Anyone who thinks that they will get rid of the seat of Mayo by some sort of deal between the Liberal and Labor parties has got another think coming in the state of South Australia. It is a regional seat, it needs to stay regional and we need to have at least three regional seats in the state of South Australia.

But Ms Sharkie stated that there are some areas in which the bill could be strengthened, and I support very much what she said. The sufficient-foreign-tax test should become more stringent. Naturally, tax rates between countries will differ, but this bill proposes that the diverted profits tax would only activate when tax-reduction strategies result in a 20-per-cent-or-more reduction in total tax paid. That seems to be a very generous—if not exemption—threshold before action is taken. Imagine if you told the tax office, 'Look, my company is going to pay you within about 20 per cent of the tax, so we might pay you 20 per cent less than what we have to pay you.' I do not think the ATO would take too kindly to an Australian company that tried that tactic.

The Senate Economics Legislation Committee in its report on this legislation stated that competing views were expressed in relation to the 20 per cent tax-reduction threshold. The Corporate Tax Association and Group of 100 submitted that a 20 per cent tax reduction threshold meant that countries that are trading partners rather than tax havens will be tarred with the diverted profits tax brush.

By contrast, the Tax Justice Network-Australia was concerned that the 20 per cent threshold was too high:

...a multinational enterprise with profits of $100 million in Australia would be permitted to avoid up to $20 million before being caught by the DPT. Given the threshold test does not require the ATO to take action, but allows them to, provided they have cause to believe the test of the transaction lacking economic substance applies, a lower threshold allows the ATO more ability to take action

That is a very important consideration. Why should a multinational company have a 20 per cent leeway in the amount of tax it can pay when, as I indicated earlier, it would be untenable—indeed, laughable—if an Australian company said, 'Well, I'm 20 per cent out in terms of the tax we should pay, but you should leave us alone'? Effectively, that is the signal we are sending to those multinational companies.

My colleagues and I believe that this threshold should be lowered to 10 per cent such that, in the technical jargon, the foreign tax liabilities of foreign entities resulting from tax-avoidance schemes are 90 per cent or more of the reduction in the tax liability. This would also further reduce the incentive to shift genuinely Australian based businesses offshore just to take advantage of lower tax elsewhere. That is another important consideration. There are some Australian companies that are saying: 'If multinationals can avoid or minimise tax in a way that we cannot, why do we have to keep having our operations here in Australia? Why don't we think of shifting or having subsidiaries overseas in the Cayman Islands and other parts of the world where they can minimise their tax?'

I note that the Australian Greens have circulated an amendment to give effect to this and I indicate that my colleagues and I will support it and urge all others to do so as well. It is a much more sensible and pragmatic approach and it is fairer to Australian companies that otherwise would miss out by having that unlevel playing field.

This bill is only the starting point on a range of measures that the government should consider in strengthening Australia's ability to recover unpaid tax from multinationals. Multinational tax avoidance is particularly widespread in the area of the big technology giants. In 2014 an investigation by the Financial Review concluded that between 2002 and 2013 Apple had shifted an estimated $8.9 billion in unpaid taxes from its Australian operations to tax havens in Ireland. Although the numbers are secret, the tax-dodging strategy is not. The same investigation by the Financial Review referred to Apple Sales International's 2009 accounts, which state:

The company is not tax resident in any jurisdiction … The average tax rate for all jurisdictions in which it operates is approximately 4 per cent.

Paying a four per cent tax rate is something that Australian companies would simply dream of, but the fact that Apple, through Apple Sales International and a tax haven in Ireland, can do so is completely unacceptable and is a disgrace. The huge multinationals Facebook and Google are no different. These two companies have a duopoly on online advertising that is only strengthened with every passing week and month. Digital advertising is the biggest source of advertising revenue in the local media sector, and I believe that many of us do not realise the commercial and social impact they are having.

The PRESIDENT: It being 2 pm, we move to questions without notice.