Peter Whish-Wilson (Tasmania, Australian Greens) Share this | Link to this | Hansard source

We do have one amendment to the schedule, which I foreshadowed in my speech on the second reading. I move Greens amendment (1) on sheet 8098 to the Treasury Laws Amendment (Combating Multinational Tax Avoidance) Bill 2017:

(1) Schedule 1, item 13, page 9 (line 26), omit "80%", substitute "90%".

I just want to briefly speak to this and ask Senator Cormann a couple of very quick questions. I understand that the current threshold of diverted tax that the ATO commissioner will use is 20 per cent of diverted tax. My question, Senator Cormann, is: why was 20 per cent chosen? I understand that the commissioner still has discretion, even at 20 per cent or above, as to whether they will pursue a tax ruling or an investigation, if you like. Could you please just briefly explain to me why 20 per cent was chosen?

Mathias Cormann (WA, Liberal Party, Minister for Finance) Share this | Link to this | Hansard source

It was chosen, firstly, based on the consultation and, secondly, because this is following the precedent that was set in the United Kingdom in their equivalent diverted profits tax scheme. The view is that, if you capture more, you end up tying up the ATO in audits and investigations in relation to lower risk businesses. We want to focus, obviously, at the right end and we want to make sure that the scheme is properly targeted. But the short answer is: it is based on consultation and it is based on what was chosen in the United Kingdom, where this measure was introduced a while ago.

Peter Whish-Wilson (Tasmania, Australian Greens) Share this | Link to this | Hansard source

From what I understand you have just said, the 20 per cent threshold was chosen because it was in the UK bill, which is often called the Google tax. I think that was the first of its kind in the world. The threshold that the Greens propose to introduce is a lower threshold so that, if 10 per cent or more of tax has been diverted or the ATO suspects it has been diverted, it can choose to begin an investigation or seek redress. I note that, whether it is 20 per cent or 10 per cent, or even 50 per cent, the commissioner has discretion. No doubt they will use that discretion based on risk return and what they expect to gain from the investigation versus the costs of that investigation and the opportunity cost more broadly. I understand that, even at 20 per cent diverted profit, the commissioner is not guaranteed that they will seek investigation.

We have been speaking to our own stakeholders and we believe a 10 per cent threshold is more appropriate considering that there is still discretion as to whether the commissioner will pursue an investigation. Could you clarify for me, Minister, whether it is the case under the current 20 per cent provision that the ATO commissioner has discretion as to whether they will pursue an investigation or whether they actually have to if they believe 20 per cent or more of tax has been diverted.

Mathias Cormann (WA, Liberal Party, Minister for Finance) Share this | Link to this | Hansard source

My clear advice is that the tax commissioner does not have the discretion that you are suggesting. Why don't I talk you through the reasons the government is opposing your amendment. The government does not support increasing the foreign taxes carve-out from at least 80 per cent to at least 90 per cent of Australian taxes paid, firstly, because we have extensively consulted on this and we believe that we have the right balance here. It is, of course, the precedent in most countries and specifically the UK, which was the first to legislate this diverted profits tax and has the equivalent 80 per cent threshold in its legislation.

This amendment is a bit of policy on the run, we suggest. Increasing the carve-out will not actually help us fight tax avoidance. The companies that the tax office and Treasury have identified as the greatest risk are those companies that are paying 80 per cent or less of the company taxes they would be paying had they been recognising the profit in Australia. Increasing the test to 90 per cent would bring in lower risk companies that are doing the right thing. It would increase compliance costs for the Australian Taxation Office and mean their audit processes would be less targeted. It would also increase the cost of compliance for businesses doing the right thing and reduce business certainty and confidence.

The other point that I would make in response to the issues raised by Senator Whish-Wilson is that it is important to remember that transfer pricing rules will still apply, that the general anti-avoidance provisions will still apply and that this comes over and above all of the other anti-avoidance measures that are already enshrined in our relevant tax laws.

Bills agreed to.

Bills reported without amendment; report adopted.