Matt Thistlethwaite (Kingsford Smith, Australian Labor Party, Assistant Minister for Defence) Share this | Hansard source

The Treasury Laws Amendment (Making Multinationals Pay Their Fair Share—Integrity and Transparency) Bill is inherently about fixing some unfairness in our tax system and restoring integrity to the way the system works. Most Australian workers work very hard. They go to work and pay their PAYG tax on a regular basis. They can't transfer assets or transfer income to other entities to avoid paying tax, and they don't seek to. They do the right thing. They pay their fair share of tax.

Hardworking Australians who are feeling the pinch from cost-of-living increases and inflation and interest rate rises understandably get angry when they see large, multibillion-dollar, multinational corporations being able to transfer income from one jurisdiction to another as an internal loan or other payment to avoid paying tax here in Australia or in another country. It's simply not fair. That's why workers get angry about the tax system and the inherent unfairness in it. This amendment seeks to rectify some of that unfairness and to restore some integrity and ethics to the way our tax system operates to ensure that all Australians, including companies, pay their fair share of tax. This legislation will hopefully level the playing field a bit and boost a bit of transparency around how much tax big corporations are paying. It will hold them accountable for their corporate structures and their opaque tax arrangements.

There is global momentum building for this transparency and accountability, and, understandably, shareholders and shareholder groups want more transparency and deserve more information about the tax practices of the companies that they invest in. We need to address multinational taxation. Two-fifths of multinational profits are booked through tax havens. That's about $100 billion of Australian money in tax havens, like the Bahamas and Panama, where lower tax rates apply and an estimate suggests that four-fifths breach other companies' tax laws. These places are not only for tax avoidance; they also harbour funds from terrorists, crime syndicates, drug lords and undermine the integrity of the global taxation system.

For nearly a decade, the former coalition government made some minor changes, but they really were a light touch. Their heart wasn't in it when it came to tackling multinational tax avoidance. Before the 2022 election, they advised Australians against supporting tax hikes for multinational tax evasion. There's been an international movement for greater taxation and a minimum rate of tax for multinationals, for greater transparency for large corporations, particularly when it comes to internal transactions around funds, and for a greater international agreement when it comes to the global taxation regime. There are over 100 companies that have signed up to that transparency measure, and that's a positive step. We're in the process of implementing those measures that Australia has signed up to through this bill. It's unfortunate that the previous government didn't take this action, because this movement has been around for a long time. Australia, as a signatory to these international agreements, should be at the forefront of taking this action to improve the transparency and accountability of our taxation system.

These reforms will level the playing field not only for Australian workers and taxpayers but for Australian businesses as well. Australian businesses shouldn't face a disadvantage against multinationals directing profits to tax havens. This bill amends Australia's thin capitalisation rules, limiting the amount of interest expenses that entities can deduct for taxation purposes from 1 July 2023. That measure is estimated to result in a gain to receipts of $720 million over the forward estimates from 2022-23. The amendments introduce earnings based interest-limitation rules for general class investors, replacing the existing asset based rules and introduce a new third-party debt test. The current safe harbour test allows an entity to deduct all their interest expenses when their total debt amount does not exceed 60 per cent of their total asset value. Under the new default fixed ratio test, all interest expenses can be deducted when the net interest expenses don't surpass 30 per cent of profits. This aligns with the government's priority to bolster the thin capitalisation rules, preventing excessive debt deductions and ensuring deductions correspond to genuine economic activity.

The bill incorporates several technical changes proposed by industry to harmonise with commercial arrangements, including those for trust structures. Also, the bill mandates new reporting requirements for Australian public companies, both listed and unlisted. From 1 July this year, these companies must disclose information about their subsidiaries in their annual financial reports. This transparency measure ensures companies are clear about how they structure their subsidiaries, including for tax considerations. The measures within this bill underwent multiple rounds of public consultation. The aim was to maintain the integrity of our tax system to support genuine commercial activity and to be cognisant of compliance costs. It's important that those consultations were undertaken so that we got the balance right and weren't deterring businesses from establishing here in Australia and employing Australians. Treasury will continue its collaboration with industry and stakeholders to ensure the new rules function as planned.

All multinationals must pay their fair share. When taxes are evaded, it's the average Australian who feels the pinch, and it creates anger and resentment around the way the tax system operates and the integrity of the tax system. Unfortunately, on an annual basis after reporting season, we all see those stories in our newspapers about large multinational corporations—many of them, unfortunately, in the resources sector—who are able to exploit Australian resources that are technically owned by the Australian people for their profit by being able to use tax structures and shift profits to other jurisdictions where there are lower tax rates to avoid paying tax here in Australia. That makes Australians understandably angry. It shouldn't be on, because it undermines the integrity of the tax system and it reduces tax receipts, which ultimately means that government has less revenue to fund the services that Australians rely on to ensure they have a quality of life.

Such tax evasion depletes the funds that we rely on for our schools, our health care, the NDIS, our aged-care services and other services that Australians rely upon on a daily basis. It's also detrimental to local businesses, who face unfair competition from often larger businesses that have economies of scale they can't replicate and that are able to exploit tax loopholes that the average small to medium sized enterprise can't access, because they simply don't have the resource base. So this bill is our proactive response to those challenges. Finally the Australian government is hearing the pleas of the Australian worker, who has been saying for some years: 'Hey, this system isn't working properly. It's unfair. We're getting ripped off. How about you make some of those big companies pay their fair share of tax?' The previous government didn't do enough. They paid lip service, and they were a light touch. We're not going to be a light touch; we're going to make sure that we do the right thing by the average Australian worker or small to medium sized enterprise and make these corporations pay their fair share of tax. That is what this bill will do. It helps ensure that multinationals contribute equitably and helps to safeguard revenue for essential services that all Australians rely on. That's why this bill should be passed by the House.

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