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Public Governance, Performance and Accountability Amendment (Tax Transparency in Procurement and Grants) Bill 2019

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2019

 

 

 

 

THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA

 

 

 

 

 

SENATE

 

 

 

 

 

Public Governance, Performance and Accountability Amendment (Tax Transparency in Procurement AND GRANTS) Bill 2019

 

 

 

 

 

 

 

EXPLANATORY MEMORANDUM

 

 

 

 

 

 

 

(Circulated by authority of Senator Patrick)

 



Public Governance, Performance and Accountability Amendment (Tax Transparency in Procurement AND GRANTS) Bill 2019

 

OUTLINE

 

The purpose of the Public Governance, Performance and Accountability Amendment

(Tax Transparency in Procurement and Grants) Bill 2019 is to reform Commonwealth procurement rules to place greater knowledge and transparency arrangements on government agencies entering into contracts with companies that are, or have related entities, domiciled in recognised tax havens. The law will further introduce similar measure into arrangements for the provision of grants by Commonwealth entities.

 

While the Australian Government has declared its desire to combat multinational tax avoidance, there have to date been no measures to provide the government with information on the foreign tax arrangements of companies seeking to contract with the Commonwealth to provide goods or services. Nor have government departments and agencies been obliged to consider the tax arrangements of companies in the tender process. Finally, there have been no public reporting requirements for government departments and agencies entering into contracts with companies that are, or have related entities, domiciled in recognised tax havens.

 

The same deficiencies in information collection, consideration and reporting also apply in regard to the entities that receive grants from Commonwealth Government agencies.

 

As a consequence there is no effective transparency in relation to government contractors or grant recipients that are, or have parent companies, domiciled in tax havens - for example, the Cayman Islands. While there may be a wide range of legitimate reasons for companies to make offshore tax arrangements, including in recognised tax havens, there is a strong public interest in ensuring taxation transparency from entities that receive taxpayer funds, whether through government contracts or grants.

 

The Bill will amend the Public Governance, Performance and Accountability Act 2013 to require the responsible Minister to prescribe foreign countries or parts thereof as tax havens. In determining whether a country or area should be designated as a tax haven, the Minister will be required to consult with the Commissioner of Taxation; publish a notice setting out the country, or the part of the country, the Minister proposes to prescribe; and invite interested parties to make submissions about the proposed prescription. The Minister must have regard to advice and submissions received before deciding to prescribe a tax haven.

 

This process will ensure that the Minister’s decision is based on independent expert advice from the Commissioner of Taxation and provides the opportunity for input from any interested parties, which may include representatives of the country in question or companies domiciled in that country or area.

 

The Bill will further establish three key requirements for both procurement and grants - a disclosure requirement, a consideration requirement and a publication requirement.

 

The disclosure requirement will mandate that a company responding to a Commonwealth Government tender where the offered price for goods or services exceeds $4 million (or $7.5 million for construction services) will need to disclose whether the company, or any of its related entities, are domiciled in a tax haven.

These thresholds ensure that the taxation transparency arrangements will only apply to major public procurement.

 

A supplier or grant applicant will also be required to give details of foreign entities that might not otherwise be available on account of the secrecy laws normally encountered in tax haven jurisdictions.

 

The consideration requirement will require officials to consider, in consultation with the Australian Taxation Office (ATO), any additional risks that a company, or any of its related entities being domiciled in a tax haven, may have on tax avoidance and transparency.

 

The publication requirement will impose an obligation on agencies that award contracts to companies that are, or have related entities, domiciled in a tax haven to publish the number of contracts and the total value of contracts in their annual reports.

 

Similar requirements will also apply to the award of grants by Commonwealth agencies.

 

The Bill will not make it unlawful or otherwise prevent the award of contracts or the provision of grants to companies and entities that have tax haven links. However it will establish a much-needed transparency scheme and impose additional due diligence requirements on officials to ensure that the public interest is properly weighed in Australian Government contracting and grants processes.

 

Australian taxpayers have a right to know if any significant amount of taxpayer money is being given to entities with tax haven links. This law will achieve that objective, and the information that flows into the public domain will inform policy makers and public debate about further measures that may be required to strengthen Australia’s efforts to reduce multinational taxation avoidance.



NOTES ON CLAUSES

 

Clause 1: Short Title

 

1.                   This clause is a formal provision and specifies that the short title of the Act may be cited as the Public Governance, Performance and Accountability Amendment (Tax Transparency in Procurement and Grants) Act 2019.

 

Clause 2: Commencement

 

2.                   This clause provides for the commencement of the whole of the Act to be the day after this Act receives the Royal Assent.

 

Clause 3: Schedules

 

3.                   This clause states that each Act specified in a Schedule to this Act is amended or repealed as is set out in the applicable items in the Schedule. Any other item in a Schedule to this Act has effect according to its terms.

 

Schedule 1 - Amendments

 

Part 1—Main amendments

 

Public Governance, Performance and Accountability Act 2013 (PGPA Act)

 

Item 1

 

4.                   Item 1 inserts additional text into section 6 which provides a Guide to the PGPA Act, specifying that the amended Act will also place requirements on the accountable authority of an entity for relevant procurements (if the entity is a Commonwealth Procurement Rules (CPR) entity) and grants.

 

Item 2

 

5.                   Item 2 inserts into section 8 (The Dictionary) various new definitions and further defines the relationship of certain definitions and terms to those given in the Commonwealth Procurement Rules and the Commonwealth Grants Rules and Guidelines. Terms including tax haven, tax haven supplier, and tax haven grantee are defined by reference to various new subsections of the Act and are discussed below.

 

Item 3

 

6.                   Item 3 inserts into section 33 (Guide to Part 2 dealing with Planning, Performance and Accountability) text indicating that Division 8 of the Act is concerned with relevant procurements by CPR entities and grants.

 

Items 4 and 5

 

7.                   Items 4 and 5 add notes at the end of subsection 46(1) stating that a CPR entity must include information relating to arrangements entered into with tax haven suppliers as part of relevant procurement in the entity's annual report, and that a Commonwealth entity must include information relating to grants awarded to tax haven grantees in its annual report.

 

Item 6

 

8.                   Item 6 adds at the end of Part 2-3 of the Act a new Division - Division 8— Relevant procurements by CPR entities and grants. Division 8 is comprised of Subdivisions A to D.

 

9.                   Subsection 49A(1) in Subdivision A defines a tax haven as a country, or a part of a country, which is prescribed by the rules as a tax haven.

 

10.               Subsection 49A(2) sets out the process by which the Minister may prescribe a country, or a part of a country, as a tax haven. It provides that the Minister must consult with the Commissioner of Taxation; publish a notice setting out the country, or the part of the country, the Minister proposes to prescribe; and inviting any person to make, within a period specified in the notice, written submissions about the proposed prescription. The Minister must have regard to submissions received within the specified period.

 

11.               This process ensures that the Minister’s decision is based on independent expert advice from the Commissioner of Taxation and provides the opportunity for input from any interested parties, which may include representatives of the country in question or companies domiciled in that country or area.

 

 

12.               Subsection 49A(3) further provides that if the Minister does not prescribe any country, or a part of a country, as a tax haven within 6 months after this section’s commencement, the Minister must publish on the Department’s website an explanation as to why no such prescription has occurred. This measure ensures that a decision not to designate any tax havens in publicly explained.

 

13.               Section 49B of Subdivision B relating to r e levant procurement by CPR entities sets thresholds for the application of the tax transparency regime to Commonwealth procurement activity.

 

14.               Subsection 49B(1) provides that p rocurement by a CPR entity is relevant procurement by the entity if (a) in the case of procurement for construction services—the expected value of the construction services being procured is $7.5 million or more; or (b) in the case of procurement for any other goods or services—the expected value of the goods or services being procured is $4 million or more. These thresholds ensure that the taxation transparency arrangements only apply to major public procurement.

 

15.               Subsection 49B(2) defines a CPR entity as a non-corporate Commonwealth entity; or a corporate Commonwealth entity prescribed by the rules.

 

16.               Section 49C sets out the tax transparency information that suppliers must provide in relation to relevant procurement by a CPR entity.

 

17.               Subsection 49C(1) provides that as part of relevant procurement by a CPR entity, the accountable authority of the entity must require a supplier’s submission made in response to the procurement to be accompanied by certain tax transparency information. Specifically the required tax transparency information includes the following:

(a)            whether the supplier or the supplier’s associates (if any) are domiciled in a tax haven;

(b)           if the supplier or the supplier’s associates are so domiciled—how the supplier or the supplier’s associates (if any) have complied, or are complying, with any applicable laws in Australia or elsewhere that relate to tax; and

(c)            any other information prescribed by the rules.

 

18.               These requirements will place onus on suppliers to be forthcoming in providing adequate information to allow consideration of their taxation arrangements in the context of government procurement.

 

19.               The definition of an associate is inserted by Item 2 into the Dictionary (Section 8). This defines an associate in relation to a non-Commonwealth entity to include any of the following:

(a)            if the entity is a body corporate—a related body corporate (within the meaning of the Corporations Act 2001 ) of the body corporate;

(b)           if the entity is a partnership—a partner in the partnership;

(c)            if the entity is an unincorporated association or body of persons—a member of the committee of management of the association or body;

(d)           if the entity is a trust—a trustee of the trust.

 

20.               The note following subsection 49C(1) clarifies that the provision of tax transparency information by a supplier to a CPR entity is subject to sections 137.1 and 137.2 of the Criminal Code which create offences for providing false or misleading information or documents.

 

21.               Subsection 49C(2) provides that if a supplier’s submission in response to the procurement is not accompanied by tax-transparency information, the accountable authority of the CPR entity must not accept the submission.

 

22.               Section 49D sets out matters a CPR entity must consider in accepting suppliers’ submissions.

 

23.               Subsection 49D(1) provides that in deciding whether to accept a submission by a supplier made in response to relevant procurement by a CPR entity, the accountable authority of the entity must consider:

(a)       whether the supplier or the supplier’s associates (if any) are domiciled in a tax haven;

(b)        if the supplier or the supplier’s associates are so domiciled—how the supplier or the supplier’s associates (if any) have complied, or are complying, with any applicable laws in Australia or elsewhere that relate to tax; and

(c)       any other matter prescribed by the rules.

 

24.               Subsection 49D(2) further prescribes that subsection 49D(1) does not limit the matters the accountable authority may consider.

 

25.               Subsection 49D(3) provides that in considering the matters mentioned in subsection 49D(1) the accountable authority must have regard to the tax-transparency information that accompanied the supplier’s submission; and must consult with the Commissioner of Taxation.

 

26.               Section 49E provides that annual reports by CPR entities must include certain information about tax haven suppliers.

 

27.               Subsection 49E(1) provides that the accountable authority of a CPR entity must include in the annual report for the entity:

(a)       the number of arrangements entered into with tax haven suppliers as part of relevant procurement by the entity during the period; and

(b)       the value of each such arrangement.

 

28.               Subsection 49E(2) defines a tax haven supplier as a supplier that is, or has an associate, domiciled in a tax haven.

 

29.               Subdivision C deals with the provision of tax transparency information by Commonwealth grant applicants.

 

30.               Subsection 49F(1) defines a grant as a provision of financial assistance by, or on behalf of, the Commonwealth under which relevant money or other Consolidated Revenue Fund (CRF) money (as defined in section 105(2) of the PGPA Act) is to be paid to a grantee; and which is intended to help achieve the priorities and objectives of the Australian Government.

 

31.               Subsection 49F(2) provides that subsection 49F(1) does not apply to financial assistance that is provided as part of an arrangement that is not taken to be a grant (within the meaning of the Commonwealth Grants Rules and Guidelines).

 

32.               Section 49G sets out that grant applicants must provide tax-transparency information.

 

33.               Subsection 49G(1) provides that a s part of the process by a Commonwealth entity to award a grant, the accountable authority of the entity must require a grant applicant to provide tax-transparency information including:

(a)       whether the applicant or the applicant’s associates (if any) are domiciled in a tax haven;

(b)       if the applicant or the applicant’s associates are so domiciled—how the applicant or the applicant’s associates (if any) have complied, or are complying, with any applicable laws in Australia or elsewhere that relate to tax; and

(c)       any other information prescribed by the rules.

 

34.               The note following subsection49G(1) clarifies that the provision of tax transparency information by a grant applicant to a CPR entity is subject to sections 137.1 and 137.2 of the Criminal Code which create offences for providing false or misleading information or documents.

 

35.               Subsection 49G(2) provides that if a grant applicant does not provide the required tax-transparency information, the accountable authority of the Commonwealth entity must not award the grant to the applicant.

 

36.               Section 49H sets out matters a Commonwealth entity must consider in awarding grants.

 

37.               Subsection 49H(1) provides that in deciding whether to award a grant to a grant applicant, the accountable authority of a Commonwealth entity must consider:

(a)       whether the applicant or the applicant’s associates (if any) are domiciled in a tax haven;

(b)       if the applicant or the applicant’s associates are so domiciled—how the applicant or the applicant’s associates (if any) have complied, or are complying, with any applicable laws in Australia or elsewhere that relate to tax; and

(c)       any other matter prescribed by the rules.

 

38.               Subsection 49H(2) provides that subsection 49H(1) does not limit the matters the accountable authority may consider.

 

39.               Subsection 49H(3) provides that in considering the matters mentioned in subsection 49H(1), the accountable authority of the Commonwealth entity must have regard to the tax-transparency information that accompanied the grant applicant’s application; and consult with the Commissioner of Taxation.

 

40.               Section 49J provides that annual reports by Commonwealth entities must include certain information about tax haven grantees.

 

41.               In particular, subsection 49J (1) provides that the accountable authority of a Commonwealth entity must include in the annual report for the entity:

(a)       the number of those grants awarded to tax haven grantees; and

(b)       the value of each grant.

 

42.               Subsection 49J(2) defines a tax haven grantee as a grantee that is, or has an associate, domiciled in a tax haven.

 

43.               Subdivision D deals with certain miscellaneous matters.

 

44.               Subsection 49K(1) provides that a law of the Commonwealth has no effect to the extent of any inconsistency with the new Division 8, but the law is taken to be consistent with Division 8 to the extent that the law is capable of operating concurrently with that Division.

 

45.               Subsection 49K(2) provides that a law of the Commonwealth is defined to include the Commonwealth Grants Rules and Guidelines; and the Commonwealth Procurement Rules.

 

Item 7

 

46.               Item 7 adds at the end of subsection 105B(1) a note that indicates Subdivision B of Division 8 of Part 2-3 sets out requirements relating to tax havens for CPR entities in relation to relevant procurement.

 

Item 8

 

47.               Item 8 adds at the end of section 105C a note that indicates Subdivision C of Division 8 of Part 2-3 sets out requirements relating to tax havens in relation to grants.

 

Item 9

 

48.               Item 9 (Application provision) establishes certain provisions - sections 49C and 49D relating to procurements and sections 49G and 49H relating to grants - inserted into the PGPA Act will apply in relation to a procurement or a grant after the item commences.

 

49.               Similarly sections 49E and 49J inserted into the PGPA Act will apply in relation to annual reports for a reporting period beginning after this item commences.

 

Part 2—Other amendments

 

Items 10 and11

 

50.               Items 10 and 11 amend section 355-65 in Schedule 1 of the Taxation Administration Act 1953 (relating to the disclosure of information for government purposes by the ATO) by inserting items which permit disclosure to accountable authorities and cross referencing with the PGPA Act the terms “accountable authority of a CPR entity” and “accountable authority of a Commonwealth entity”.

 

Item 12

 

51.               Item 12 provides that the amendments to section 355-65 in Schedule 1 of the Taxation Administration Act 1953 made by this Part apply to records and disclosures of information made on or after the item’s commencement (regardless of whether information was obtained before, on or after that commencement).



Statement of Compatibility with Human Rights

 

Prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011

 

Public Governance, Performance and Accountability Amendment (Tax Transparency in Procurement) Bill 2019

 

This Bill is compatible with human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011 .

 

Overview of the Bill

 

The purpose of this Bill is to amend Commonwealth procurement rules to place greater knowledge and transparency arrangements on government departments entering into contracts with companies or providing grants to persons or companies that are, or have related entities, domiciled in designated tax havens.

 

Human rights implications

 

This Bill does not engage any of the applicable rights or freedoms as it deals with tax transparency measures relating to Commonwealth procurement and Commonwealth grants.

 

Conclusion

 

This Bill is compatible with human rights as it does not raise any human rights issues.

 

 

 

Senator Patrick