Monday, 8 February 2016
Tax Laws Amendment (Implementation of the Common Reporting Standard) Bill 2015; Second Reading
The coalition is determined to do what is needed to protect Australia's tax base and ensure that all Australians and all who do business here pay a fair share of tax. Indeed, Australia is leading global efforts to crack down on tax avoidance despite Labor's political scare campaign and their cynical games aimed at opposing, white-anting and frustrating this critical tax reform agenda. I welcome the Tax Laws Amendment (Implementation of the Common Reporting Standard) Bill 2015 as another example of Australia's international leadership in the fight against tax avoidance. Globalisation and other technological advances have made it easier for individuals to hold investments in offshore financial institutions. This increases the opportunity for tax evasion. However, better reporting standards and cooperation between international financial institutions and the tax administrators in other countries will provide a powerful weapon in the fight against cross-border tax avoidance.
In specifically targeting cross-border tax avoidance, a competent, measured, coherent and collaborative approach—one that works in concert with other tax administrations around the world—is required. Importantly, the Common Reporting Standard is an international framework developed by the Organisation for Economic Cooperation and Development, working with non-OECD G20 countries, to tackle and stop cross-border tax evasion. By participating in this international effort, we are enabling the Australian tax office to gather information on Australians who may choose to dishonestly hide foreign income offshore. The standard will build on the ATO's current information exchanges and will require banks to identify and report on the tax residency of customers and their accounts.
Cross-border tax evasion is not a uniquely Australian concern, but it is a global problem that threatens the integrity of our public finances. This undermines community trust in our tax system. Unlike Labor, the coalition are committed to creating a fair tax system that will help our economy become more adaptable and agile while enabling increased diversification. That is why we began a comprehensive review into Australia's tax system through the tax white paper process, a critical part of our plan to reform the economy and provide real opportunities for Australians to work, save and invest.
To achieve this, the government is continuing a tax discussion and review process which promotes a community-wide conversation on how we can create a fair tax system that supports high economic growth, higher living standards and jobs. In aligning these objectives within the purpose of this bill, let me be clear that the additional tax revenue that could result will not by itself wipe away Labor's debt, nor could it possibly fund Labor's big-spending election promises.
However, this reform is not insignificant either. Improved transparency, including the ability to exchange taxpayer information between tax authorities, is critical to improving tax compliance and reducing tax evasion. Total tax liabilities raised as a direct result of exchange of information with Australia's treaty partners was about $255 million for 2014-15.
If Australians and others who live, work and invest in Australia have bank accounts in other countries then the implementation of a common reporting standard, together with better arrangements for the exchange of tax information on request between tax administrations around the world, will give the Australian tax office and other agencies even more capacity to fight tax evasion. This bill is estimated to deliver a small but as yet unquantifiable revenue gain over the forward estimates of up to $10 million over the next two years and larger unquantifiable gains beyond the forward estimates of up to $100 million.
The root causes and symptoms of cross-border tax avoidance are not new, and cross-border tax avoidance is a problem faced by most countries. This means international cooperation and sharing of information between tax authorities is essential to fighting it. In this regard, Australia is leading global efforts to crack down on tax avoidance. This has not happened overnight, nor has it happened by accident. So I was quite incredulous last week when I heard the opposition leader ask the Prime Minister what the government was doing to rein in potential tax evasion by multinational companies. The reality is that when the government introduced an amendment to the taxation laws to combat multinational tax avoidance last year the Labor Party lined up on the same side as the big tax dodgers and voted against it. That is right. Do not listen to what the former speaker said. The Labor Party voted against it. Unlike Labor, the Turnbull government is determined to tackle it in a comprehensive and strategic way.
The coalition is proactively responding to the final reports on the OECD Action Plan on Base Erosion and Profit Shifting, including a new country-by-country reporting regime. As the Prime Minister pointed out, actions speak louder than words. The Turnbull government has already actioned key initiatives to stop multinational tax avoidance which Australia delivered as G20 President, including tough new measures that came into effect from 1 January 2016. Multinationals are now required to report to the Australian Taxation Office their income and tax paid in every country in which they operate. Multinationals who avoid paying their fair share will have to pay back the tax they owe plus interest and also face penalties of up to 100 per cent of the tax owed. In effect, the coalition government pushed forward legislation to give the Australian tax office the 21st century tools to combat ingenious 21st century tax avoidance to collect that money. These measures were legislated and passed through the Senate last year, but, notably, Labor opposed them. For the record, Labor voted against them.
On the problem of cross-border tax avoidance, Labor's track record in government and in opposition has been to quietly shift from long-term ignorance and inaction to speaking loudly, squealing hysterically and achieving precisely 100 per cent of nothing. As I said earlier, a coherent, competent and measured approach to dealing with these concerns, one that works in concert with other tax administrations around the world, is what is required.
In this regard, the G20 leaders endorsed the common reporting standard under Australia's presidency and committed to begin to exchange information from 2017, with information being exchanged by tax offices from 2018. The standard is comprehensive in the different types of investment income to be reported, including interest, dividends and income from certain insurance contracts. On top of this, financial institutions will be required to report account balances and sales proceeds from financial assets. The standard is also comprehensive in the different types of account holders covered, such as individuals and the controlling persons of companies, partnerships and trusts.
To date, more than 95 jurisdictions have committed to implementing the standard, including former tax secrecy jurisdictions, such as Luxembourg, Switzerland, the British Virgin Islands, the Cayman Islands, the Isle of Man, Guernsey and Jersey. While the names of some of these places triggered a madcap response from those opposite last year, a basic lesson in international finance and investment practices is instructive. For those opposite, who were carrying on hysterically last year, let me present the facts again. Most hedge funds have an onshore US based entity and an offshore one so that non-US investors can receive their income without the US withholding tax. Tax is generally only paid once on the earnings of Australians; therefore, the consequence of an Australian investor investing in a managed fund located in the Cayman Islands, for example, is that all of the income paid to that Australian investor is taxed in Australia and this money is paid to the Australian Treasury. Why on earth would Labor want more tax revenue to go to the US instead of coming back to Australia to help pay down the debt they left our country? Why on earth would Labor line up with the big multinational tax dodgers and try and stop the ATO collecting the money we need for schools, for hospitals and for roads?
I note those opposite put the cart before the horse when former Treasurer the member for McMahon announced that Australia would implement the common standard early, even before the timing of the international program was finalised. Those opposite, clearly, are trying to walk on water before they can swim. The reality is that an expedited implementation of the standard before our financial institutions are ready and capable would impose very high compliance costs on them. These costs, invariably, would not be borne by them but would be passed on to Australian consumers. For this reason, Australian financial institutions will be required to implement the standard on 1 July 2017, which is consistent with the time frame agreed to at the G20.
I thank and congratulate the Assistant Minister to the Treasurer for bringing this bill forward now to allow Australia's financial institutions to get ready for the changes all fair-minded taxpayers demand. This bill will help ensure all taxpayers pay their fair share of tax, by providing tax authorities with information on individuals with offshore accounts, regardless of where their financial accounts are located. Importantly, there will be greater voluntary compliance as more taxpayers know that it has just got a whole lot harder to hide funds offshore without the tax office tracking you down. This will improve the integrity of the tax system by rebuilding community confidence in our tax system. I commend the bill to the House.