Susan Templeman (Macquarie, Australian Labor Party) Share this | Hansard source

I think what people hate most about multinational tax avoidance is that, if you're a small business, it feels like the playing field is completely skewed, and it's not skewed your way. It's skewed towards the big guys, the multinationals who can shift money around, shift profit, pay themselves in a different country and create all sorts of schemes that allow them to avoid paying tax, things that small businesses generally not only can't access but, even if they can, don't do. I speak from experience on this. I had 25 years in small business before coming to this place. Going through a period of extraordinary growth in the late 1990s, I had an accountant who suggested to my business partner and me that we were paying way too much tax—it's because we were making a lot of profit—and that there were ways around it. We looked at him blankly and said, 'What are you talking about?' He suggested the Bahamas, I think it was. I could be wrong; I am not sure what the preferred tax haven of that era was. We were appalled at the suggestion, and it didn't take us long to find a different accountant. The ethics that went with that advice did not sit well with us.

Now, multinationals don't seem to have the same sense of morality or ethics around them when it comes to making those decisions. These things in many places are not illegal, but we're saying very clearly that they are no longer part of how you do business in Australia. We're very clearly stepping out and saying that this is not good enough. If you want to do business in Australia, you will do it fairly and we will make you do it fairly. We're not talking about a small amount of revenue that is lost to us here in this place. It is lost to the Australian taxpayer, to the people who depend on the things that taxes pay for—the people who drive on our roads, the people who are in our hospitals, the kids in our schools. That's what this is really about.

There is around $100 billion of Australian money sitting in tax havens, in places like the Bahamas and Panama, where there are very low tax rates and where, on one estimate, four-fifths of the money is there in breach of another country's tax laws. There are around two-fifths of multinational profits currently booked through these tax havens. This isn't just tax avoidance. Let's be clear. These are the places where terrorists, kidnappers, syndicates and drug lords actually shift their money through. There's a whole spectrum of things that we're talking about when we talk about multinational profits and the creation of these things. We have to crackdown on them wherever we can.

Today is a significant step in ensuring that multinationals pay their fair share, just as the bill is named. They undermine confidence in the entire tax system. If we can ensure that multinationals operating in Australia pay their fair share of tax, we're not only going to lift revenues but we're going to increase confidence. I don't think it's a stretch to say that it will increase the accountability that people expect from all corporations. These are really significant changes we are bringing in for the broad consequences they will have, as well as for the specifics and for the businesses that they will directly affect.

During nearly a decade in government, those opposite just tinkered around the edges and made a few tweaks here and there. They did not take any significant steps to stop and prevent multinational tax dodging happening. Before the 2022 election they told Australians not to support anyone who proposed raising taxes on multinational tax dodging. They said: 'Don't support the bunch who want to tackle the tax dodging that happens by multinationals.'

In 2021 there was a group of more than a hundred countries which came together and were involved in a discussion. They came together to strike a deal on global taxation. We took the view that that was important to be part of—that were we to be in government, we would be standing with those hundred nations and that it would be a significant step in the right direction. We are doing what we said we'd do. As the Australian government, we are now working to see those measures implemented.

Those opposite have been walking away from the issue of multinational taxation whenever they can. In spite of their proclamations that they care about small business—in spite of the things they say—their actions demonstrate they really don't give a toss about small businesses and are happy to have the playing field so uneven. Wherever that happens you are disadvantaging small business. Small business is already working really hard. We see that this is not only a sensible measure to tackle the tax dodging that some multinationals engage in but also a vote of confidence in good, honest, ethical Australian businesses.

Let's look at some of the details that we're talking about. We talked about committing to ensuring multinationals pay their fair share of tax. That is a really broad, sweeping statement, so I think it's worth looking at the details. The pathway we've taken is: levelling the playing field and increasing transparency for Australian businesses. We have a firm belief that shining a light on things is the best way to increase accountability. These reforms will hold companies to account, particularly large corporate groups. It will hold them to account on their corporate structure. It will show whether they're operating with opaque or atypical tax arrangements.

To paint a really simple picture, what we're talking about is company A that operates in Australia but has a head office perhaps somewhere in Asia. It might have another major office in Europe, but it might also have an office where it pays money to itself for a transfer of intellectual property or some other sort of service. That money, generated in Australia, will leave our country to be paid to another arm of the company. That is how money sees its way out of Australia without having a fair share of tax paid on it.

Given the global momentum towards ensuring that firms pay their fair share of tax, including in the country in which that income is generated, it's in the public interest for shareholders to have information around this transparency. That's why schedule 1 of this bill targets Australian public companies that are listed and unlisted to disclose their subsidiaries and where they're located, because you might be shocked to know that that information is not always readily available. It isn't always easy to work out where their subsidiaries are, because they are Australian public companies.

This will hold companies to account, particularly the large corporate groups, requiring them to be so much more transparent. I note that we're talking about companies whose subsidiaries or sister companies might be located in a lower-tax jurisdiction. The information will support better economic analysis and help to inform whether tax laws are actually operating as intended in collecting the right amount of revenue—a fair share of the revenue that is generated by Australian consumers.

Companies will disclose this information as part of their annual financial report, helping to reduce compliance burdens. This is in line with international approaches. For example, the UK has a really similar measure already in place. Company reports already include financial statements, notes to the financial statements and directors' reports, and this will be an additional report that is required at the same time. It's the fourth element of a company's annual financial reporting. For most companies, the financial statement will already include some information on their subsidiaries. This disclosure will improve the information flow by requiring information on all subsidiaries.

We obviously went and talked to companies about this. We went and had discussions last year from August through April, and it's a step change. We're not talking about throwing out the book and starting again. We're talking about an extra step to ensure increased tax transparency. The feedback is that it does complement the ongoing work to implement a beneficial ownership register and public country-by-country reporting, and we're continuing to engage with stakeholders on those matters.

If you're wondering who will be impacted by this measure, in practice the disclosure is only likely to apply to large corporate groups which operate through these complex corporate structures. There are approximately 470 large corporate groups, and by that we mean entities that have more than $250 million of turnover a year. That revenue is a pretty high bar. If we're looking at the raw numbers, there are about 8,000 entities who might in some way need to make the disclosure. However, many of these will be smaller companies with no subsidiaries, and they will simply disclose a 'nil' on their statement. So, if it doesn't apply to you, you don't have to do it.

This measure starts for this reporting year, assuming that we get the support we need to get this through the parliament. This is a necessary step. It's another step along the road. It's not the only part of this bill, but it does bring us in line with the United Kingdom, for instance.

The second part of it is around thin capitalisation. I have to say that this wasn't something that necessarily rolled off my tongue—'thin capitalisation'—but it is something I'm familiar with. The thin capitalisation rules are really there to prevent multinational enterprises from shifting profits out of Australia by funding their Australian operations with large levels of debt in order to reduce their taxable income. They're laying on the debt. That reduces their debt-to-equity gearing, and therefore their tax payment is lower. There are tax deductions for interest expenses, and their borrowing costs may be limited. Businesses affected by this can be Australian entities that operate internationally, and some of their associates, Australian entities that are foreign controlled and foreign entities that operate here in Australia. Let's talk about what that means for schedule 2.

Schedule 2 is a revenue-raising measure. It targets a known tax planning arrangement by limiting multinational enterprises' debt deductions so that we make sure they pay a fair share of tax in Australia. Again, that is levelling the playing field for every other business operating in this nation. The measure limits an MNE's deductions by strengthening the rules. For instance, it limits an entity's debt related deductions to 30 per cent of profits. Rather than—pick any other number—we're saying 30 per cent is it. Another example of how it works is that it retains an arms-length debt test as a substitute test, which will apply only to third-party debt, so we're disallowing deductions for related-party debt under this test. These are some of the complex things that companies do to load their Australian arm up with debt. It's an earnings-based approach to debt deductions, and it ensures that any deductions that are paid are directly tied to an entity's economic activity and therefore its earnings in this country. This is a robust approach to addressing tax planning practices that some multinationals use.

In the last few minutes I have, I want to remind people why this matters. It matters because we need a level playing field and we need everyone to know that the system is fair. When you have one part of the system that is profoundly unfair, it undermines the integrity of the rest of the system. We are tackling this. We're not saying, 'It's too hard.' We're getting in there and making changes, and over time we will ensure that there is absolute fairness throughout these systems. We're undoing the mess we've been left.

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