MONDAY, 3 APRIL 2023
SUBJECTS: MULTINATIONAL TAX AVOIDANCE; PETROLEUM RESOURCE RENT TAX; OECD TWO-PILLAR SOLUTION; PASSING OF YUNUPINGU
ASSISTANT MINISTER FOR COMPETITION, CHARITIES AND TREASURY ANDREW LEIGH: Thanks everyone for coming along today. My name is Andrew Leigh, the Assistant Minister for Competition and Charities and Treasury. I'll make a few remarks and I'll hand over to the OECDs Deputy Director of Tax David Bradbury.
I want to begin by acknowledging today the passing of Yunupingu, one of the most extraordinary Indigenous leaders in this country. As a Yolngu elder he was instrumental in crafting the Yirrkala Bark petitions and somebody whose influence has ranged across the nation. It is a reminder of the power of work that came to form the Uluru Statement from the Heart, which the government strongly hopes will translate into a successful vote at the referendum later this year for an Indigenous Voice to Parliament.
This morning, we've held a very successful roundtable on multinational taxation, with a range of entities representing corporate Australia, the union movement and the community sector. We've done this because we understand that multinational tax avoidance is a first order issue for many Australians.
Multinationals need to pay their fair share, and when they don't, it hurts Australians. Multinational tax avoidance means that we have less for resources available to fund our schools and our hospitals. Multinational tax avoidance is bad for business, because a small business finds itself competing on a tilted playing field against the large multinational using tax dodges that aren't available to the small firm. The globe is moving on multinational tax avoidance, with the OECD and G20 bringing together a two-pillar solution in October 2021.
The Albanese Labor Government is committed to action too. In the October Budget, we announced measures that will curtail the abuse of thin capitalization: effectively, using excess debt to shift profits offshore. We announced measures to crackdown on the misuse of royalty payments, a mechanism that allows revenue to flow offshore that ought to be in the hands of Australian tax authorities. We announced measures to improve tax transparency, making sure that large Australian corporates are reporting their country of tax domicile, ensuring that when companies are tendering for government work, that they disclose their country of tax domicile and moving towards a system of country by country reporting so Australians know that tax has been paid in the right place. Multinational tax is complicated in the details, but simple in its essence. It's about making sure multinationals pay their fair share, so we can fund the public services that Australians rely on.
The Albanese government takes a more forward-leaning approach to multinational tax than did our predecessors. We don't think it's good enough for the tax system to stand still, and to allow multinational companies to get away with shenanigans that see profits that ought to be taxed in Australia, transferred offshore. Everything we do in the multinational tax base is focused on ensuring that we can deliver the best public services to Australians. And recognizing that in a competitive economy, we want firms to be competing on making great products and services, on looking after their workers, on doing research and development, not competing with one another to find the next boondoggle that will see them hide profits in a tax haven.
I'm really pleased to be joined by the OECD’s Deputy Director of Tax David Bradbury. David had a distinguished career in this Parliament and was given an award as one of the top 50 global tax reformers after he left here in 2013. In 2014, he took up a position in the OECD where he's based in Paris, and he's now back in Australia for a week to engage in a series of consultations and meetings with Australians about the work that’s being done in the OECD. Like the other attendees, at the roundtable this morning, I was greatly impressed by the breadth and depth of David's analysis and the multinational tax space. I'll just ask him to make a couple of remarks about how he sees that context right now.
OECD DEPUTY COMMISSIONER FOR TAX POLICY AND ADMINISTRATION DAVID BRADBURY:
Thanks very much, Assistant Minister Leigh. It's a great pleasure to be back in Australia and it's a great pleasure to be back in Canberra. I had the opportunity earlier today to update some local representatives of business and civil society on the international tax reform discussion.
In October 2021 we delivered an international agreement. More than 135 jurisdictions came together to agree on a two pillar solution to address the tax challenges of the digitalization of the economy. Those two pillars on the one hand, the first pillar addresses the question of the fact that our tax rules today do not reflect the reality of the modern economy. There are rules that were based on an economy of 100 years ago, where physical presence was needed in order to give a country a right to tax activity. Through these reforms, we are bringing the international tax rules into line with the modern reality of the modern economy.
The second pillar, which involves the global minimum tax is one of the most significant steps forward in tackling cross border profit shifting and multinational tax avoidance that we've seen in history. And the global minimum tax is now a reality. With dozens of countries already beginning the process of implementing these laws in their own jurisdictions, including the European Union, and its 27 Member States and most recently, just the other day, Japan, countries such as Korea, the United Kingdom, and Switzerland, this global minimum tax of 15% is now a reality. And it will ensure that the tax avoiding practices of multinationals in the past will be brought to an end. The work on pillar one remains ongoing. We continue some very tough and ongoing negotiations. But we look forward to being able to open up the signature, a multilateral convention for countries to sign later in the year.
Now the stakes are high, we estimate that the impact of a global minimum tax will generate somewhere in the order of 200 billion US dollars each year. That's around 9% of the corporate income tax revenues that are collected each year globally. In addition to that, pillar one will see a reallocation of taxing rights of more than 200 billion US dollars each year that will generate significant additional revenues, and provide new taxing rights in market jurisdictions across the globe.
I want to take the opportunity today to thank the Australian government for its support of the OECD initiative. Working through the inclusive framework on BEPS. We now have 142 members operating and participating on an equal footing. And through the support of this government and its predecessors. And I want to make the point that this international tax work has had good support bipartisan support from both governments over the last decade. And Australia has played an important role in leading this global debate, and through many of its domestic reforms continues to show and demonstrate its commitment to a fairer, and a more internationally just tax system. So it's a great pleasure to be here. And I look forward to working closely with the Australian Government and other members of the inclusive framework as we secure the implementation of this agreement.
LEIGH: Great. Thanks, David. We're happy to take questions.
JOURNALIST: Is there any particular sector that you’re concerned about when it comes to multinational tax avoidance?
LEIGH: Well, certainly, the tech companies have been highlighted in terms of how their tax affairs have been organized. They have the advantage over companies that produce physical goods. It is easier to move the apparent location of production when you're producing bits and bytes than physical products. But our aim is to create a set of rules which are consistent across the board. This is a pro-business measure. It's about ensuring that the energies of companies are devoted towards creativity and entrepreneurship. Towards new product development and worker safety and not towards targeting particular tax loopholes.
JOURNALIST: It seems that getting multinationals to pay their fair share of taxes is the same sort of general election issue as fast rail. It seems to come up with every single government but very little seems to change. What makes you confident that this is going to change? That we’re not going to go for the next election a few years down the track, and hear that our government's going to make multinationals pay their fair share of tax?
LEIGH: I think you're right, that there is an ongoing challenge when it comes to multinational taxation, that it is constantly a matter of updating the rules to ensure that they're targeting particular tax arrangements. That's true of tax more broadly, tax bills come into this Parliament more often than bills from any other portfolio area, in part because the tax system needs to continue to be updated to accommodate new economic arrangements. Now, that's going to be particularly true in the international space where we're working with other countries and trying to tackle these global challenges. But Australians should be confident that the measures we're bringing forward will add to the revenue base, will ensure that we have more money for Medicare, and will ensure that firms are more focused on getting a good deal for their consumers, rather than trying to exploit tax loopholes.
JOURNALIST: When will these measures be starting?
LEIGH: Well, the measures that we've announced have a range of different start dates, but in some cases will begin to flow from the middle of next year. This is about moving as swiftly as we can, but carefully in consultation with businesses. All of the measures that we've put in place have been the subject of extensive consultation. We recognize that there are implementation challenges, we want to work with business. The Albanese government is a pro-business government. We're keen to engage with the experts there to ensure that there are no unintended consequences, and were able to get the implementation just right.
JOURNALIST: Assuming the rules continue to be ignored by multinational companies, do you think they should be prevented from accessing government contracts? And is the Albanese government working on something along these lines?
LEIGH: I'm pleased you've asked about government contracts, because one of our measures is a tax transparency measure that goes directly to government procurement. So if you're a firm that's tendering for a contract, which is over $200,000, you'll have to disclose your country of tax domicile. That ensures a certain degree of public transparency and allows appropriate scrutiny of the tax affairs of companies which are receiving Australian taxpayer dollars for work. Companies won't be banned because they're in a particular tax domicile. But I suspect that transparency in and of itself will force some change in behavior.
JOURNALIST: Is the government considering the introduction of a PRRT?
LEIGH: Thanks for the question. I think it's important to be aware of the history on this one. The former Treasurer, Josh Frydenberg, commissioned a report into the petroleum resource rent tax. And then when COVID struck and the resources of the Department of Treasury were stretched, he pressed the pause button on that review. We've asked Treasury to restart that work and to supply it to government. And we'll carefully consider that advice as it comes forward. But considering the operation of the petroleum resource rent tax is something that was started under the former government, we're simply receiving the results of the advice that they initiated.
JOURNALIST: Are there discussions about other sources of revenue available to the government?
LEIGH: It's April, the Budget’s in May. So naturally there's talk of revenue. That happens this year, it'll happen every year. And you won't be surprised to know that I'm not going to be giving you a preview of the May budget. That will be handed down by Jim Chalmers who's making the decisions right now on a range of different spending and revenue measures.
JOURNALIST: Is there consideration being given to increasing the tax rate from the OECD two-pillar solution above 15%?
LEIGH: Australia will move with the OECD on this. So let me hand to David on the OECD position.
BRADBURY: So the agreement result revolves around 15%. But it's important to remember that's an effective tax rate. It's not the statutory tax rate. That's what the company is actually paying. And I think on this question of the perennial nature of debates about multinational taxation, is that this really is a groundbreaking agreement in the sense that for the first time, we have a critical mass of countries across the globe, coordinating to ensure that there will be a minimum The level of tax paid regardless of where you are based the way you operate. And that is something that will at least put what we describe as a multilaterally agreed for on tax competition. But the 15% in the early parts of the discussion and negotiations that was at twelve and a half percent, so 15% is where countries have agreed. And there are no plans for that leaving at this stage
LEIGH: On that optimistic note we’ll wrap up. Thanks very much for coming along. Thanks for your questions.
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