Australia-Swiss tax treaty

27 August 2014

Today I spoke in the Parliament about the importance of fighting multinational profit shifting and amendments to Australia's tax treaty arrangements with Switzerland.

We have just had two of my colleagues stand up and point out that bills before the House were essentially Labor measures now being implemented by this government. This bill is little different. It amends the International Tax Agreements Act 1953 to give force to a double taxation treaty signed with Switzerland in Sydney on 30 July 2013 under the previous government. Once in force it will replace the agreement between Australia and Switzerland for the avoidance of double taxation with respect to taxes on income and protocol, which is the existing Swiss agreement which entered into force on 13 February 1981.

Labor welcomes the government's implementation of the Australia-Switzerland tax treaty which was negotiated by us and was the result of the hard work of the previous Treasury team. I pay tribute to former Treasurer Wayne Swan and former Assistant Treasurer David Bradbury in bringing that work home. This revised Australia-Swiss tax treaty will enhance the already strong economic relationship between Australia and Switzerland by better aligning the bilateral tax agreements more closely with Australian and current international tax treaty policy settings. It will also strengthen administrative assistance between Australia and Swiss revenue authorities, in particular by permitting them to exchange taxpayer information including information held by banks and other financial institutions to address tax evasion. That reflects Australia's commitments to a fair tax system and is consistent with the ongoing international efforts, including within the G20 to improve tax system integrity. We welcome the government's move to give effect to the treaty through the legislation.

While this government is implementing Labor's tax treaty agreement with Switzerland, it has dropped the ball on multinational profit shifting. Multinational profit shifting is a complicated area. It has given rise to arrangements such as the 'double Irish-Dutch sandwich'. It is not quite as tasty as it sounds. In fact, it is a complex tax avoidance arrangement used by many multinational companies, involving Irish holding companies as the bread with a Dutch subsidiary wedged between them as filling. It sounds delicious. In fact, it is a hit to tax revenue that means regular firms need to pay more.

For those unfamiliar with the areas, one way of thinking about multinational profit shifting is to imagine the following scenario: a company wants to shift $1 million from its Australian arm to its Bermuda arm. One way it might think about doing that is by arranging for the Bermuda arm to sell the Australian arm a paperclip at the cost of $1 million. That gives the Australian arm a $1 million tax deduction and, effectively, shifts the money offshore. Now, thankfully, that particular loophole has been closed, but an analogous trick can be played with debt. If the Bermuda subsidiary makes a multimillion-dollar loan to the Australian arm, $1 million a year can be shifted out of Australia in the form of interest payments—which are a tax deduction in Australia—and that effectively moves the profit to a low tax jurisdiction. It is a thimble-and-pea trick, but the eventual result is that the rest of us have to pay more.

The government talks a big talk on multinational profit shifting. The Prime Minister spoke in Davos about the G20 agenda in Brisbane. He said:

…the G20 will continue to tackle business artificially generating profits to chase tax opportunities…

It is good to see that the government is now enthusiastic about the G20 meeting in Brisbane, just as it has a newfound enthusiasm for Australia having a seat on the United Nations Security Council, but I would appreciate the government making the most of that opportunity. In fact, since the election we have seen nothing but backsliding from the government on the issue of multinational profit shifting.

Under Wayne Swan and David Bradbury, Labor put in place a $4 billion package to tackle multinational profit shifting. Since coming to office this government has turned a $4 billion package into a $3 billion package. They have given $1 billion back to multinational firms as a result of not going hard on multinational profit shifting. Now, they are re-presenting that package to the Australian people and saying, 'We're getting tough on multinational profit shifting.' This is like a family that gets a box of chocolates for Christmas and decides to eat a quarter of the chocolates, then, next Christmas, rewraps the package and tries to give it as a present to someone else. The reality is that $1 billion has been lost from government coffers as a result of this government not going hard on multinational firms. That is about the cost of a new hospital. It also means that sole-trader hairdressers and suburban plumbers, who cannot engage in multinational profit shifting, end up paying more in their taxes.

To be specific, these measures are comprised of $180 million which the government will not proceed with on reforms to the offshore banking unit regime; $113 million that the government will not proceed with on legislative elements of the measures to improve tax compliance through third-party reporting and data matching; $140 million that the government will not proceed with on changes that would have applied to multiple-entry consolidated groups; $600 million for the abolition of section 25-90; and $100 million in offshore banking unit reforms. Overall, there are more than $1 billion worth of multinational profit-shifting measures that have been reversed by this government.

This is a government that claims—certainly, on some days of the week!—that it has a budget emergency, yet it has given $1 billion back to some of the wealthiest corporations on the planet. In March this year, the tax office announced that it was investigating 86 major international firms for allegedly shifting profits offshore. Commissioner of Taxation Chris Jordan estimated that the combined cost of those schemes could be more than $1 billion a year in lost tax revenue. Yet we have a government that is going soft on multinational profit shifting. This is a government that is willing to go hard on pensioners, on war orphans and on single parents, but it goes soft on some of the strongest organisations on the planet—multinational firms.

The government is going soft not just on tax measures but also on transparency. On 4 January 2014, former Assistant Treasurer Sinodinos told theAustralianFinancial Review that he was considering abandoning measures that required 200 of Australia's largest firms to disclose their total income, taxable income and tax paid. There has been outrage amongst many Australians—and, indeed, amongst multinational firms themselves—upon particular reports of the tax paid by large multinational firms. Many taxpayers have said that they are outraged at reports that these multinational firms are paying a particularly small share of their profits in tax, and many of the firms named have said that these reports do not accurately capture the picture.

The way to deal with both of these concerns is to have formal annual reports by the Australian Taxation Office on the top 200 firms, setting out clearly an official report of their total income, taxable income and tax paid—allowing all Australians to see the accurate state of the books. Again, this is a measure that the government is threatening to walk away from. As said by Justice Brandeis—not to be confused with QC Brandis in the other place—sunlight is the best disinfectant. This government is trying to keep the sunlight from shining a light on multinational profit shifting.

This budget is amongst the most regressive budgets brought down in Australian history. Independent NATSEM analysis shows that families in the bottom fifth of the income distribution lose 6.6 per cent of their disposable income as a result of the budget. They lose more than one dollar in 20. Those poorest single parents are losing more than a tenth of their income—one dollar in 10 is being taken from their wallet. So it is no wonder the government is not just backtracking on transparency when it comes to multinational firms but also ripping the Family Impact Statement—first put into the budget by Peter Costello—out of the budget so Australians cannot see how regressive this budget is.

This is a budget which demands that the most vulnerable Australians have a slug on them which greatly exceeds the hit on high income earners. There is only one temporary measure in this budget and that is the measure that hits high-income Australians. But the cuts to the pension, the cuts to health and education spending, the significant cuts to legal aid—those are permanent cuts. This comes after a generation in which Australia has seen rising inequality. Inequality did not rise during the last Labor government but this government seems to be doing its darnedest to put us back on a path towards rising inequality. After a generation in which earnings have risen three times faster for the top tenth than the bottom tenth, this government wants to give more to the top tenth and take more from the bottom tenth. We have seen the top tenth get giveaways such as the reversal of the measure where those with more than $2 million in their superannuation account pay a slightly higher rate of tax. This is a budget which finds the resources to raise the non-concessional superannuation cap from $150,000 to $180,000. That is a measure that benefits the top one per cent.

It is a budget which hits the most vulnerable Australians. That is why we have seen hits to business and consumer confidence as a result of the budget—because those at the top of the distribution tend to save about a quarter of their incomes, whereas those in the bottom fifth of the distribution tend to spend all their incomes. Just suppose you took $10 billion away from the bottom quintile and gave it to the top quintile. You are not only doing something that is unfair, you are also doing something which hits spending. You effectively take $2½ billion out of the economy. That is why we have seen the past hits on retail trade and consumer confidence.

In response to critiques that this budget is deeply unfair—that it not only breaks promises but breaks the fundamental fair go—we have seen a government that is engaged in tying itself in knots. Over the past five weeks we have seen budget rhetoric ranging from that of the member for New England, who has said that Australia is dealing with a cancer on the budget, to the Minister for Finance, Senator Cormann, who says we are simply talking about the froth on the cappuccino—the last one per cent.

This is a government which is at war with itself. We have a Treasurer who is blaming everyone but himself. He thinks it is the fault of the media, or maybe it is the fault of the opposition. Maybe it is the fault of the independents, or maybe it is the fault of his own back bench for briefing against him.

This is a government which has gone out of its way to offend ordinary Australians. The problem is not the sales job, it is the very product itself. This government seems to be doing its best to put the cross back into crossbenchers. It is no wonder that the back bench is outraged when we look at the impact of this budget on rural and regional Australia. Rural and regional Australia suffers a significant hit as a result of so many measures in this budget. Rural and regional Australians cannot afford to pay a higher fuel tax. They cannot afford to suffer the cuts to benefits that come as a result of this budget. Australians, at the same time they are being told they have to pay more to drive, are being told they will not get investment in public transport because this is a government that does not believe in cost benefit analyses for infrastructure projects. No—this is a government that believes we need to go back to the old pork-barrel days when we only had roads spending. We have, on the right of Australian politics, the Liberal and National parties who say there should only be roads and no rail; and on the left we have the Greens who say that it should only be rail and no roads. It is only Labor who take the sensible, centrist approach and say we should invest in both roads and rail, and that we should do so based on cost benefit analyses.

Now we have the Prime Minister and the Treasurer, over the weekend, threatening new taxes on ordinary Australians. Because they will not go hard on multinational firms—they have lost $1 billion of revenue from Australian multinationals—they are now threatening to slug Australian families and small businesses with new taxes. Of course, they would not be the first new taxes this government has imposed. After all, this is a government which is slugging low-wage workers earning less than $37,000 with new superannuation taxes. It is slugging Australians a new tax to go to the GP. It is slugging Australian drivers with a new tax to drive. And they are threatening that that is just the tip of the iceberg—that if Australia does not pass every repressive measure in this budget, then the economy will get it. This is a Treasurer who has not made the transition into government and an economic team that is keenly feeling the loss of its Assistant Treasurer.

We have now been without an Assistant Treasurer for many months. I am, I am afraid to say, a shadow without a body to shadow. It has fallen to the Minister for Finance to be the Assistant Treasurer, and you can see the stress beginning to show. We have the member for Kooyong who has been running a stalking horse campaign to be the next Assistant Treasurer, popping up on every opinion page that can be seen—standing up at every opportunity and backgrounding that he would be the captain's pick for Assistant Treasurer.

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Cnr Gungahlin Pl and Efkarpidis Street, Gungahlin ACT 2912 | 02 6247 4396 | [email protected] | Authorised by A. Leigh MP, Australian Labor Party (ACT Branch), Canberra.