Tax Laws Amendment (Implementation of the Common Reporting Standard) Bill 2015
8 February 2016
Labor will seek to amend this bill to bring forward the deadline for reporting company accounts from 2019 to 2018. Australia is a laggard rather than a leader in the Common Reporting Standard. This is an issue which is critical to the fight against multinational profit shifting. It is absolutely vital in the issue of tax enforcement. The work done by Labor through the G20, winning us the presidency of the G20, and work done through the OECD, ensured that Australia was at the vanguard of making a difference on multinational tax avoidance. Yet, since the Abbott-Turnbull government was elected, we have fallen to the back of the pack.
The government proposes that we move to the timetable not of the fastest countries in the world but to that of countries such as Russia. It is deeply disappointing that the government is unwilling to see Australia move on the Common Reporting Standard.
The Common Reporting Standard ensures that, for the first time ever, tax authorities automatically exchange information about the contents of company and individual bank accounts held overseas. Until now, multinational companies and wealthy individuals have often been able to avoid paying tax in one country simply by sending their money offshore so that tax authorities cannot see it. Under the OECD's Common Reporting Standard there will be fewer places to hide.
The former Treasurer had to be dragged kicking and screaming into signing Australia up to the Common Reporting Standard. Now, after finally bringing this bill to parliament, we can see the current Treasurer has further delayed the process, setting the deadline for implementing it way off into the distance. If the government was instead serious about stopping tax revenue continuing to drift offshore, they would ensure that the exchange of information about company accounts starts as soon as possible.
Unlike the government, Labor is not happy to let companies off the hook for another three years. We will move an amendment that will ensure that the exchange of information about company accounts happens in 2018, the same deadline the government set for reporting on individual accounts worth over $1 million.
As has sadly become the habit of the government, no explanation has been given for letting companies avoid scrutiny for another three years. There is no good reason for letting them off the hook for so long. I urge those on the other side of the chamber to support this amendment, as I do our colleagues in the other place.
Let's step back and look at the history of this issue. The Common Reporting Standard was an initiative of the OECD and G20 base erosion profit shifting project. The OECD-G20 BEPS project made a conservative estimate that globally between US$100 billion and US$240 billion every year in revenue is lost through base erosion profit shifting.
Clearly the economic effects of lost revenue are a source of consternation for the rest of the international community. But, beyond the direct economic effects, as Angel Gurria has noted, the continued presence of multinational tax avoidance leads to an erosion of trust in the fairness of tax regimes. It leaves taxpayers across the advanced world to say, 'If multinational firms are not paying their fair share, why should I?'
In 2013 the OECD launched an action plan into these concerns about base erosion and profit shifting. The OECD is hardly antiglobalisation. Indeed, it notes that globalisation 'supports growth, creates jobs, fosters innovation and has lifted millions out of poverty'.
I am a passionate internationalist. But I am also aware that, as national economies have become more globally integrated, so have multinational firms. The global scope of some of the world's largest companies and their increasingly sophisticated tax planning have allowed them to exploit opportunities to minimise their taxes. Governments receive less revenue to fund public services, and domestic taxpayers face a greater burden. It also puts smaller enterprises and companies operating only in domestic markets at a competitive disadvantage.
By implementing the Common Reporting Standard we create a due diligence framework for financial institutions to report to the Commissioner of Taxation about financial accounts held by foreign tax residents. This information will be provided by the commissioner to foreign tax authorities and, in exchange, foreign tax authorities will provide information about Australian tax residents' financial accounts information. This will be an automatic process.
Information exchanges are an important part of a transparent multinational tax regime. So important is information exchange that over 40 countries will begin reporting a year before this government would have Australia do so. Those countries include the UK, South Africa, Iceland and India. Australia is not a laggard because of factors outside our control. Australia would be a laggard because of choices of the Abbott-Turnbull government.
When the group of early-adopter countries laid out their timetable for exchanging information on corporate accounts, they described it as 'ambitious but realistic'. On this side of the House, we believe that combating multinational tax avoidance needs to be ambitious but realistic too. Throughout 2014, Labor repeatedly called on the former Treasurer to join this group of early adopter countries. Australia was conspicuously absent from the list, despite previous consultations with business and the financial sector on implementing these reforms. The government chose to sit on their submissions for months.
The former Treasurer, Treasurer Hockey, finally committed Australia to the Common Reporting Standard in late 2014, alongside all 34 OECD nations. Globally, 96 jurisdictions are now committed.
Under the timetable proposed in this bill, the first exchange of information between Australia and other countries takes place in 2018. That puts Australia behind the majority of signatory countries to the Common Reporting Standard, and aligns us with countries such as the Bahamas, Russia and the United Arab Emirates. In this bill, financial institutions must complete identification and reporting of high-value pre-existing individual accounts by 31 July 2018. They will be required to identify and report on lower-value pre-existing individual accounts by 31 July 2019.
For reasons known only to the government, they have opted to align the deadline for reporting on the accounts of corporations with that of low-value individual accounts. The government's proposed two-stage implementation process lets big companies off the hook until 2019. That is the proposed date of the election after next. While banks will have to report on the accounts held by high-net-worth individuals in 2018, the government is proposing a 2019 deadline for corporate entities. That is not good enough. They have given the Australian community no explanation for this. It suggests that this is hardly a government that is champing at the bit to tighten the global tax net.
Labor does not believe there is any good rationale for delaying reporting on corporate entity accounts by a full year. This information should be provided to the tax authorities as soon as possible. That is why we are moving an amendment on bringing the deadline for reporting on corporate entities into line with that of high-net-worth individuals. It is why I have moved that amendment.
We know that many Senate crossbenchers share our deep concern about big companies avoiding paying their fair share of tax. We would urge these senators to support Labor's amendment and ensure the Common Reporting Standard starts capturing information about companies' bank accounts sooner rather than later.
I would also take this opportunity to flag that we will be talking with our colleagues in the Senate about further possible amendments to increase the transparency of the data provided under the Common Reporting Standard. We believe it may be in the interests of our developing-country neighbours and the tax debate globally for the Australian Taxation Office to publish aggregated, de-identified information about how many accounts and what value holdings foreign nationals have in Australia.
Some of our neighbours have not yet signed up to the Common Reporting Standard. Letting some of our near neighbours in the region see how many of their citizens have financial accounts in Australia may provide an impetus for them to sign up to the Common Reporting Standard.
Labor has long argued that transparency is key to combating tax avoidance—transparency for the public, not just for tax authorities. After all, it is unlikely that the Liberal government would have moved to adopt its recent multinational tax changes at all, were it not for the recent public outcry brought about by the Senate tax inquiry led in particular by Senators Ketter and Dastyari and the disclosure of tax details under Labor's transparency laws for large firms.
You will hear, perhaps, in this debate a suggestion that Labor did not support the government's multinational tax avoidance bill. We did. We announced from the moment it had been mentioned on budget night that we would support it—even though, when you look at the budget papers, there is a series of asterisks where the revenue estimates should be. But, despite the fact that the government could not tell us what it would raise, we said we would support it. The only stipulation we had was that we wanted to make sure that there was transparency as well. Transparency and better laws go together. At a time when the government was attempting to water down transparency, we did not think it was reasonable to have those changes made. So we fought for transparency. We consistently told the government that, so long as they supported the tax transparency laws brought in by Labor in 2013, we were happy to support their uncosted multinational tax bill.
But the government's attempts to let multinational companies put off better scrutiny of their financial affairs through the Common Reporting Standard should not come as any great surprise. It comes on the back of their decision to help firms which have a turnover of over $100 million to hide from tax transparency in 2015. That again shows that the Liberals are not serious about making sure that big companies pay their fair share of tax.
Of course, the government last year needed a hand in helping rich companies keep their tax dealings secret. In a late-night closed-door deal last December, the leader of the Greens and the Treasurer agreed to raise the threshold for tax transparency from $100 million to $200 million, which put the majority of large private firms outside the transparency net—another one of those dirty deals done pretty expensively for the Australian taxpayers, for which the Greens have become famous in Decembers: in 2009 it was killing the CPRS; in 2015 it was winding back tax transparency. With a $100 million threshold, transparency laws would have applied to about 900 private firms, but two-thirds of those large companies are now exempt from transparency laws, thanks to the Greens and the Abbott-Turnbull government.
Despite the Liberals' best efforts, though, the transparency report published by the Australian Taxation Office in December last year did publish the affairs of public companies and it showed why we need to continue taking action at home and overseas to close down loopholes and opportunities for tax avoidance. The tax office report revealed that one in four companies earning over $100 million paid no tax in Australia in 2014—not one dollar. Those are the numbers that the Liberal government did not want you to see. Those were the numbers that show that in the energy and resources sector 57 per cent of multinational firms paid no tax, while in the banking and financial sector the figure was 45 per cent. Australians are quite rightly now looking to these firms to explain why they do not seem to be contributing in the same way that individual taxpayers and hundreds of thousands of small businesses do.
Every dollar that is sent offshore or minimised through a convenient loophole is a dollar that cannot be spent on things that matter, a dollar that has to be raised from other taxpayers. It means that we either have to tax ordinary taxpayers more or things like hospitals, schools and a liveable pension come under sustained attack, as they have been since this government brought down its first budget in 2014.
At the same time as the government is giving large firms an easy ride with higher tax transparency thresholds—or, as is the case today, pushing back the timetable for exchanging information about corporate accounts—the government is actively considering a higher GST. A government that persists in going softly-softly on companies paying their fair share wants to go hard, hard, hard on households by hitting them with a tax on consumption. They will tell you that the Prime Minister has ruled it out. Yet we heard in question time today that the Prime Minister singly failed to rule out a 15 per cent GST. It seems that the only time this government adopts the line 'Go early, go hard and go households' is when it is really going hard on households, when it is thinking about cutting the services that households rely on, cutting back on schools and hospitals or raising taxes on low- and middle-income Australia.
An increase in the GST by 50 per cent would not boost growth. The Japanese economy went into recession after they raised their GST from five per cent to eight per cent in 2014. It would worsen inequality at a time when inequality is at a 75-year high. Affordable housing is increasingly out of the reach of the average Australian household. And, in one generation, earnings for the top tenth have risen three times faster than earnings for the bottom tenth. As NATSEM modelling shows, raising the GST to 15 per cent takes three per cent of the top quintile's disposable income but seven per cent of the bottom quintile's disposable income. In other words, it hits the bottom twice as hard as it hits the top. So, instead of taking the fight to those companies that do not pay their fair share of tax, the government wants to push a consumption tax on low- and middle-income earners that will make the problems even worse. It will not help growth, but it will worsen inequality.
I am sure that, when it suits the member for Cook to have a debate about tax reform, he will tell this House that he cares about multinational tax avoidance, but what he actually cares about and what he actually does are two very different things. When it came time to vote for Labor's sensible changes for multinational tax avoidance in 2013, the member for Wentworth and the member for Cook voted against them. When it came to tax transparency and Labor's changes to keep open tax transparency, the member for Wentworth and the member for Cook voted against them. And when it came time to support Labor's fair and sensible changes to multinational loopholes, changing the debt deduction rules and the rules around hybrid instruments to add $7 billion to the budget bottom line, the member for Cook and the member for Wentworth argued against them. They will not support fair changes that will see fair taxation of multinationals; instead, they want to go hard on households.
This amendment is in exactly the same spirit. It is an opportunity for the member for Wentworth and the member for Cook to show the Australian people that they believe that big companies cannot dodge their tax contributions any longer in Australia. I urge the Treasurer to support an amendment which, in the words of the OECD, is ambitious but realistic. We ought to be able to commit to an ambitious but realistic timetable that takes us with 40 other countries in the world in exchanging tax information and getting a better deal for the Australian taxpayer. If the Treasurer and the Prime Minister are serious about multinational tax avoidance and if they are serious about getting tough on the big end of town, they will support this amendment as the right course of action.