Andrew Leigh

More tax transparency for a more informed debate

House of Representatives, 24 November

In the tax evasion trial of Leona Helmsley, a prominent American businesswoman from the 1970s and 1980s, a former housekeeper testified that she heard her employer say, 'We don't pay taxes. Only the little people pay taxes.'

These 'little people' are the hardworking men and women of Australia.

For too long, the 'little people' have been forced to pick up the slack left behind by large multinationals with complex accounting arrangements.

For too long, large multinationals have been able to hide behind a veil of secrecy. For too long, Australians have been left in the dark on the issue of multinational profit shifting. Now, for the first time, Australians will know which companies are paying their fair share of tax.

Companies which follow the rules have nothing to fear from opening their books to the Australian public. Once and for all, this bill before the House today will provide a comprehensive set of figures on how much companies are earning and how much tax they are paying. Recent reports pointing to large-scale instances of multinational profit shifting and tax avoidance suggest that
this information is needed now more than ever.

Greater information disclosure will allow for a more informed public debate, creating an environment for better
policy development.

At the same time, improved transparency promotes trust and credibility in our taxation system while discouraging large multinationals from engaging in aggressive tax avoidance practices.

Multinational profit shifting

A fair, competitive and sustainable tax system is critical for the future prosperity of any nation. Australia's tax
system raises the revenue that government requires to provide the quality public goods and services needed by
the community.

The apparent ease with which some large corporate and multinational entities can shift taxable profits and erode
a country's tax base is a shared concern for the G20 and most OECD countries.

Businesses that aggressively exploit tax loopholes gain an unfair advantage over their competitors. If a few large
companies use loopholes to avoid paying their fair share of tax, a greater taxation burden is placed on the less
well-off and vulnerable in our community.

Multinational tax avoidance poses a serious threat to the sustainability of our corporate taxation base.

Today, Apple, Microsoft and Google are three of the five biggest companies in the world and a large part of their wealth is derived from intellectual property. That allows companies to do business in countries without setting up a permanent establishment that would give rise to income tax liability.

In such an increasingly globalised economy, domestic tax laws have not kept pace with the rise of multinational corporations, the digital economy and mobile capital.

That has created gaps that can be exploited by companies who avoid taxation in their home countries by shifting activities overseas to low-tax or no-tax jurisdictions.

Unless serious action is taken, the sustainability of our future tax base is at risk.

Labor's record on multinational tax avoidance

Labor has a proud record on reducing multinational tax avoidance. When in office, Labor laid out a comprehensive package of tax measures that at the time, we estimated, would have prevented over $4 billion in government revenue being moved offshore.

Guided by the value of fairness, we put in place measures to make sure multinational companies paid their fair share of tax.

We understand that when large multinationals pay less tax it means families and Aussie small businesses have to pay more.

That is why strengthening taxation arrangements around multinational companies was an important focus for Labor in government.

The current Treasurer himself has even described this set of reforms as ‘world class’.

Labor doesn't just talk about increasing transparency. We acted to increase transparency.

The Coalition's failure to act on multinational tax

The Irish finance minister Michael Noonan recently announced that Ireland would put a stop to 'double Irish Dutch sandwich' tax arrangements.

These complex arrangements involve companies transferring money between subsidiaries registered in Ireland and European Union countries such as the Netherlands.

But while the Irish government is closing tax loopholes, Treasurer Hockey has reopened significant tax loopholes in Australia.

Indeed, one of Treasurer Hockey's first acts in office was to roll back Labor's measures to tackle profit-shifting—effectively handing, on a platter, $1.1 billion back to big global firms. That's money that could have gone to helping struggling families with cost of living pressures, or improving our schools and our hospitals.

But the Treasurer wasn't finished. He then pushed back the start date for Australia's implementation of key global tax transparency measures that were recently negotiated through the G20.

Ironically, Treasurer Hockey himself has extolled the virtues of greater transparency.

In a speech on 20 September, the Treasurer declared, 'Supporting greater tax transparency and information exchange is our best weapon to crack down on tax avoidance and evasion right now.'

And yet, while the rest of the world's major economies start sharing important information on company tax in 2017, Australia will sit on the sidelines.

At the same time, the Treasurer has slashed hundreds of millions from the Australian tax office's budget—sacking thousands of people who are on the front line in making sure wealthy individuals and companies are pulling their weight when it comes to tax.

A report by Michael West in the Fairfax press today refers to former ATO official Martin Lock, who has left the service of the ATO and was speaking about how debilitated that agency has become as a result of these cuts. Because every dollar invested in staff generates between $1 and $6 in revenue, cutting hundreds of millions of dollars out of the ATO could lose us a billion dollars in unpaid tax.

And, while he is willing to talk the talk on multinational profit shifting, Mr Hockey has been all bluff and bluster on the policy front. You have to look at what the Treasurer does, not what he says. Zero new revenue means zero new action.

The bill

But this private member's bill, provides an opportunity for the Treasurer to act, rather than just give nice speeches with snappy slogans.

Labor is opening the books of Australia's largest companies to find out how much they are earning, and how much tax they are paying.

This bill brings forward the implementation of previous Labor tax legislation.

That legislation required the tax commissioner to publish how much a company earns and how much tax it pays for firms that return a total income of $100 million or more.

Under current law, that measure will apply to the 2013-14 financial year.

As a result, that information will not become available until late in 2015. Passing of this bill will bring that forward a year, so we can allow that information to flow immediately.

Why are we bringing it forward?

With so much speculation and concern about how much tax multilateral companies pay, we need hard numbers to better inform the policy debate.

In fact, the coalition too seem to want more accurate tax information. During the most recent supplementary budget estimates, Senator Cormann said, 'It's very important for these sorts of debates to be properly informed.'

And yet the Abbott government has threatened to scrap Labor's existing tax transparency measures entirely. Former Assistant Treasurer Sinodinos told The Australian Financial Review in January, 'We don't want to get into a situation where we're putting more and more information out there.' Labor disagrees.

If the recent PwC ‘Lux leaks’ tell us anything, it is that greater transparency in taxation is needed now more than ever. Passing this bill will deliver that. 

Conclusion

Large multinational companies that use complex arrangements to avoid paying their fair share of tax should not be able to hide behind a veil of secrecy.

Australian consumers have a right to know what contribution firms make to Australia's tax base.

Labor is committed to ensuring that large multinational companies pay their fair share of tax.

We understand that in a fast-moving business environment, Australia's tax rules need to adapt and change to keep pace. We will always be guided by what is fair—for big firms, small businesses and ordinary workers.

We want to tackle corporate tax avoidance so that local and international businesses can compete on a level playing field. Transparency is one of the key weapons against multinational tax avoidance.

As the saying goes, you can have your own opinions – but not your own facts. Labor want to get the facts out there and we want to get them out there earlier—not for 2013-14, as existing law mandates, but for the 2012-13 financial year, which will allow the Australian Taxation Office to allow information to flow immediately.

So while the Prime Minister and the Treasurer will keep working to open corporate tax loopholes, Labor will keep on working to shut them down.

The choice for the Abbott government is clear—if they want tax transparency and an informed debate, they will support this private member's bill.