Tax Laws Amendment (Combating Multinational Tax Avoidance) Bill 2015
House of Representatives
19 October 2015
I move the second reading amendment which has been circulated in my name:
That all the words after "That" be omitted with a view to substituting the following words:
"while not declining to give the bill a second reading, the House notes that its revenue impact is unquantified, and calls on the Government to adopt Labor's fully-costed multinational tax package to raise $7.2 billion over the next decade".
Labor's position is to support the Tax Laws Amendment (Combating Multinational Tax Avoidance) Bill 2015. Labor has been calling for more action on multinational taxation for over two years and we will not be standing in the way of significant action on multinational taxation—or even insignificant action, which may well be what this bill being debated before the House is. We are taking a constructive position on this and we are willing to work with those opposite. We hope that, in return, the hand of constructive bipartisanship might be returned, and the government might look seriously at Labor's $7.2 billion package tackling a different set of loopholes from those addressed in this bill.
The bill contains four schedules. Schedule 1 introduces a new concept into tax law, the notion of a 'significant global entity', which will potentially capture up to 1,000 companies with annual income of over A$1 billion. Schedule 2 amends the existing anti-avoidance provision to counter instances where multinational firms use artificial arrangements to avoid paying corporate tax in Australia. Schedule 3 doubles the maximum penalties for firms involved in tax avoidance and profit-shifting scams. Those stronger penalties will not apply where the taxpayer has a reasonably arguable position. Schedule 4 implements the OECD's action plan on transfer-pricing documentation and country-by-country reporting.
Labor notes that this multinational tax bill takes an untested approach to corporate tax. There is no precedent for this approach anywhere in the world, and indeed not even the Australian Treasury can say how much revenue it will bring in. It remains to be seen if this bill will protect even one dollar of Australian tax. The bill has its genesis in an initial thought bubble from the member for North Sydney. Last year the British government announced it would adopt a diverted profits tax, commonly known as the 'Google tax', and the member for North Sydney latched onto that approach. When it was pointed out that Australia already has anti-avoidance laws and that there are significant limitations with the British approach, including the fact that it may well breach a whole raft of European union and international tax treaties, the member for North Sydney dropped that idea. It remains to be seen whether the British 'Google tax' is enforceable or effective. There has not been one single case brought under it so far.
Following that flipping and flopping over the question of an Australian 'Google tax', the member for North Sydney released an exposure draft of this bill. That exposure draft, though, was heavily criticised by various outside groups. The Law Council of Australia stated, 'The bill should not be enacted in its current form.' So what we are debating today is the third attempt by the Abbott-Turnbull government to come up with a viable plan to tackle multinational tax avoidance—from the thought bubble of the 'Google tax', to the exposure draft, to the current bill. The new Treasurer must be hoping this is third time lucky. He cannot, unfortunately, say how much revenue will be protected by this package, because the Treasury has been unable to cost it.
If one looks at Budget Paper No. 2, page 14, there should be revenue estimates sitting next to this bill, but there are not; there are a set of asterisks. Just a handful of asterisks represent the revenue that should be added to the budget bottom line by a good multinational tax package. One can see the situation immediately by just imagining what would happen if the boot were on the other foot, if I were walking in here today and announcing on behalf of Bill Shorten's Labor opposition a tough multinational tax plan from Labor that would raise an unspecified amount of revenue. Commentators would rightly laugh at such a package, and that is the approach that many commentators ought to take in the case of the government's package. We will give the government the benefit of the doubt. We will pass this bill, because we believe that protecting Australia's revenue base is too important to let politics get in the way.
I should note that, while we were in opposition, the other side of the chamber did not give Labor the same constructive bipartisanship support in our efforts to stop multinational profit-shifting and crack down on tax avoidance loopholes. When we brought forward the Tax Laws Amendment (Countering Tax Avoidance and Multinational Profit Shifting) Bill 2013, which plugged loopholes in Australia's transfer-pricing rules and anti-avoidance rules, members opposite voted against it. When we introduced the Tax Laws Amendment (Cross-Border Transfer Pricing) Bill (No. 1) 2012, which cracked down on companies overvaluing assets in offshore jurisdictions, the coalition members voted against it. When we amended the Taxation Administration Act to bring better tax transparency and ensure huge companies are held accountable for their contribution to Australia, members opposite voted against it. And, what is worse, last Thursday the government rammed through the Senate changes that have gutted Australia's tax transparency laws, taking around half of the affected companies out of the tax transparency net, pushing the dial towards secrecy and away from transparency. It is the wrong approach at a time when we need more sunlight, not less. The Abbott-Turnbull government has put a cloak of secrecy over the tax affairs of private companies earning more than $100 million a year. It has now ensured that Australians cannot have an open and informed discussion about how much tax big private companies really pay.
Labor introduced tax transparency in 2013 because we know that scrutiny and openness help make sure that everyone pays their fair share. Without transparency, dodgy dealings can flourish in the dark. We had evidence that around a fifth of those companies who are affected, who have been taken out of the tax transparency net, paid no tax last year. Labor has consistently fought the government's efforts to gut tax transparency. No party has argued longer or louder to keep transparency in place and make all companies with total income over $100 million publish what they pay. We took the lead in addressing multinational tax avoidance when we were in office and we have continued to take that lead from opposition. We remain the only political party in this parliament which has a carefully costed plan that adds significant revenue to the budget bottom line in the area of multinational tax avoidance. That plan was announced in March this year—the first time since the early 1990s that an opposition has put forward a costed, significant revenue package in the first half of the parliamentary term. We have consistently argued that our package delivered in concert with the full implementation of the OECD's multinational base erosion and profit-shifting action plan would get our tax rules right for the future.
Labor's plan has several parts. First, we propose revising the current thin capitalisation rules to reduce the amount of debt that companies can claim deductions for in Australia. Companies will no longer be able to automatically claim deductions, up to a 60 per cent debt-to-assets ratio, for their Australian operations. Second, we propose to better align Australia's rules on hybrid entities and instruments with tax laws in other countries. Hybrid instruments are often classified differently around the world. Some jurisdictions treat the assets as equity, others as debt.
Standardising the rules reduces the opportunity for companies to double-dip and claim tax exemptions in one country and tax deductions in another. I am yet to meet a tax expert who thinks it reasonable that while tax advisers can look at how an international jurisdiction treats a hybrid instrument the ATO has not been able to do the same thing. While pursuing those reforms, Labor will invest new resources in the Australian Taxation Office. After big budget cuts under the Abbott government Labor will ensure that the tax office has the resources it needs to identify and investigate multinational profit shifting.
The thing about Labor's changes is they can be implemented alongside the changes in this bill. That is because this bill fails to address the practice of companies loading debt into Australia to artificially inflate their tax deductions. Even as the government is cracking down on GST compliance for small businesses they are turning a blind eye to how some of the world's biggest firms are using deductions. We do know, from things like the PwC Lux Leaks, that some big companies are transferring money into their Australian arms and dressing it up as a loan, even though it is really just shifting resources from one pocket to another. In paying back those artificial loans companies are, effectively, sending the profits offshore by pocketing a tax deduction in Australia.
We know that the problem of debt deductions is a real one, and that is the problem that Labor's package zeros in on. At the present, there are three debt-deduction rules but only one of those debt-deduction rules has good economic rigour behind it. Labor's proposal is to remove the two debt-deduction rules that lack sound economic grounding and keep the one that has it. It is a worldwide gearing ratio approach, which allows companies to claim deductions against the average amount of debt they owe to banks around the world.
The worldwide gearing ratio is simple, in concept. If a company owes a lot of debt to the banks it can claim a lot of tax deductions but, if it does not owe the banks a cent, if all its debts are opaque internal loans at high-interest cost to offshore subsidiaries, then, no longer can a claim be the basis for debt deductions in Australia. We have to remember that every time we support a tax loophole that is a higher amount of tax other taxpayers need to pay. Importantly, the worldwide gearing ratio is already in the Australian tax law, so no-one can argue that what Labor is proposing is untested or unproven. Accountants for any large firm have, surely, already tested their firm's position against the three debt-deduction rules, so they will know their position under the worldwide gearing ratio.
I was surprised that under the member for Warringah and the member for North Sydney our $7 billion multinational tax plan was rejected out of hand. The cries of doom and disaster rang hollow to the many Australians who are unable to set up offshore entities in which they are able to claim debt deductions. I would urge the member for Wentworth and the member for Cook not to make the mistake of their predecessors, to look seriously at the Labor tax plan and to work constructively so that we can add to the budget bottom line, as this bill does not.
Australia needs a tax system that rewards the productive, the innovative, the resilient, the clever and the competitive. We do not need a tax system that rewards those willing to push the envelope the furthest. Loopholes in our tax system function a bit like the old-fashioned tariffs in the era of protection all round. McEwenism was grounded in special-interest pleading. The result was that others had to pay more. That is the way a tax system with loopholes operates.
Because Australia is an importer of capital, it needs investment from overseas. I spoke in the last sittings of parliament about the benefits of foreign investment for the Australian economy. We need firms to invest in Australia because they think Australia is a good deal, not because they think they can get a tax advantage from the Australian government. We need a plan that leverages the ingenuity of the Australian workforce to the strength of Australia's institutions and the quality of Australia's infrastructure. Our plan for winning investment from the world should be grounded on our fundamentals, not on having a tax boondoggle for big companies that lacks sound economic rationale. While the government attacks Labor's tax policy, it is attacking the only multinational tax plan that has been proposed, in this parliament, that will add to the budget bottom line.
We cannot let this bill mark the end of the government's efforts on multinational tax. In recent weeks the OECD handed down its final set of deliverables for its base erosion and profit-shifting action plan. This plan has been more than two years in the making and lays out a comprehensive 15-point agenda to close the loopholes that have opened up in the tax net due to changing technology and an increasingly global business environment.
The 15 items in the action plan tackle everything from the taxation of intangible goods to hybrid instrument rules and the creation of a multilateral tax instrument to allow more rapid coordination of rules between OECD countries in the future. Australia is making progress in some of these areas—for example, in the effort to extend the GST to digital downloads, which was supported by both Labor and Liberal state and territory governments. But there is still a lot of work to do.
The Treasurer now has the OECD's blueprint and, with it, the chance to take positive, practical steps to fix more of the loopholes in our tax system. Yes, Australia should move with the OECD but now that the OECD's plan is on the table there should not be excuses and delays. Billions of dollars in tax revenue are at stake and Labor's plan tackles those loopholes in a constructive way, which is consistent with the principles of the OECD.
At next month's summit in Turkey, G20 leaders will decide on a time line for implementing the plan. The Prime Minister should push for its rapid and complete implementation and stand firm against efforts to water it down or delay it. If the Prime Minister comes home from Turkey with anything less than a clear commitment and time table for delivering the OECD's tax plan, it will show that nothing has changed in the Abbott-Turnbull government and that it remains a government that is tough with the weak but weak when it comes to the strong.
With this bill, Labor is demonstrating our willingness to work constructively with the government to tighten Australia's tax net. We would like to see the government do the same by focusing on Labor's tax package. If they would like briefings on any detail of Labor's tax package, our door is open. I am happy to sit down with members opposite to talk about how to make our tax system fairer and to make sure that we do not have loopholes and boondoggles left open in the tax net. For all their complaints about debt and deficits, we have seen the doubling of the budget deficit under this government. We have seen net debt projected to peak at around 13 per cent in the Pre-Election Economic and Fiscal Outlook; it is now projected to go to 18 per cent under this government.
If the Abbott-Turnbull government is really serious about closing the gap between taxation and spending, then they will work constructively with Labor. They will work constructively and engage with our tax plan, and add $7 billion to the budget bottom line over the next decade. I hope that the government will take up this offer, contribute to the budget bottom line with more than fine rhetoric and contribute real dollars.