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Monday, 19 October 2015
Page: 11529


Mr KELVIN THOMSON (Wills) (12:37): I am pleased to speak to support the Tax Laws Amendment (Combating Multinational Tax Avoidance) Bill 2015 and also the amendment moved by Dr Leigh. The Labor opposition supports this bill. Before any government puts the tax bite on students, pensioners or the unemployed, it should make sure that multinational corporations are paying their fair share of tax.

The Tax Justice Network have revealed a lot of detail about this issue. For example, they have revealed how Volcafe, the world's second largest raw coffee trader, with a market share of 13 per cent, managed to minimise the tax it paid through the use of the tax haven of Jersey in the English Channel. It would buy coffee from small cooperatives in developing countries at the world market price and then sell the coffee beans to its own subsidiary, Cofina, at a similar price. In that way it made next to no profit in the developing countries and paid almost no tax to the governments of the developing countries it operated in, cheating them out of much-needed tax revenue. Cofina then sold the coffee beans to the final customers, such as Nestle or Starbucks. The money from the sale flowed into Jersey, where Cofina paid no tax on it. In 1998 Cofina sold US$408 million worth of coffee yet only made a gross profit of US$27 million. It was a post-box company with only one or two administrative staff. The coffee beans themselves travelled directly from the developing country to the final customer in the developed world. They never passed through Jersey. The company documents showed that the firm went out of its way to keep everything top secret, with Volcafe employees told to identify themselves as Cofina staff even though they were not.

This demonstrates the way in which this is a worldwide problem. I met with representatives of the Micah Challenge in Canberra in June last year and again just last week as part of their Voices for Justice campaign. I was briefed about the problems of tax evasion by multinational corporations, which deprived developing countries, on a significant scale, of vital revenue for poverty reduction and sustainable human development. Christian Aid has pointed out that, since 2008, developing countries have lost more than US$160 billion through multinational corporate tax evasion. This amount is actually bigger than the amount that these countries receive in aid, which amounted to US$120 billion in 2009. I want to congratulate Micah Challenge on their commitments to the world's poor and their ongoing commitment in raising these issues.

One of the main ways tax evasion occurs is through transfer pricing, which is when goods and services are sold between subsidiaries of the same parent company. These goods and services include things like intellectual property rights, management services, branding and insurance. The sales take place within the same multinational company. As long as the subsidiaries of the company charge each other a fair market price—known as an arm's length price—such transactions are perfectly legitimate. Tax is paid where it should be: the place where the business is actually taking place. However, by artificially altering the price, a company can increase its costs in a location with high taxes and transfer revenue to a location with low taxes—often a tax haven. This is known as transfer mispricing.

With 60 per cent of the world's trade now taking place within rather than between multinational corporations, there are substantial opportunities to manipulate transactions to reduce tax. This is especially the case for things like brands and management services. To detect if a company is distorting the price of a particular good, you can compare it with the normal price of the good traded between two unrelated companies. But, when it comes to things like branding rights and management services, it is much harder to determine if the price being charged is a fair one. It has been estimated that Australia lost 1.1 billion euros through transfer mispricing to the EU between 2005 and 2007 and US$1½ billion in tax revenue through transfer mispricing to the US in the same period.

This is not just happening in Australia; it is happening right around the world. In 2007 Bangladesh lost an estimated US$172 million in tax revenue as a result of trade mispricing of transactions with the EU and the US. Most of these losses occurred in the knitting and crocheting apparel industry. The Bangladesh government had invested technical and financial resources to facilitate the growth of this industry, yet lost out on much-needed tax revenue. Micah Challenge believes that the government should require all multinational corporations registered in Australia to provide a worldwide combined report, including a country-by-country breakdown of their assets and their tax paid, and that we should have the G20 adopt this country-by-country reporting as standard.

The issue of multinational profit shifting is about fairly sharing the revenue burden. When a handful of big businesses shift their profits offshore, it hits the federal budget's bottom line and, when a small number of big firms do the wrong thing, it is the great majority of businesses, large and small, the self-employed and the pay-as-you-go taxpayers who end up paying more than they should. We do not need that kind of harmful economic activity which encourages firms to focus their energies on getting their accountants to play with loopholes that might allow debt-shifting within organisations, not in order to improve the productive capacity of the economy but in order to find the next loophole in the tax system.

We need to pay attention to the problem of financial inequality, which has been rising in recent times. A report in June last year called Advance Australia Fair? What to do about growing inequality in Australia, written by Bob Douglas, Sharon Friel, Richard Denniss and David Morawetz, found:

In the wake of a declining resources boom, there is a growing gulf between those in the top range and those in the lower ranges of wealth and income distributions.

That report warned that:

Inequality is increasing rapidly in Australia … and poses dangers to community wellbeing, health, social stability, sustainable growth and long-term prosperity.

Given that, we should not be giving away money to firms with multibillion dollar profits while taking money away from those who can least afford it. Australia's egalitarian values demand that we have a smarter approach on multinational profit-shifting.

The union United Voice, in collaboration with the Tax Justice Network Australia, released in September last year a groundbreaking report Who pays for our common wealth? Tax practices of the ASX 200. It revealed that 29 per cent of Australia's 200 largest listed companies pay an effective corporate tax rate of 10 per cent or less and that 14 per cent have an effective tax rate of zero per cent. This translates into an estimated loss in annual revenue of $8.4 billion, which is a matter of very considerable concern.

In 2013, 57 per cent of ASX 200 companies disclosed subsidiaries in tax havens. This figure could be higher as reporting is not mandatory. As Dr Mark Zirnsak, from the Tax Justice Network Australia, says:

The frequent use of subsidiaries in secrecy jurisdictions in combination with the shifting of debt and profits is resulting in lost tax revenue in Australia and overseas where it should be paying for essential services to help lift people out of poverty. Last financial year a massive $47 billion flowed from Australia to secrecy jurisdictions.

An internal Australian Taxation Office memo obtained under freedom of information and reported by Heath Aston in The Age in April said 10 companies had channelled a combined total of over $31 billion from Australia to Singapore in the 2011-212 financial year. An energy company operating in Australia transferred more than $11 billion to the low-tax jurisdiction of Singapore in that year. In the same year, an estimated $60 billion in so-called 'related party' transactions went from Australia to tax havens. Energy companies have established marketing hubs in Singapore, but their principal purpose appears to be as a destination to shift profits in order to pay less tax.

BHP and Rio Tinto reported $2.6 billion a year in profits in their Singapore marketing hubs, where tax rates are as low as 2½ per cent. These arrangements save the two companies more than $750 million a year in Australian tax. In 2005, the Singapore government registered a new company called BHP Billiton AG Singapore Branch and granted it Pioneer Service Company status, meaning it pays no income tax at all until 2020. Rio Tinto set up a string of Singapore companies in 2007 which were given development and expansion incentive status by the Singapore government, meaning they would only pay five per cent tax until 2022. It is deeply ironic that this blatant tax avoidance was going on at the very time the mining industry spending over $20 million, including $17 million from the Minerals Council, on advertising campaigning against Labor's Resources Super Profits Tax and making claims about how much tax they paid.

Large multinational companies have also used other devices to avoid Australian tax. Chevron Oil has been raising debt in the US at two per cent and lending the money to their Australian arm at nine per cent, with the interest payments cutting its Australian taxable income. US tech giant Apple has an Irish marketing arm, Apple Sales International, which takes ownership of Apple products manufactured in China while they are on the boat to Australia and Europe, adding a huge mark-up and reselling them to local Apple retailers before they reach port. It is a rort and we should not allow it.

The 2014-15 federal budget eliminated some 3,000 jobs in the Australian Taxation Office. Things like this greatly reduce the tax office's capacity to fight tax evasion by wealthy individuals and multinational corporations. Regrettably, what happens is that the employees who accept redundancies and leave are the ones the ATO can least afford to lose. Even worse, some accept private sector offers which see them put their skills an experience into increasing the budget deficit rather than reducing it. We should tackle debt shifting, close tax loopholes and resource the tax office properly to tackle artificial and contrived business structures. The tax office could help its own caused by revealing details of the worst corporate practitioners of tax avoidance. Taxpayer privacy for individuals is of course legitimate, but large corporations cannot make those same claims with a straight face. They are required to report much of their financial affairs to their shareholders and to the market already.

Michael West, writing in The Age, has drawn attention to the low visibility of the financial statements of foreign multinationals operating in Australia. He says that viewing the statements of a foreign multinational is expensive and not very informative. He says:

While proper audit procedures are in place in the sphere of ASX companies, there is a widespread failure of the audit profession and regulators in the foreign multinational space: accounts which don't stack up, myriad failures of disclosure, and a slew of failures to adhere to Australian accounting standards—and therefore the Corporations Act.

We need to have greater scrutiny in this area. We need to make sure that parliamentary committees like the Senate Economics References Committee hear from the real decision makers and make them account for their decisions. I think our parliamentary committees should make a point of explaining and examining the real decision makers.

A Labor government will shut down loopholes which allow big multinational companies to send profits overseas, ensuring that they pay their fair share of tax. According to the Parliamentary Budget Office, our plan will bring at least $1.9 billion back to Australia in tax from big multinationals over the next four years and raise $7.2 billion over 10 years as these tax loopholes are closed. This is the sort of approach we need. We need improved transparency and data matching, and we need a genuine commitment to tackling tax.

It is regrettable that the government has walked away from some of the tax transparency legislation which Labor passed in 2013. Without greater transparency, Australians will never know whether major corporations are paying their fair share of tax and, at a time when the government is talking about hitting low-income Australians by jacking up the GST, it is right to look closely at whether all taxpayers are making a fair contribution. Gutting tax transparency is the wrong move. Labor is supporting this multinational tax bill through the parliament. We believe that tackling tax avoidance and protecting Australia's revenue base should be above politics. Under the former Prime Minister and the former Treasurer, the Liberals rejected our $7.2 billion multinational tax plan out of hand. They pursued tax transparency rollback, because it is popular with their mates, rather than for any sound public policy reason.

I hope that the new Prime Minister and the new Treasurer do not make these same mistakes. With this bill we are demonstrating our willingness to work constructively with the government to tighten Australia's tax net. By way of response, I hope that the government does the same by taking up our $7.2 billion tax package and abandoning their attempts to gut Australia's tax transparency laws.