Thursday, 20 September 2018
Treasury Laws Amendment (Making Sure Multinationals Pay Their Fair Share of Tax in Australia and Other Measures) Bill 2018; Second Reading
That this bill be now read a second time.
Everyone needs to pay their fair share of tax to ensure the government is able to fund the vital infrastructure and services that Australians deserve. Most taxpayers pay their way, but integrity rules are necessary to ensure those taxpayers that don't are caught, and made to pay their due.
Thanks to the work of the coalition government, Australia has some of the strongest rules in the world to combat tax avoidance, but more can be done to make sure multinationals pay their fair share of tax.
The government, through the measures in this bill, will continue to strengthen integrity rules and close loopholes while ensuring taxpayers funds are spent prudently, amending the R&D Tax Incentive to ensure it is well targeted and cost effective.
The amendments to the R&D Tax Incentive, in schedules 1, 2 and 3 of this bill, respond to the findings of the 2016 Review of the programme, which found that it is falling short of meeting its stated objectives of generating additionality and spillovers.
Schedule 1 amends the income tax law to better target the R&D Tax Incentive and encourage firms to increase the proportion of their business devoted to genuine, additional R&D expenditure.
From 1 July 2018, R&D claimants with a turnover of $20 million or more will receive an R&D premium which provides support for R&D that is tied to the incremental intensity of that R&D expenditure as a proportion of total expenses. This will encourage more companies to increase their R&D expenditure, providing increasing benefits as their R&D intensity rises and driving additionality in R&D.
Additionally, the maximum amount of R&D expenditure eligible for concessional R&D tax offsets, will increase from $100 million to $150 million per annum, ensuring more companies can take advantage of the program.
Companies with aggregated annual turnover below $20 million will continue to be supported by the government through a fixed R&D premium of 13.5 percentage points above a claimant's company tax rate and will have annual cash refunds capped at $4 million, with R&D expenditure on clinical trials exempt from the cap.
Schedule 2 of this bill will strengthen existing rules in the income tax law to ensure R&D claimants cannot inappropriately obtain a tax benefit from the program, thereby improving integrity and ensuring that R&D offsets are recouped appropriately.
Schedule 3 of this bill amends the Industry Research and Development Act 1986and the Industry Research and Development Decision-making Principles 2011 to improve public accountability and transparency for claimants under the program, as well as make changes to compliance and administration.
These changes include improved transparency through public disclosure of claimant details and the R&D expenditure they have claimed. Importantly, there is an explicit two year delay for the publishing of claimant details and their claimed R&D expenditure to protect commerciality.
Furthermore, the board of Innovation and Science Australia will have the ability to make public determinations and binding decisions about R&D eligibility, providing greater clarity to claimants as to what is eligible.
Extensions of time for R&D applications, registrations and reviews will be limited to three months, preventing taxpayers from seeking R&D benefits for activities that occurred in the past.
Thanks to the significant action taken over successive years by this government, Australia now has some of the strongest rules in the world to combat tax avoidance, but we will not be resting on our laurels when it comes to making sure multinationals pay their fair share of tax.
Schedule 4 to this bill introduces new provisions to improve the integrity of Australia's thin capitalisation rules.
These rules prevent multinationals from shifting profits offshore by having unrealistically high levels of debt in Australia in order to claim excessive interest deductions.
The bill strengthens the integrity of the thin capitalisation rules by improving the reliability of asset valuations used to support debt deductions. It does this by requiring multinationals to rely on the asset values that they publish in their financial statements. This will remove the ability for multinationals to adopt a special valuation solely for tax purposes. The bill will also remove the ability for multinationals to justify their debt using assets that cannot be recognised for accounting purposes.
No new revaluations are allowed after 7.30 pm on 8 May 2018. To allow companies to adjust to the changes, transitional rules will allow companies to rely on asset valuations that were made prior to this time until the last day before the start of their income year commencing on or after 1 July 2019.
The bill also amends the income tax law to ensure that all foreign controlled consolidated groups are recognised as inward investing entities, even if they have foreign operations. This will confirm that these entities are not able to use thin capitalisation tests that are only appropriate for outbound investors.
Schedule 4 of the bill will ensure that multinationals cannot structure to avoid our tax integrity rules, which are among the strongest in the world.
These changes build on the already strong arsenal the ATO has to deal with multinational tax avoidance, which includes the diverted profits tax, the Multinational Anti-Avoidance Law and the Tax Avoidance Taskforce.
Schedule 5 of the bill levels the playing field for hotel bookings in Australia by ensuring offshore sellers of Australian hotel accommodation calculate their GST turnover in the same manner as local sellers from 1 July 2019.
This measure follows the government's decision to extend the GST to digital products and other services from 1 July 2017 and to low-value imported goods from 1 July 2018.
Schedule 6 ensures luxury car tax is not payable on cars that are re-imported into Australia after being refurbished overseas. It will mean that, from 1 January 2019, the same tax treatment will apply to luxury cars, irrespective of where the car is refurbished.
Schedule 7 of the bill amends the Income Tax Assessment Act 1997to extend the definition of a 'significant global entity' to include members of large business groups headed by proprietary companies, trusts, partnerships, investment entities and individuals.
The significant global entity is a concept to define, generally speaking, a group of entities under the control of a large multinational. Such groups are a key focus for tax authorities to prevent profit-shifting.
Many of the significant measures undertaken by this government to tackle multinational tax avoidance rely on the significant global entity definition. These include the Multilateral Anti-Avoidance Law, the diverted profits tax, and penalties applying to false or misleading statements, late lodgement or tax schemes. Significant global entities are also required to prepare general purpose financial statements.
Extending the definition will ensure that multinationals cannot structure to avoid our multinational tax integrity rules, which remain amongst the strongest in the world.
This bill will help ensure taxpayers pay their fair share of tax, close loopholes and ensure programs delivered through the tax system give the greatest returns for taxpayers, demonstrating the government's commitment to continually strengthening our tax system.
Full details of these measures are contained in the explanatory memorandum.
I commend the bill to the House.