Sam Rae (Hawke, Australian Labor Party) Share this | Hansard source

Multinational corporations who operate and generate profit on Australian shores should pay the appropriate rate of tax for that privilege. It's not an incredibly complex concept, it is the absolute expectation of the Australian people, it's a matter we took to the election and it is entirely consistent with international practice. I'll say it again: multinational corporations who operate and generate profit on Australian shores should pay the appropriate rate of tax for that privilege. These corporations operate in a robust and effective market—that's our market, the Australian people's market—provided by stable physical, economic and social infrastructure, all of which is either directly or indirectly supported by public funding. There is therefore not just a moral imperative but also an economic justification for these corporations to contribute back to the maintenance and development of the environment in which they operate. We cannot allow multinational corporations to avoid paying their fair share by using undisclosed foreign subsidiaries and inflated internal debts owed to associated offshore companies that just magically happen to exist in low-tax jurisdictions.

In the lead-up to the last election the Albanese Labor government made a commitment to ensure multinationals would pay their fair share of tax here in Australia—that those multinationals would fairly contribute to the society from which they generate their profits. This legislation represents our fulfilment of that commitment. We understand that maintaining a sustainable and equitable tax base is essential to maintaining a strong economy and that this is ultimately jeopardised when multinationals use these insidious strategies to avoid paying their fair share. When this happens, and it's happening now, a disproportionate tax burden is placed on Australian individuals and Australian domestic businesses. These are everyday Australians picking up the slack of these multinational dodgers. They are the teachers in our schools, the nurses in our hospitals and the tradies building our houses and our infrastructure. Whether they are employees or business owners, they are paying the price for a tax system which does not effectively hold multinationals to account and enforce the fundamental principle of our taxation system—indeed, of our society in general—that everyone pay their fair share.

This bill, the Treasury Laws Amendment (Making Multinationals Pay Their Fair Share—Integrity and Transparency) Bill 2023, addresses the shortcomings of our corporate taxation system in relation to multinationals in two ways. Schedule 1 of this bill is about increasing transparency surrounding the tax-advantageous corporate structures employed by multinationals here in Australia. It will require them to disclose information about subsidiaries in their annual financial reports, essentially in doing so revealing whether or not they are profit-shifting to low-tax jurisdictions. Revealing this information will not only apply pressure on these multinationals and empower consumers to make more informed choices but also support more detailed analysis of the effectiveness of our taxation system. It will enable us to gather the data and better understand whether we are collecting an appropriate amount of tax from multinational corporations. It will also allow us to design modifications and amendments that ensure that our tax system continues to serve its purpose into the future.

These measures are not extreme or unprecedented—nor do they place a significant burden on multinationals. They were informed by a stakeholder feedback process, and this represents the first step we're taking on increasing tax transparency overall. This is a cause that the Albanese Labor government is absolutely committed to, and we're continuing to work on further measures, including a beneficial ownership registry, as well as country-by-country reporting.

The second component of this bill is more direct in its approach. It's about limiting the capacity of multinationals to use debt instruments to shift profits offshore. Too often, large corporate groups use intercompany loans, sometimes with inflated interest rates, to reduce reported profits of their Australian subsidiary—or their Australian company—and subsequently reduce their tax owed within the Australian jurisdiction. This isn't to say that intercompany loans are inherently dodgy. However, because we often have very little information about how the terms were formulated and, indeed, the identity of the lending company, it is very difficult to determine whether the loans are legitimate or simply constructed to avoid paying tax in the first place.

While schedule 1 will go some way to increasing transparency, schedule 2 will limit an entity's debt related deductions to 30 per cent of profits. Currently, this is limited to 60 per cent of the entity's assets, and, in most cases, the new threshold will of course be lower. Tethering this limit to earnings rather than assets ensures that the limit is actually tied to the company's true economic activity in Australia. In order to ensure that legitimate business practices aren't unintentionally captured by this measure, interest expenses incurred above this threshold will be able to be carried forward for up to 15 years. This provides due flexibility to entities with significant volatility in their earnings.

Australian companies are part of a worldwide group who will also be able to exceed this threshold if the worldwide group's net interest expense exceeds 30 per cent of earnings, which would indicate that their debt instruments are not designed solely to shift profit. The misuse of interest deductions as a profit-shifting mechanism poses a significant threat to both Australia's domestic tax base and the competitiveness of our domestic marketplace. Australian companies that don't have offshore subsidiaries or that aren't part of an international group can't shift their profits to tax havens and avoid tax like this—nor should they be able to. However, when multinationals operating in Australia reduce their tax liability, they damage the ability of our domestic companies, our homegrown businesses, to compete.

In 2020-21 Australia's biggest corporate taxpayers were all Australian companies. Resources companies and the big banks made up the top 10, with supermarket retailers not far behind. While well-known Australian companies like BHP and Rio Tinto paid billions of dollars in tax, many of their competitors in the resources space were able to pay none. Chevron, for example, reported an income of $9.1 billion and a taxable income of over $100 million: however, they were able to pay a measly $30 of corporate income tax to the Australian government. That's $30 of corporate income tax from a taxable income of $100 million.

I want to clarify that I am not trying to say that our domestic resources companies have it tough. I think BHP and Rio Tinto are probably doing relatively well—just fine, even. I am, however, trying to illustrate the scale of inequity that multinational tax avoidance can cause. Chevron is just one example in one industry of a competitive advantage gained by a multinational at the expense of the Australian taxpayer. In an increasingly globalised market, we must ensure that we adequately safeguard our economy and support domestic productivity, innovation and jobs by levelling the playing field on which these companies compete. Enforcing a fairer corporate tax system serves just that purpose.

I note that while the opposition are supporting this bill today, it is clear that they have been dragged kicking and screaming to that position. The shadow Treasurer moved an amendment that notes they think they tried really hard when they were in office to curb multinational tax avoidance. The Australian people don't agree. Given that they left us with $1 trillion of Liberal debt—we inherited $1 trillion of Liberal debt without any significant economic dividend to show for it—I certainly wish that they had tried a little bit harder to address this issue. While they were racking up $1 trillion of Liberal debt, they were also tinkering around the edges of multinational tax reform, but utterly failing to make any substantial changes. They demonstrated that, rather than make multinationals pay their fair share, they would prefer to plunge our nation further and further into their debt spiral. Despite what they say, it is absolutely clear to anyone paying attention that only a Labor government will protect individual and domestic corporate taxpayers from the scourge of multinational tax avoidance.

The Albanese Labor government is not alone on the global stage in taking significant steps towards combating multinational tax avoidance. In fact, following the 2013 release of the OECD Action Plan on Base Erosion and Profit Shifting—a snappy name if ever I heard one—the OECD and G20 countries adopted a 15-point plan to improve international tax cooperation and transparency. Since then most OECD countries, including peers such as the UK, the United States and much of the EU, have already adopted rules that limit interest deductions based on earnings. The changes in this bill will simply bring Australia up to speed, fulfilling our commitment to the global effort to stop multinationals from unfairly reducing their tax bills.

Again, this is not extreme. These measures are not extreme—they simply bring us into line with international standards while at the same time improving the sustainability of our tax system and creating better competition dynamics for Australian businesses and—importantly—Australian workers. This bill alone will not solve the multinational tax avoidance problem that Australia, like much of the world, faces. Undoubtedly, we will need to do more as the problem continues to evolve. However, it is an important step forward. It will increase transparency surrounding the tax structure of multinationals and allow us to better measure whether our taxation system is working efficiently and effectively. It will also reduce the amount of interest expenses that companies can deduct, from 60 per cent of assets to 30 per cent of profits.

More simply, this bill is about making our taxation system fairer and more equitable. It's about providing a level playing field for businesses and ensuring Australian companies are not disadvantaged along the way. It's about ensuring that multinationals shoulder their fair share of the tax burden and do not leave it to Australian workers to carry the can for them.

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