HOUSE OF REPRESENTATIVES, 31 JULY 2019
The problem of multinational profit-shifting is a massive one. Globally, around $600 billion of profits are estimated to be shifted to tax havens. That's almost 40 per cent of multinational profits.
We see in Australia significant multinational profit-shifting affecting our tax base. You can see this in a variety of different statistics. One curious figure is a new dataset released by the Australian Bureau of Statistics last year which shows the operating profits and taxable profits of multinational firms operating in Australia and in different jurisdictions. You can ask the question: what's the gap between operating profits and taxable profits for firms from different countries? If you're a typical Australian firm, the gap between operating profits and taxable profits is about 30 per cent. That's true, too, for firms in the United States, at 28 per cent, in the United Kingdom, at 27 per cent, and in Japan, at 29 per cent.
But then you get to the curious ones. Bermuda owned multinationals operating in Australia have a gap between operating profits and taxable profits of 88 per cent. Those located in the British Virgin Islands have a gap of 92 per cent. In other words, if you start with $10 of operating profit, Australian firms will report $7 of taxable profit and the same with American firms, British firms and Japanese firms. In those cases, $10 of operating profits means $7 of taxable profits. But if you're a firm located in Bermuda or the British Virgin Islands then $10 of operating profits produces just $1 of taxable profits. That could have something to do with the fact that Bermuda and the British Virgin Islands effectively have a zero corporate income tax rate, no personal income tax rate and no capital gains tax rate.
Tax havens are the hiding grounds for plenty of crooks. Gabriel Zucman, an economist at the University of California, Berkeley, estimates that four-fifths of the money in offshore bank accounts is there in breach of other countries' laws. North Korea has used tax havens to hide the proceeds of its sale of nuclear technology and drugs, counterfeiting and projects using forced labour. Al-Qaeda have routed finance payments through tax havens to evade detention. Mexican narcotics kingpin Rafael Caro Quintero is just one of the many drug lords who park their profits in a tax haven.
Tax havens increase inequality. Offshore wealth held by Australians in tax havens is approximately six per cent of GDP, according to Gabriel Zucman's research. In today's prices, that would mean around $100 billion of assets are held in tax havens by wealthy Australians. We say 'wealthy Australians' but we're talking about the superwealthy. Indeed, when researchers have matched up results from high-profile leaks with existing taxation statistics, it looks like half the money in tax havens is owned by the top one-10,000th of the population. We talk about the top one per cent or the top 0.1 per cent, but this is the top 0.01 per cent of the population owning half the money in tax havens. That's not surprising given the investment funds tend to be the sort with million dollar buy-ins. So it's no surprise that you see multimillionaires dominating investment in tax havens.
Indeed, tax havens mean that there is a race to the bottom in living standards and in sustaining a strong corporate tax base.
Australia should be engaged with the global project to tackle base erosion and profit shifting. That's a project which has been operating since 2013—a joint initiative of the OECD and the G20—with over 100 countries and jurisdictions to tackle multinational tax avoidance. Australia used to have a seat on the steering group but no longer does. In effect, we've shifted from the front seat into the back seat. We have seen the coalition government step back from its engagement with the problem of multinational tax avoidance, from this significant problem that faces the globe.
Labor took a suite of policies to the last election that would crack down on multinational tax avoidance. We said that we would crack down on the abuse of royalty payments and so-called patent boxes. The arrangement of patent boxes is largely recognised as being an artifice which doesn't increase intellectual property but, instead, simply serves as a hidey-hole for tax avoidance. Closing the royalty tax loopholes, ensuring that multinationals are denied a tax deduction for questionable royalties, is a reform which has been advocated by many experts and which ensures that we will see multinationals pay their fair share.
We called on the government to implement public reporting of country-by-country reports. I was surprised to see the member for Forde talking about country-by-country reporting, given that the Treasurer and the Prime Minister have argued against the public reporting of country-by-country reports. They have argued against transparency of the amount of tax paid by firms in different jurisdictions. The government once said it was committed to a register of beneficial ownership, tackling the problem that Australia has an unusually opaque share registry. But, having announced that, Kelly O'Dwyer backed off from it prior to the last election. She did an exclusive with The Guardian newspaper, and then admitted close to the election that, actually, the government had killed the idea. It had no intention of improving transparency on who owns Australia's firms.
Ahead of the last election, Labor said it would institute whistleblower protection and incentives to ensure that, where whistleblowers' information resulted in more tax being paid, they could collect a share of the tax penalty up to $250,000. We also tackled debt deduction loopholes. This bill includes some very modest measures around debt deduction but nothing as substantial as Labor has been advocating for in the last two terms in parliament. We believe that the problem of debt shifting is significant. I'll return to the coalition's position on that issue at the end of my remarks.
Labor said ahead of the last election that it would tackle the issue of tax havens being used by superannuation funds and would work to develop guidelines on appropriate tax haven investments by superannuation funds. We would have required firms seeking large government tenders to disclose their country of tax domicile. We would have, had we been elected, required large listed firms to disclose to shareholders their tax haven dealings as a material tax risk. We said we would require more tax transparency by restoring our $100 million threshold for public reporting of tax data by private companies.
We also said we would work on the Tax Inspectors Without Borders program, a joint initiative of the OECD and the United Nations Development Program. This sees tax experts, often from developed countries, working in developing countries. It is on the model of Doctors Without Borders--- Medecins Sans Frontieres.
The program has so far returned an astonishing ratio of 100 to one in terms of revenue raised compared to donor costs. If anybody in this place knows of another program with a benefit-cost ratio of 100 to one, I am very keen to hear about. That is a return that would make Warren Buffett envious. Tax Inspectors Without Borders ensures that multinationals can't pull the wool over the eyes of developing country governments as a result of having more information than they do. It ensures that multinationals pay their fair share in vulnerable countries. As one commentator observed to The Economist magazine: 'Recently a team came back from meeting one company so excited. For the first time ever when dealing with a large taxpayer, our people did the talking and the multinational representatives on the other side sat dumb, struggling to answer the questions.'
Tax Inspectors Without Borders is a program which merits support by the coalition. I would urge the coalition to look at supporting this program in our region. Foreign aid under the coalition has been brutally cut. If the aid budget continues to follow its current trajectory, overseas development assistance would fall to a miserly 0.18 per cent of gross national income in 2022-23 and 0.16 per cent of gross national income over the medium term. If the coalition is really serious about tax fairness, they will not only adopt more robust policies to tackle multinational tax avoidance—such as a tax haven blacklist—but will also, through Australia's foreign aid program, consider supporting the Tax Inspectors Without Borders program.
I have one final point which is important to make in this debate. The coalition, in 2012, voted against laws to close a multinational tax avoidance loophole. They did so claiming that the measure was retrospective. It wasn't—they were wrong about that—but they cast a vote against closing a multinational tax avoidance loophole. And then, in 2017, we saw that very same law being used to secure a $340 million judgement against Chevron. If those opposite had any decency, they would have come in here and said: 'We got it wrong. We're very sorry. We made a mistake. Had we had our way, the budget would have been $340 million worse off. But now we have seen the light and we'll do the right thing.' But they didn't do that. Indeed, they even patted themselves on the back. We even had the spectacle of the Prime Minister—then Treasurer—claiming credit for a court outcome based on laws he voted against.
But clearly they were a little wounded by this, so around that time began the lie that Labor had voted against the multinational anti-avoidance law. They began to come into this place and simply repeat time after time the mistruth that Labor had voted against the coalition's multinational anti-avoidance law. This bears focus and it bears a little bit of detail. The high-level point is that we voted for the law in the House and the Senate but we voted against measures to water down tax transparency.
Let me take the House through the key dates. On 9 November 2015, Labor clearly stated its support for the bill throughout the debate. Then senator Sam Dastyari said on that date, at page 8,044 of the Hansard, 'Labor's position is that we support this bill.' On November 11, 2015, Labor voted for the bill in the Senate in its third reading. That is at page 8,338 of the Hansard. On 12 November, the House disagreed with the Senate amendments—Senate amendments that would have watered down tax transparency. That is at page 13,042 of the House Hansard of 12 November. On 3 December 2015 the Senate debated amendments—a deal between the Greens and the coalition—to water down tax transparency. On page 9,906 of the Senate Hansard it can be clearly seen that Labor opposed the amendments to water down tax transparency but supported the re-amended bill.
We did the same when the bill returned to the House. At no point did Labor vote against the multinational anti-avoidance law.
When they come into this place in this debate, the Prime Minister, the Treasurer, the member for Fadden, his successor as Assistant Treasurer—the member for Deakin—and the member for Forde have persisted in the mistruth that Labor voted against the multinational anti-avoidance law. We did not. We did not follow the playbook of the coalition, who did indeed vote against loophole-closing measures of Labor in government in 2012. It is an absolute lie to say that Labor voted against the multinational anti-avoidance law. We believe that law should have been tougher, which is why we took to the last election the most comprehensive suite of multinational anti-tax-avoidance proposals that any opposition has ever taken to an election.
Authorised by Noah Carroll ALP Canberra.