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Monday, 14 September 2015
Page: 10015


Mr KELVIN THOMSON (Wills) (17:21): On a day on which the government that promised us they would give us a government of adults have become a national laughing stock it is interesting to hear the previous speaker, in this debate on the Tax and Superannuation Laws Amendment (Better Targeting the Income Tax Transparency Laws) Bill 2015, talking about good economic management and the need to deal with deficit and debt.

Having talked up a storm about deficit and debt this is a government that now wants to run around talking about personal income tax cuts. It is remarkable. The truth is that if we have an issue to do with deficit and debt then we need to fix that rather than seek to lead people up the garden path with undertakings concerning personal tax cuts.

In terms of dealing with issues to do with deficit and debt, we need to have a proper crackdown on tax avoidance, which has reached very great dimensions indeed. One aspect of reducing tax avoidance has been giving the tax office the power to publish details of the taxable income and tax paid by companies with annual turnovers of $100 million or more. I understand that there are about 2,300 of them. The tax office itself has said that some private groups linked to wealthy individuals with complex tax structures display more aggressive tax behaviours and characteristics. The tax office says that wealthy individuals and their private trusts often have complex arrangements and utilise flow-through entities such as trusts and partnerships in addition to companies.

On average, high-wealth individual group structures consist of five companies, five trusts, one self-managed super fund and one partnership. Amazing. But the government wants to water down Labor's transparency legislation. We will not support legislation that hides this information and we hope that the crossbenches will not support it either.

Liberal and National Party MPs have claimed that revealing information about private companies would, effectively, expose the personal wealth of those who own them, which could expose them to kidnapping. This is laughable. The information relates to companies, not personal tax details, and only those above $100 million. You do not have to be an especially bright kidnapper to work out who the directors of our largest companies are. If this argument holds any water, why haven't we scrapped the Business Review Weeklyrich list on the same grounds? I salute Dick Smith, who, notwithstanding his personal wealth, has said that, not only does he support this kind of transparency in this legislation; but he would like to see even more transparency. He says that wealthy people should be proud to disclose the amount of tax that they pay.

Treasurer Hockey once said:

… the challenge is that everyone in Australia has to help to do the heavy lifting in the budget, because if the burden falls on a few, the weight of that burden will crush them.

Everyone is going to have to make a contribution …

And he expressly nominated big business. Unfortunately, he has since backed away from action to tackle companies that avoid tax by shifting billions of dollars in profits between Australia and their international subsidiaries. His paltry effort at tackling multinational tax avoidance is worth a total of $30 million over four years—less than one-sixtieth of Labor's multinational tax avoidance package. After promising to reap billions from tax integrity measures, the Treasurer's May budget barely scratched the surface. That is one of the reasons why he has lost public support and that is one of the reasons why he will not be Treasurer for much longer.

Frankly, his budget effort was not good enough, for a number of reasons. First, the government said that it would act to stop tax avoidance by profit shifting across international borders. They said they were going to do something about it. Second, the issue of global corporations loading up subsidiaries with debt so they can claim to have made all their profits in low-tax jurisdictions was a major topic of discussion at the G20 conference, where countries were urged by civil society to stop global tax avoidance, and Australia needs to be part of the international effort to stop this. Third, the government was crying poor in releasing its Mid-Year Economic and Fiscal Outlook in December 2014, saying that it had suffered a revenue downturn and would have to cut spending.

Before the government taxes the students, the pensioners and the unemployed, it should make sure that multinational corporations are paying their fair share of tax. The Tax Justice Network has 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 postbox 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 remember meeting with representatives of the Micah Challenge in Canberra in June last year as part of their Voices for Justice campaign and being 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.

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, the 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, and, with 60 per cent of world 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 in 2007 and US$1½ billion in tax revenue through transfer mispricing to the US in the same period.

It is not just Australia; it is 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 PAYG 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. There was 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, which finds:

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 warns that inequality is increasing rapidly in Australia, posing dangers to 'community wellbeing, health, social stability, sustainable growth and long-term prosperity'. Given that, this is the last time that we need the government to 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, which 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. That is a matter of very considerable concern.

The 2014-15 federal budget eliminated 3,000 jobs in the Australian tax office, and things like this greatly reduce the ATO'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 of them accept private sector offers which see them put their skills and experience into increasing the budget deficit rather than reducing it. We should tackle debt-shifting, close tax loopholes and resource the tax office to properly tackle artificial and contrived business structures. The tax office could help its own cause by revealing details of the worst corporate practitioners of tax avoidance. Taxpayer privacy for individuals is of course legitimate, but large corporations cannot make the 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:

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 avoidance rather than the legislation before the House.