Wednesday, 31 July 2019
Treasury Laws Amendment (Making Sure Multinationals Pay Their Fair Share of Tax in Australia and Other Measures) Bill 2019; Second Reading
I would like to add my congratulations to the member for Moncrieff, who I've had initial dealings with. I have a lot of time for someone who appears already to be a very thoughtful contributor. I wish her and her family and friends who were here for her speech all the very best as they celebrate her first speech. Congratulations to her.
This bill, the Treasury Laws Amendment (Making Sure Multinationals Pay Their Fair Share of Tax in Australia and Other Measures) Bill 2019, which is designed principally to ensure that multinationals pay their fair share of tax, reflects something that we on the Labor side have been focused on for quite some time, having recognised the challenges that are being posed by a number of companies, some of which are in the tech space, that have operations across a number of shores. The concern is that they are not paying their fair share because of the way they have set up their taxation arrangements and the organisational structures that they employ. It means that some countries are not getting what they would have anticipated to be a fair share of corporate tax revenue.
There are big differences between the two sides. Our side believes that a much more rigorous approach should be employed in the way we structure our tax law. Doing so would ensure that the taxpayer gets a much better deal. But importantly so would the tech firms that are often saying they want to be able to see, in particular, a greater stream of talent available, with people skilled up with the much more modern skillsets that are required to help those companies thrive. But where governments do invest in human capital there is a cost to that. If those firms expect to have greater access to talent, there will need to be an investment underpinned by a much better form of taxation arrangements to ensure that happens. So this is important.
What will also drive the growth of those firms is an investment by government in R&D. This bill has been before us in different forms. In fact, when it was first introduced, this bill contained some particularly hard measures that the tech sector believed would hurt them badly through the potential regearing of the elements of the R&D tax incentive. Those were removed.
But this isn't the only thing that's causing concern in Australia's tech sector. As has been observed since December last year, a number of start-ups have been very concerned about the way in which they have been required to pay back millions of dollars in research and development incentives as a result of a particularly strong interpretation of what is considered permissible.
A number of founders, investors and industry leaders have been saying that the qualification measures for this crucial industry support measure, particularly in relation to software development, financially rewards companies for investing in developing new ideas. But now the measures have been applied in such a strict way by the Department of Industry, Innovation and Science, that some consider it almost impossible—in their words—for software companies to be able to achieve or qualify for the R&D tax incentive. Through the discussions I have with Australian start-ups, this R&D tax incentive is regularly cited as one of the principal or primary areas of support and something they highly value. They say that it keeps them on Australian shores instead of leaving for investment support offshore. From their perspective, they want to stay on Australian soil, they want to be able to create commercial value and wealth here in Australia and they do want to create jobs.
We often see a lot of the start-ups that are here on Australian soil go from a small number—maybe one or two people; the founders of that start-up—to hiring a dozen in a short space of time. I note the presence of the member for North Sydney, who is well aware of the employment generating capacity of start-ups on our soil. While he and I might have disagreements in terms of certain policies from time to time, I think we both, along with a number of people in this chamber, recognise that we have to have much more favourable policy settings and need to speak up for the value of start-ups in this country. I think he knows that, with full sincerity, I don't mean to put him in a difficult position, but I would not be surprised if he has had start-ups from his neck of the woods approach him raising concerns about the particularly strict way in which the Department of Industry, Innovation and Science has decided to interpret the rules around the application of the research and development tax incentive as it applies to software development.
This is something that is of genuine concern. It is not something that has just cropped up. It is not something that has disappeared. Based on my discussions with people in the sector, it is still a live issue. In fact, one person indicated to me that this has created huge uncertainty and it is undercutting the viability of a whole host of promising Australian tech companies. It is a big issue. It is considered, as I said earlier, the backbone of government support for tech, and it has now turned into one of the sector's biggest risks. This is from people in the know. The way in which the R&D tax incentive rules have been interpreted has now become a big risk. In fact, for any start-up that receives this incentive or has this on their books, this incentive is now, I'm told, being treated as a liability by investors. This is an extraordinary development. The R&D tax incentive has been there and has been welcomed by our tech sector for quite some time—it has promoted software development for quite some time—and now there are people in the sector, investors, treating this incentive as a liability. This has gone off the rails and something has to be done.
I had previously raised concerns when this first crept in back in 2017. I had very productive discussions with the then Minister for Revenue, the former member for Higgins, Kelly O'Dwyer, who, to her great credit, took this on board and encouraged the ATO and AusIndustry to involve start-up representatives in the industry consultation group around this. A number of us operated under the belief that this had been sorted out, but we now have a new minister—and I'm just going to call it as I see it—who has done absolutely nothing on this issue.
I for one do not condone any abuse of this incentive. If anyone has abused this incentive, we should use the full force of the law against those people—no doubt. But now what is happening is the audits are going back years previous, and big companies that have grown from small ones in Australia, like Airtasker, for example, are now genuinely worried about the tax bill that might be brought up because of a much more strict interpretation. They operated under an interpretation they believed would be acceptable at one point in time and are now having to second-guess what has gone on. A perception has been conveyed to me that AusIndustry must have in its mind an operational belief that these software companies can just pay back the money at any time. This is not reflective of the reality that a lot of these firms operate within. They operate close to the bone for quite some time, hoping that at some point they'll do well. I am not saying Airtasker is necessarily operating on the smell of an oily rag—in fact it's a great success story for this country—but there would be a lot of other firms that would be feeling it.
Despite the fact that this issue has been rolling on for months, this minister has not been able to do anything to give people in the sector a sense of relief that (1) their concerns have been registered and (2) something is being done about it. During the election campaign the Labor Party said we would step in and we were prepared to test some of the decisions that were being made to determine whether or not a heavy-handed approach had been used, and we were criticised by the minister. The minister at the time thought this was outrageous. I was staggered to see that type of response, because some of those opposite put themselves forward as champions, particularly for entrepreneurialism and start-up activity in this country, and I genuinely regard that some believe this absolutely to their core, but the people in positions where they can make a difference on front bench aren't doing that at all.
Why is it that, since this matter was raised fairly prominently in December last year, this has been dragging on—a festering sore that has created uncertainty in the minds of start-ups and their investors? Why has the government, particularly through the industry minister, not stepped in and sorted this out? They have been able to do it previously and they're not doing it now. New ideas developed on home soil are at risk. Firms will potentially look offshore for a new home, denying us jobs and growth in our own economy. Frankly, this is why I am using the opportunity of this speech to speak up and ask—actually, no; demand—that the minister give some reassurance to Australian start-ups that they are not going to cop a heavy-handed interpretation of the tax incentive, which will work in a way that will potentially cruel some of these firms.
As I said earlier, I don't think anyone on that side or this side believes that, if shonks or consultants have given bad advice to start-ups to set themselves up in a way just so they can qualify for the tax incentive, we should not burn those people out of the system. No doubt that is a shared view, but a lot of other good firms should not feel the heat or have a situation where their investors are treating the incentive, which has done great work over many years, as a liability. Again, I think we have some new firms that we should be encouraging. We should see the emergence of these firms using technology in a way that is helping other businesses grow.
I have to say that in this country we do not have rates of R&D that we can brag about. We are being left behind in this country, particularly if you look at the application of artificial intelligence and the way in which countries and companies are prepared to invest in this. PwC has suggested that potentially $15 trillion in value can be generated through the application of AI, 70 per cent of which will accrue to just two countries: the US and China. Australia is dragging its feet on this.
If we are not seeing investment at a high level in this research and then we take a particularly heavy-handed approach in the application of the R&D tax incentive that means we see smaller firms that could potentially grow into bigger ones crushed, what happens to this country? All we will be is effectively a vassal state to other countries whose economies have gotten a lot more efficient because they've had the smarts to invest in smarts and to make sure they are not left behind.
If this government is fair dinkum about making sure that we see that spirit of entrepreneurialism grow, it will absolutely get on top of this issue and make sure that start-ups aren't left in any doubt about their ability to access the incentive for software development and finally deal with an issue that the sector's been crying out to see fixed for over half a year. I'll leave my remarks at that.
The problem of multinational profit-shifting is a massive one. Globally, around $600 billion of profits are estimated to be shifted to tax havens. That's almost 40 per cent of multinational profits. We see in Australia significant multinational profit-shifting affecting our tax base. You can see this in a variety of different statistics. One curious figure is a new dataset released by the Australian Bureau of Statistics last year which shows the operating profits and taxable profits of multinational firms operating in Australia and in different jurisdictions. You can ask the question: what's the gap between operating profits and taxable profits for firms from different countries? If you're a typical Australian firm, the gap between operating profits and taxable profits is about 30 per cent. That's true, too, for firms in the United States, at 28 per cent, in the United Kingdom, at 27 per cent, and in Japan, at 29 per cent. But then you get to the curious ones. Bermuda owned multinationals operating in Australia have a gap between operating profits and taxable profits of 88 per cent. Those located in the British Virgin Islands have a gap of 92 per cent. In other words, if you start with $10 of operating profit, Australian firms will report $7 of taxable profit and the same with American firms, British firms and Japanese firms. In those cases, $10 of operating profits means $7 of taxable profits. But if you're a firm located in Bermuda or the British Virgin Islands then $10 of operating profits produces just $1 of taxable profits. That could have something to do with the fact that Bermuda and the British Virgin Islands effectively have a zero corporate income tax rate, no personal income tax rate and no capital gains tax rate.
Tax havens are the hiding grounds for plenty of crooks. Gabriel Zucman, an economist at the University of California, Berkeley, estimates that four-fifths of the money in offshore bank accounts is there in breach of other countries' laws. North Korea has used tax havens to hide the proceeds of its sale of nuclear technology and drugs, counterfeiting and projects using forced labour. Al-Qaeda have routed finance payments through tax havens to evade detention. Mexican narcotics kingpin Rafael Caro Quintero is just one of the many drug lords who park their profits in a tax haven.
Tax havens increase inequality. Offshore wealth held by Australians in tax havens is approximately six per cent of GDP, according to Gabriel Zucman's research. In today's prices, that would mean around $100 billion of assets are held in tax havens by wealthy Australians. We say 'wealthy Australians' but we're talking about the superwealthy. Indeed, when researchers have matched up results from high-profile leaks with existing taxation statistics, it looks like half the money in tax havens is owned by the top one-10,000th of the population. We talk about the top one per cent or the top 0.1 per cent, but this is the top 0.01 per cent of the population owning half the money in tax havens. That's not surprising given the funds tend to be the sort with million dollar buy-ins. So it's no surprise that you see multimillionaires dominating investment in tax havens. Indeed, tax havens mean that there is a race to the bottom in living standards and in sustaining a strong corporate tax base.
Australia should be engaged with the global project to tackle base erosion and profit shifting. That's a project which has been operating since 2013—a joint initiative of the OECD and the G20—with over 100 countries and jurisdictions to tackle multinational tax avoidance. Australia used to have a seat on the steering group but no longer does. In effect, we've shifted from the front seat into the back seat. We have seen the coalition government step back from its engagement with the problem of multinational tax avoidance, from this significant problem that faces the globe.
Labor took a suite of policies to the last election that would crack down on multinational tax avoidance. We said that we would crack down on the abuse of royalty payments and so-called patent boxes. The arrangement of patent boxes is largely recognised as being an artifice which doesn't increase intellectual property but, instead, simply serves as a hidey-hole for tax avoidance. Closing the royalty tax loopholes, ensuring that multinationals are denied a tax deduction for questionable royalties, is a reform which has been advocated by many experts and which ensures that we will see multinationals pay their fair share.
We called on the government to implement public reporting of country-by-country reports. I was surprised to see the member for Forde talking about country-by-country reporting, given that the Treasurer and the Prime Minister have argued against the public reporting of country-by-country reports. They have argued against transparency of the amount of tax paid by firms in different jurisdictions. The government once said it was committed to a register of beneficial ownership, tackling the problem that Australia has an unusually opaque share registry. But, having announced that, Kelly O'Dwyer backed off from it prior to the last election. She did an exclusive with The Guardian newspaper, and then admitted close to the election that, actually, the government had killed the idea. It had no intention of improving transparency on who owns Australia's firms.
Ahead of the last election, Labor said it would institute whistleblower protection and incentives to ensure that, where whistleblowers' information resulted in more tax being paid, they could collect a share of the tax penalty up to $250,000. We also tackled debt deduction loopholes. This bill includes some very modest measures around debt deduction but nothing as substantial as Labor has been advocating for in the last two terms in parliament. We believe that the problem of debt shifting is significant. I'll return to the coalition's position on that issue at the end of my remarks.
Labor said ahead of the last election that it would tackle the issue of tax havens being used by superannuation funds and would work to develop guidelines on appropriate tax haven investments by superannuation funds. We would have required firms seeking large government tenders to disclose their country of tax domicile. We would have, had we been elected, required large listed firms to disclose to shareholders their tax haven dealings as a material tax risk. We said we would require more tax transparency by restoring our $100 million threshold for public reporting of tax data by private companies.
We also said we would work on the Tax Inspectors Without Borders program, a joint initiative of the OECD and the United Nations Development Program. This sees tax experts, often from developed countries, working in developing countries. It is on the model of Doctors Without Borders—Medecins Sans Frontieres. The program has so far returned an astonishing ratio of 100 to one in terms of revenue raised compared to donor costs. If anybody in this place knows of another program with a benefit-cost ratio of 100 to one, I am very keen to hear about. That is a return that would make Warren Buffett envious. Tax Inspectors Without Borders ensures that multinationals can't pull the wool over the eyes of developing country governments as a result of having more information than they do. It ensures that multinationals pay their fair share in vulnerable countries. As one commentator observed to The Economist magazine: 'Recently a team came back from meeting one company so excited. For the first time ever when dealing with a large taxpayer, our people did the talking and the multinational representatives on the other side sat dumb, struggling to answer the questions.'
Tax Inspectors Without Borders is a program which merits support by the coalition. I would urge the coalition to look at supporting this program in our region. Foreign aid under the coalition has been brutally cut. If the aid budget continues to follow its current trajectory, overseas development assistance would fall to a miserly 0.18 per cent of gross national income in 2022-23 and 0.16 per cent of gross national income over the medium term. If the coalition is really serious about tax fairness, they will not only adopt more robust policies to tackle multinational tax avoidance—such as a tax haven blacklist—but will also, through Australia's foreign aid program, consider supporting the Tax Inspectors Without Borders program.
I have one final point which is important to make in this debate. The coalition, in 2012, voted against laws to close a multinational tax avoidance loophole. They did so claiming that the measure was retrospective. It wasn't—they were wrong about that—but they cast a vote against closing a multinational tax avoidance loophole. And then, in 2017, we saw that very same law being used to secure a $340 million judgement against Chevron. If those opposite had any decency, they would have come in here and said: 'We got it wrong. We're very sorry. We made a mistake. Had we had our way, the budget would have been $340 million worse off. But now we have seen the light and we'll do the right thing.' But they didn't do that. Indeed, they even patted themselves on the back. We even had the spectacle of the Prime Minister—then Treasurer—claiming credit for a court outcome based on laws he voted against.
But clearly they were a little wounded by this, so around that time began the lie that Labor had voted against the multinational anti-avoidance law. They began to come into this place and simply repeat time after time the mistruth that Labor had voted against the coalition's multinational anti-avoidance law. This bears focus and it bears a little bit of detail. But the high-level point is that we voted for the law in the House and the Senate but we voted against measures to water down tax transparency. Let me take the House through the key dates. On 9 November 2015, Labor clearly stated its support for the bill throughout the debate. The then senator Sam Dastyari said on that date, at page 8,044 of the Hansard, 'Labor's position is that we support this bill.' On November 11, 2015, Labor voted for the bill in the Senate in its third reading. That is at page 8,338 of the Hansard. On 12 November, the House disagreed with the Senate amendments—Senate amendments that would have watered down tax transparency. That is at page 13,042 of the House Hansardof 12 November. On 3 December 2015 the Senate debated amendments—a deal between the Greens and the coalition—to water down tax transparency. On page 9,906 of the Senate Hansard it can be clearly seen that Labor opposed the amendments to water down tax transparency but supported the re-amended bill. We did the same when the bill returned to the House. At no point did Labor vote against the multinational anti-avoidance law.
When they come into this place in this debate, the Prime Minister, the Treasurer, the member for Fadden, his successor as Assistant Treasurer—the member for Deakin—and the member for Forde have persisted in the mistruth that Labor voted against the multinational anti-avoidance law. We did not. We did not follow the playbook of the coalition, who did indeed vote against loophole-closing measures of Labor in government in 2012. It is an absolute lie to say that Labor voted against the multinational anti-avoidance law. We believe that law should have been tougher, which is why we took to the last election the most comprehensive suite of multinational anti-tax-avoidance proposals that any opposition has ever taken to an election.
Even though Labor support the Treasury Laws Amendment (Making Sure Multinationals Pay Their Fair Share of Tax in Australia and Other Measures) Bill 2019 and we've made many comments and statements in this place about cracking down on multinationals, we know that this bill doesn't go far enough. It is a step in the right direction, but it basically still lets the multinationals off the hook. We know that when you speak to people out in the community and discuss politics, as we did in the campaign that just took place, one of the major issues that keep on coming up over and over again is, 'Why don't you crack down on multinationals that don't pay their tax?' That's something that we hear in the community continuously, because Australians are outraged—and rightly so, because they pay their fair share of tax. If you're working, whether you're a public servant, an assembly line worker, a bus driver or a carpenter, you will pay your tax. People pay their taxes to help fund our schools and our health—our Medicare system. So it's right that they're outraged, and it's just not fair on average Australia.
We've seen reports in the media continuously. One not even a year ago said, 'Multinationals move $16 billion from Australia to tax havens each year.' We're not talking about a couple of million or a few million; they move $16 billion from Australia to tax havens each year. This is money that would fund our entire health system or our entire education system, and it is not on.
We know that one of the best ways to fix up the mess that this government has made with the budget and the economy is to ensure that multinationals pay their fair share of tax. Closing down loopholes means more taxpayer money will stay in Australia to be spent on the needs of the Australian people. We know that critical services, as I've mentioned—schools and hospitals—need this money. Instead of average Australians paying more than their fair share, we need these multinationals to pay their fair share.
As I said, while this bill goes some way to addressing the multinational tax avoidance, much more needs to be done. We know, as we heard the member for Fenner say, that the government's heart is not really in this. They've voted against proposals and motions that we've put up in this place, and we know that their heart is not in it. We also know that their heart's not in it because the biggest beneficiaries of the $20 billion tax cut will be these very multinational companies that are moving $16 billion from Australian shores to offshore places like the Cayman Islands to avoid their tax. We know that they pay millions of dollars every year to tax accountants and accounting firms at the big end of town to show them how they can avoid paying their tax and then get a tax deduction on that bill. That runs into the millions. During the last election campaign, we didn't hear much from the government on multinationals, corporations and tax havens, and they refused to close down tax loopholes. So we know that, under this government, working Australians have been footing the bill for the unfair tax loopholes that exist in this nation and benefit those multinational companies.
As I said, we've seen from time to time, again and again, articles that appear in newspaper reports. Another one that I dug out today was from ABC News, dating back to December of last year. It said that one third of large Australian companies paid no tax, and that was from the ATO data. They failed to pay the tax even though they made a gross profit. This is not on, because for every dollar that these multinationals aren't paying the bill is footed by an average Australian worker.
On this side of the House, Labor is very serious about cracking down on multinational tax loopholes and making multinational corporations pay their share of tax. As I said, during the election campaign the Labor Party, on this side of the House, announced a tough multinational tax avoidance and tax haven crackdown. This was a crackdown which would have made our system fairer. It would have been fairer for companies that are competing against these companies that offshore their money and pay no tax, and it would have been fairer for smaller businesses who pay their fair share of tax. It would have helped to fund better health services and better services in this nation. That's the reason we pay taxes, so our children can have the education that they deserve and so our elderly can have the services they deserve in hospitals and health care and many other things.
We went to the election with 19 different measures to crack down on the multinational tax loopholes and the tax havens that exist overseas. There were measures such as tightening the debt deductions, closing public reporting of country-to-country reports and increasing capacity for the ATO. We need to give the powers needed to the ATO to be able to investigate. We heard from the member for Fenner about giving tax inspectors the ability to operate without borders and to be able to go into some of these Third World countries where governments can be influenced by multinationals not to pay any tax and to set up tax havens. Closing those loopholes is a must for this nation. We know that there are certain trusts that make payments to nonresidents on artificial figures and they get a tax rate below the 30 per cent company rate as well.
We also need to give whistleblower protections. Whistleblower protections are so important. There are many people who have information and who would like to be heard. We need to give those people the protection that they require to feel comfortable enough to report previous employers that have been, basically, abusing the system—sometimes even illegally.
The government needs to do more than just claim credit for one of Labor's previous policies. We have made these announcements many times and the government wouldn't support us. If the government were serious about dealing with multinational tax avoidance then it would take real action. It would really come down tough and do everything it can to stop the loopholes that exists currently in our system which enable these companies to pay little or no tax. So the government needs to do more. Every single dollar that we let slip through is an extra dollar that average Australia has to make up for. Every million dollars that a multinational avoids paying is a million dollars that come out of the pockets of working Australian mums and dads, and that is not on. It is critical that we fund our services, and average Australians are funding the services and carrying the weight for many of these multinational companies that are out there. We have foreign banks, for example, which pay no tax or very little tax here in Australia. We see that they turn over billions in lending and trading here in this nation and yet pay no tax. There are articles which, as I said, have appeared on the ABC and in many of Australia's papers about that.
One of the things that this measure will crack down on—and examples of this have been given—is the situation of hotel booking agencies that exist overseas, where you can set up an internet company anywhere in the world and service people here in Australia and the money is paid into an overseas account. The company doesn't appear here in Australia, yet uses Australian dollars to make a profit and then pays absolutely no tax. We know this is wrong. We know that we need to crack down on it. It is a small measure that is taking place through this bill. We need to come down tougher and be harder on these multinationals and we need to close the loopholes to ensure that companies paying their fair share of tax.
When you have one-third of Australia's largest companies paying zero tax, it's not on—because that tax is paid by everyday, ordinary Australians. As I said, every dollar that slips overseas is being paid for by a schoolteacher, by a nurse, by a police officer or by someone working in a factory, a storeman or a store woman—average Australians. They are carrying on their shoulders the weight of these multinationals who get away with paying no tax. These multinationals make billions of dollars, and their executives and board members are on millions of dollars. It is just not on and not fair.
So I am hoping that we will see more measures. We on this side of the House proposed 19 measures at the last election—measures that would have really tightened up those loopholes; measures that would have ensured that more money came into our coffers to pay for education, health and the services that Australians require.
I also rise to speak in support of the Treasury Laws Amendment (Making Sure Multinationals Pay Their Fair Share of Tax in Australia and Other Measures) Bill 2019. This amendment bill only goes a very small way to addressing what is still a huge challenge for our country. Since the multinational tax avoidance law took effect in 2016, we have seen some improvements—that's true. The special Tax Avoidance Taskforce run by the ATO has recouped round $8 billion from multinational corporations, and the ATO has noted that the tax gap is showing an improvement more generally. The ATO has also stated that a behavioural change is underway, with multinationals now more careful with the amount of tax they pay. 'More careful' is an interesting phrase. But is that enough? Is it enough just to be more careful? Is it enough for multinationals to just be careful with respect to navigating our tax system?
The fact remains that, as of the latest ATO corporate tax transparency report, which was handed down in December 2018, for 2016-17, as the previous speaker mentioned, one-third of large companies operating in Australia and making a profit paid no tax on profit at all. There are some utterly damning statistics in this report. Here are just a few: Chevron paid zero tax on profit after making $2.2 billion in taxable income in 2016-17; Exxon Mobil made $18.6 million profit and paid zero tax on profit; and Fuji Xerox Australia made $1.1 billion in taxable income and paid zero tax on profit.
The fact remains that companies use a range of tactics and strategies to lower their taxable income in Australia and shirk what we think should be their responsibility to contribute to our society—something which this law has not been fully able to combat. In 2018, Uber reported an Australian revenue of $935.3 million, with a gross profit of $785.6 million. Uber claimed, however, $691 million as service fees, which cut tax payable down to $8.5 million. At least $499 million out of that $691 million was sent to other related parties in the Netherlands. And this was after Uber claimed, in their words, 'We are meeting all of our tax obligations in Australia.' Other examples, like IKEA and McDonald's, pay billions in franchise fees to drastically reduce their taxable income. IKEA's accounts also show that they are loaded with debt to their offshore parent company—$578.7 million to be exact. That's another tactic to minimise tax.
You have the big tech companies, Facebook and Google, which are paying more tax in Australia thanks to the multinational anti-avoidance law, but they are still offshoring much of their revenue to avoid the bulk of their responsibilities on tax here in Australia. We know that these tech giants will book advertising for clients here in Australia overseas so that the revenue appears not to be generated here in Australia, even though these ads are for local Australian clients and businesses. In 2018, Google earned $4.3 billion in Australia and Facebook earned around $500 million in Australia, mostly from advertising. Yet they did not pay their fair share of tax last year. Google paid—wait for it—$26.5 million in tax in Australia and Facebook paid only $11.8 million. Maybe that sounds like a lot to some people—it certainly is to people in my electorate—but that's actually a tax rate for Google of less than one per cent in Australia. It's 0.6 per cent, to be exact. How did they do this? Well, Google paid about $2 billion out of the $4.3 billion earned in Australia back to its parent entity in the United States. For Facebook, it's not much better. Their rate of tax in 2018 was just 2.36 per cent. If you're an average punter on the street this would be shocking to you, but it is also absolutely unacceptable. It just shows how much work needs to be done in this area.
So, while Labor supports this amendment and any effort that the government makes to crack down on multinational tax avoidance, we need to do more. Clearly, companies are still finding ways to avoid their tax responsibilities in Australia. As I said, if your average punters, ordinary Australians, are paying their fair share of tax, why shouldn't these companies and multinationals? Your average punter is paying 30c in the dollar, the dollar that they've worked so hard to get. Whether they work in a servo on a nightshift or are a cleaner, nurse, teacher or landscape gardener, they're sweating out there to earn that dollar and they're paying 30c or 37c—whatever it might be—in the dollar. It's not too much to ask that some of the biggest companies in the world pay their fair share in Australia, the country where they're making this profit.
Australians deserve a government that does everything it can to make sure that the large companies are paying that fair share. Australians should be able to have confidence in their tax system and the principle that everyone, from individuals to large corporations, both Australian and foreign owned, are contributing and giving back to the society from which they make that profit. Evasion and avoidance are not victimless activities. These activities actually undermine the rule of law and the primary purpose of our tax system—that is, it belongs to and should benefit the people of Australia. The whole community suffers when some members, individuals or corporate entities, wrongfully or artfully dodge making their fair contribution to the upkeep of a decent, civilised society.
Australia should be looking to the international community's efforts in tackling this problem. Over the last five years, there have been a number of significant international initiatives that have developed proposals and recommendations designed to support a collaborative approach to reduce multinational tax avoidance. The most notable of these is the Organisation for Economic Co-operation and Development's base erosion and profit shifting project—BEPS for short. The BEPS project represents an unparalleled effort by OECD countries and G20 countries to restore confidence in the international tax system. More than 60 countries worked together to deliver a comprehensive package of action items in just two years. It represents the first substantial renovation of the international tax standards in almost a century.
Of that 15-point action plan of recommendations, Australia has committed to only eight of them, excluding possibly the most important, which is bringing the international tax system in line with changes in the digital era. France is leading in this area. It has moved independently of the EU to create a three per cent tax on large tech companies' local income rather than the profits they make. French officials expect that the annual tax for these companies will amount to about 500 million euros or $563 million.
While President Trump is disapproving of this recent French tax, it does combat a sore spot seen international and domestically in Australia: avoidance of tax by paying taxes in EU countries where they have their headquarters, not where they make their sales. Often they have offices in Ireland or Luxembourg where they have extremely low tax rates. The UK, Spain, Japan and Singapore are all planning similar tax schemes of their own to tackle this problem. Once again, Australia is behind the eight-ball in regard to international efforts in this area.
We on this side took a plan to crack down on multinational tax loopholes and make multinational corporations pay their fair share to the last election. We had policies to target companies that use low- or no-tax havens to offshore funds and a range of other accounting strategies that they use to lower their taxable income in Australia. Some of this included tightening debt deductions, closing public reporting of country-by-country reports, increased capacity for the ATO, public reporting of AUSTRAC data, closing loopholes for certain trusts that make payments to nonresidents to artificially get a tax rate below the 30 per cent company rate, and whistleblower protections.
We took all of this to the last election because we know that every dollar that a company pays in tax in Australia is a direct contribution to Australia and our society. It is a contribution to our kids' education, to our health care, to protecting our natural environment, to looking after our older Australians in their retirement, and to the NDIS. Every dollar that is lost through the tax avoidance that we've seen, through these tactics that these big companies use, effectively leaves us worse off as a society.
As shadow minister, Jim Chalmers said in his speech earlier this evening, it beggars belief that this government is not doing more to address this problem. It doesn't make sense. It doesn't ad add up, because it's up to the government to ensure that they're doing everything they can to close down these loopholes that are still being utilised, quite expertly, and still being exploited by many of these multinational companies. I want to know why they're not doing more. We're supportive of this amendment, as small as it is, but why aren't they doing more? It is clearly a problem. The statistics are in everyone's face. We can see it: billions of dollars in profit with zero tax paid or very minimal tax paid—0.6 per cent, 2 per cent. Go and explain that to someone in my electorate who works night shift and has to pay 30c or 37c in the dollar. Why are they paying that percentage for every dollar they make, and these multinationals that are making enormous profits in this country are walking off only having to pay two per cent or 0.6 per cent? There is just no fairness in it at all.
Unfortunately, even with this law that we are debating—operating since 2016—we are still losing money through offshoring and through loopholes that this government hasn't bothered to try to close down. So this bill does go some way to addressing the issue—it certainly does; and we support that small measure. But much, much more needs to be done before these companies start paying their fair share to Australia.
I rise to speak on the Treasury Laws Amendment (Making Sure Multinationals Pay Their Fair Share of Tax in Australia and Other Measures) Bill 2019. This government is constantly repeating that it is on the side of hardworking Australians. It would seem that it is also on the side of big multinationals if it does not do more than what this bill proposes.
I too am on the side of hardworking Australians and small businesses. I fully agree with the broad principle, at explicitly stated in the title of this bill, that multinational companies trading in Australia need to pay their fair share of tax here. After all, the many small businesses in my electorate of Warringah have to pay their fair share.
The government should be commended that additional transparency measures targeting multinational corporations introduced in the previous legislation are working. The ATO is collecting billions more in revenue that is going back to essential government services for the Australian public and the people of Warringah. I also agree with the bipartisan findings of the Senate Standing Committee on Economics. It reviewed the earlier version of this bill in the last parliament and found that ensuring the integrity of Australia's taxation laws is critical to ensuring an equitable society. I support 'programs delivered through the tax system', which result in substantial returns for taxpayers, and which demonstrate 'the government's commitment to continually strengthening our tax system'.
This bill, however, seems to be just fiddling around the edges of what is an enormous problem. The potential revenue gain for the measures is small and does little to address and resolve the issue. If we just concentrate on the first measure introduced, we can see clearly that luxury car tax rule changes and changes to the GST of booking operators will result in little tax revenue gain.
Schedule 1 of the bill, which deals with rules around thin capitalisation, will collect $120 million in additional revenue in the years 2020-21. This is just a fraction of the expatriated profits of just one tax minimiser. As it stands, we have some of the biggest companies in the world paying next to no tax in Australia. Let's take, for example, five of the top energy players over the last four years: ExxonMobil—$33 billion in total income in Australia, zero tax paid; EnergyAustralia—$30 billion in total income in Australia, zero tax paid; Peabody Energy—$12 billion in total income in Australia, zero tax paid; Chevron—$10.5 billion in total income in Australia, zero dollars paid; and Santos—$14.5 billion in total income in Australia, at least $3.1 million in tax paid. These numbers are from the Australian Taxation Office. This is $100 billion in income, and what is the Australian taxpayer getting? Only $3.1 million from Santos, which is only 0.0031 per cent on such income.
The hardworking small businesses all over Warringah want multinationals to pay their fair share of tax. Around half of major multinationals operating in Australia pay little to no tax. Their tools are practices like debt loading, profit shifting, base erosion and loss transferability, which require sweeping changes to transparency rules, reporting requirements and empowered and emboldened regulators to combat.
The proposed changes in this bill do little to address these practices. These practices are happening in my own electorate. There was a recent takeover bid by the Brookfield group, operating out of the Cayman Islands, acquiring 41 private hospitals owned and operated by Healthscope, including the beleaguered Northern Beaches Hospital, which services over 100,000 people in Warringah. The general advantages of purchasing Australian assets by Cayman Island entities is that it helps minimise tax and conceal information. We have not seen any legislation yet cracking down on this. The takeover by the Brookfield group should never have been approved by our regulators. The Foreign Investment Review Board—which looks at these transactions and is required to take into account complex financial arrangements that encourage tax avoidance practices—waved it through, and the Treasurer could have stopped it but remained silent. We need our regulators emboldened and ready to aggressively stop tax minimisation transactions.
The Brookfield group is now eyeing off the Aveo Group, an Australian company based in Sydney who provide aged-care services, housing more than 13,000 residents in about 90 villages across the country. We cannot have more Australian assets providing important services transferring to the Cayman Islands. If it comes to a bid, I call on the FIRB and the Treasurer to reject it.
How is the Australian public supposed to know of the practices that are happening? Reporting standards don't do much to encourage transparency and availability of information, with statements dealing with multinationals being purposely opaque and incredibly technical.
If you do want to know about these transactions and business structures, you can pay up to $41 per search through an ASIC register for the records, and some of these companies purposely have intricate webs of incorporated businesses, often having several businesses dealing with various complex functions and transactions. That's potentially hundreds of dollars, and simply not available to everyday small business owners. Other countries provide this basic search for free. Why do Australians have to pay for such accountability?
So, while I commend the steps proposed in this bill—and I know this is an issue that came up a lot around the electorate of Warringah—the government must do more on this front. We need to ensure that multinationals pay their fair share of tax for business they conduct in Australia. To take an expression often used in this place, especially by the Prime Minister: 'How good is our tax system!'—well, with due respect, it could be better.
I rise to support this bill, the Treasury Laws Amendment (Making Sure Multinationals Pay Their Fair Share of Tax in Australia and Other Measures) Bill 2019. I have seen multiple attempts by the government to tighten up on multinational tax avoidance, and I applaud all of them. However, it is hard not to conclude that each of these measures really only nibbles away at what is a much bigger policy issue, and a very serious one at that. It's very serious because every dollar of tax that multinational corporations avoid in Australia shifts an ever-increasing burden onto Australian taxpayers, and they include both small businesses and individuals. Predictably, our government's ability to provide essential and non-essential services to Australia directly suffers as a result of multinational tax avoidance.
This is why I was so taken with the French government's recent implementation of a flat three per cent revenue tax on multinational tech giants that operate in France. The tax only applies to revenues earned in France and only upon tech companies that earn annual global revenue of more than 750 million euros, in addition to revenue in France exceeding 25 million euros. Time magazine states that:
The revenue threshold is supposed to allow more room for startups. France argues that tech giants are abusing their market dominance, notably through tax avoidance, and preventing others from a fair chance of competing.
I find it hard to disagree with that sentiment, especially when large tech companies pay very little tax in most of the jurisdictions in which they operate, including Australia. For example, in financial year 2016-17, Facebook paid only $12.5 million of tax in Australia, which was only 3.8 per cent of its Australian revenue of $331 million; Google only paid $33 million in tax, which was only 2.2 per cent of its Australian revenue of almost $1.5 billion; and, in combining Amazon corporate and Amazon web services, Amazon paid $10.4 million in tax, which was only 2.3 per cent of its $454 million in Australian revenue. And similar stories stretch back through multiple years of Australian taxation data.
I would encourage every member in this chamber to read The Great Multinational Tax Rort: How We're All Being Robbed by Martin Feil. Just to give some global context to this: multinational corporations have avoided trillions of dollars of tax over the past 25 years. Tax avoidance is legal, but it is a massive abuse by multinationals that has a devastating effect on governments around the world and has placed an unbearable burden on individual taxpayers and on honest local businesses.
What is interesting, though, is that there are four accounting firms—PricewaterhouseCoopers; Ernst & Young, now known as EY; KPMG; and Deloitte—and they are the global accountants and tax advisers for multinationals. They have been paid over $500 billion in the past 25 years to prepare annual accounts and to manage multinational tax affairs. The favourite tool of the big four accountancies to minimise tax for their multinational clients is transfer pricing, a complex and confusing array of methodologies and strategies that work to reduce tax or even avoid tax altogether.
So I would encourage every member of this chamber to read this book. It is certainly eye-opening and says that we have to do much more. Apple Australia paid just $80 million in income tax on revenue of $6 billion in Australia in the year 2013-14. How can our mum-and-dad businesses compete when that is the arrangement that Apple have through their complex web, as do all of the other multinationals?
So we really must act to clamp down on multinationals which are, perfectly legally but immorally, taking full advantage of the weaknesses in our taxation system and other nations' taxation systems. For Australia, this is of great detriment to our taxpayers. The French look to be leading the way, and I hope Australia will do all we can to follow.
I firstly thank all the members who've contributed to the debate this evening. As we've outlined, the government's committed to strengthening the integrity of our tax system, closing loopholes and ensuring taxpayers' dollars are spent prudently. The measures in the Treasury Laws Amendment (Making Sure Multinationals Pay Their Fair Share of Tax in Australia and Other Measures) Bill 2019 build on this commitment.
As has been outlined, schedule 1 to the bill improves the integrity of Australia's thin cap rules. Australia's thin cap rules prevent multinationals from having unrealistically high levels of debt in Australia in order to claim excessive interest deductions. The bill strengthens the integrity of the thin cap rules by improving the reliability of asset valuations used to support debt deductions. Multinationals, in essence, will need to align the value of their assets for thin cap purposes with the value included in their financial statements. The bill will also ensure that all foreign-controlled consolidated groups are recognised as inward-investing entities. This will confirm that these entities are not able to use thin cap tests that are only appropriate for outbound investors. The changes in schedule 1 to the bill build on the strong actions the government has already taken over a period of time to combat multinational tax avoidance.
Schedule 2 to the bill levels the playing field for Australian hotel bookings by ensuring that offshore sellers of hotel accommodation in Australia calculate their GST turnover in the same way as local sellers, effective 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.
Finally, schedule 3 to the bill removes liability for luxury car tax from cars that are reimported following service, repair or refurbishment overseas. It ensures there will be equal tax treatment of car refurbishments regardless of where the refurbishment is performed.
I therefore commend this bill to the House.
Question agreed to.
Bill read a second time.
Message from the Governor-General recommending appropriation announced.