Meryl Swanson (Paterson, Australian Labor Party) Share this | Link to this | Hansard source

I was talking about a nurse in a typical family in my electorate of Paterson. She knows that full-time work ensures that her family have the means to live as well as possible. She takes great pride in her home and her family and she is grateful that cheaper child care is available to her. It ensures that her kids are well looked after and they are getting the education that will ensure that they are well-adjusted and prospering human beings.

They socialise with like-minded and similar families. They have a good network of neighbours and parents, and their common goal is to ensure that their children are better off than they are. They worry, and they worry a lot. They have a big mortgage. They have a loan on their good car. The second one is old, and one day that's going to have to be replaced. Where they live, two cars is not a luxury, because there's no public transport and everywhere is far. Their credit card is under control but they do lose a bit of sleep over it from time to time.

They are managing. But if one of them got sick or lost their job or major repairs were needed or—God forbid—one of them died, then balancing their good life would be absolutely shattered. They pay a lot of tax—at least 30 per cent of their income, in fact. They don't mind. They know that there's nothing surer than death and taxes, and they're happy to pay their fair share of tax. But they find it unfathomable that multinationals are bucking and cheating the system.

They talk with their friends about their meagre tax deductions. That might put a couple of hundred to maybe a thousand or so bucks in the coffers. They talk about how unfair and how unreasonable the tax system is, when they see headlines of the big-business multinationals making millions in profit but paying next to nothing in tax. They just cannot understand it. They are bewildered—how unfair it is.

Meanwhile, they are burning the candle at both ends, trying to make those ends meet, working as hard as they can—in the mines, at the local GP surgery—and trying to get the kids to day care, trying to get them to school and sport and all the other things. They're paying their taxes. They're doing the right things. They're good citizens. They donate when something goes wrong for a work colleague who needs a hand. They donate to the Salvos if they're at the pub on a Friday night. They're good, decent Australians, paying their tax. They think it's just not fair.

They blame the government—and rightly so. For nearly a decade, those opposite, when they were in government, made some simple little gestures to appease the masses, but they actually didn't do very much at all to level out the playing field, to be frank. They quite simply didn't seem to want to. The Liberal-Nationals coalition backed in the multinationals. They wined them, they dined them—and they did nothing. They chose not to address the situation. They ignored their constituencies. They didn't listen to their local businesses or households. They worked for the multinationals, the conglomerates—intimidated by their power, fearful of their withdrawal, and mute on any sort of new ideas for how to bring them into a taxation system.

I've spent the past seven years listening to the people in my electorate, whether they're workers like the two I described earlier or whether they're small businesses—or even bigger businesses. The Albanese Labor government listens to Australia, and we've listened to the international community as well. The whole global community has had enough of these multinational companies who just don't pay their fair share in tax. More than 100 countries came together in 2021 to strike a deal on global taxation. This is important, not only for Australians but for our standing in the global community. We want to be on the good side of the ledger and on the right side of history when it comes to cracking down on tax avoidance in our world.

During the 2022 election campaign the Albanese the Labor team committed to ensuring that multinationals pay their fair share in tax. The reforms in this legislation will hold those companies to account on their corporate structures and on their tax arrangements. All the hundreds and thousands of dollars spent on corporate lawyers and accountants, creating subsidiaries and the like to hide and minimise exposure to tax, will be disclosed. The game is up. Currently there is approximately $100 billion sitting in tax havens—Australians' money. It is sitting in places like the Bahamas, the Cayman Islands and Panama. If that sound dodgy, it's because it is. But the rot stops now, and we are cracking down on it. It's just that simple.

Over the past several years only 10 Australian companies have paid one-third of the entire corporate tax bill. This is extraordinary. And it must be noted that they are all domestic companies—good local companies, doing the right thing, paying their fair share of tax, if not more. Foreign companies represent one-third of companies that pay no tax. It is just incredible. This is why the laws must be tightened so that everyone pays their fair share. Efforts to avoid and minimise tax will be monitored, managed and limited. Tricky tax planning efforts by multinational corporations, such as debt related deductions, will be addressed. This legislation helps level the playing field for Australian owned businesses, and it increases transparency. Companies will have to demonstrate that they are paying the right amount of tax as the taxation system intended.

Disclosing information is paramount to open and honest taxation revenue. Most OECD countries, such as the US, the UK and most of the EU, have already implemented earnings-based interest limitation rules. These amendments will bring Australia into line with these major economic machines—and that's a good thing. Let me also be very clear: there will be fewer than 500 companies affected by these changes. And when I say 'large companies' I mean entities with $250 million on average in revenue. All companies should be aware of their corporate structures and subsidiaries that operate through them. This is not new information that needs to be collected. It's not going to be more onerous on any of these companies. The large conglomerates already disclose this information to some degree. This amendment enhances this disclosure to capture all of the entity's subsidiaries.

A wise person once said to me, 'Be proud of your work.' Good local companies and good family businesses and PAYE taxpayers declare and contribute—it is just that simple. We all have to contribute to society via the taxation system. The local roads we drive on, the highways we need, the airport that opens the world up to us, the netball courts our kids play on, the soccer fields that more and more of our kids are going to be wanting to play on after this magnificent FIFA Women's World Cup, the water we drink, the habitat we're trying to protect—taxes pay for these things. Taxes pay for our hospitals and for our emergency services. Taxes pay for Medicare and pharmaceutical rebates. Taxes contribute to the energy we produce and use. All of these services are provided by various levels of government and are paid for with taxes.

I am proud to be part of an Albanese Government. I am proud that we made this commitment at the last election. I am proud that we're delivering on this commitment as a government. We said that multinationals would pay their fair share in tax, and this legislation is delivering on that election commitment. I'm delighted to speak on this legislation. I'm proud to be part of a government that is delivering. I'm proud to know that all of our taxes are going to be spent making Australia a better place for everyone.

Rebekha Sharkie (Mayo, Centre Alliance) Share this | Link to this | Hansard source

I'm very pleased to support the Treasury Laws Amendment (Making Multinationals Pay Their Fair Share—Integrity and Transparency) Bill 2023. There are many attributes that aptly describe the Australian way, and one of those is the sense of fairness. We are an egalitarian society. We believe that all people are equal and deserve equal rights and opportunities. Surveys have found that more than 90 per cent of Australians believe a fair go is important.

The term 'fair go' is one of the most pervasive and enduring expressions in Australian cultural and political discourse. Academics suggest the expression first emerged around the 1860s and has evolved, as we have as a nation, to embody the values that we all hold dear. But what exactly is a fair go? While its uses are many and varied and dependent on circumstance and context, the Cambridge dictionary defines and describes the exclamation as something you say when you want someone to act in a reasonable way. It is in this context that I refer to this bill that's before us. This bill seeks to simply direct companies to act in a reasonable way, because many have not and continue to behave in a way that is not reasonable. So, in good Australian vernacular, I say to all those multinational companies that are not paying their fair share of tax: fair go!

Some of the biggest multinational companies do not pay any tax in Australia—zero tax! Vodafone, with an income of around $3 billion, paid zero tax. IKEA, with a total income of around $1 billion, paid zero tax. Facebook, with an income of $528 million, paid only 2.6 per cent tax. As many as 80 companies have paid zero tax in Australia for six years straight. There is something fundamentally wrong when a teacher, a police officer or an ambulance officer is paying a higher marginal tax rate than these companies. That is fundamentally wrong.

In November 2022, the Australian Tax Office released its annual tax transparency report. The report revealed that, of the 2,468 large and medium corporate entities, 782—32 per cent or a third—paid no tax at all in the financial year, down from a high of 36 per cent in the 2015-16 financial year. The report also reveals that Australia has some of the world's highest levels of tax compliance. Large businesses had a tax compliance rate of 93 per cent for tax paid voluntarily. After compliance activities by the ATO, this figure rose to 96 per cent.

This tells us that companies are mostly complying with our laws. It also tells us that our laws are woefully inadequate, and national companies know this and actively exploit it. Companies use various schemes to avoid paying taxes through debt shifting, registering intangible assets such as copyright or trademarks in tax, known as 'strategic transfer pricing' and debt shifting. This isn't just a problem in Australia; it is an unfortunate defining feature of a global financial system. It is estimated that, in 2019, close to US$1 trillion in profits earned were shifted from home countries to tax havens or countries with very low tax rates.

Every dollar of foregone tax is $1 that we don't have to provide for services to Australians. We have crises in aged care, health, cost of living, energy prices and poverty. I could go on. If companies paid their fair share of tax, we could go part way to fixing some of the systemic problems facing our nation. Requiring companies to disclose information about their subsidiaries and annual financial reports and aligning our laws with the Organisation for Economic Co-operation and Development by addressing the use of interest debts for base erosion and profit-shifting purposes, as proposed here, is appropriate and welcomed. I support this bill, and I look forward to multinational companies finally being bound by laws that give a fair go to all.

Luke Gosling (Solomon, Australian Labor Party) Share this | Link to this | Hansard source

During the 2022 election campaign, the Albanese government committed to ensuring that multinationals would pay their fair share in tax. This legislation levels the playing field for Australian businesses and increases transparency. These reforms will hold companies to account on their corporate structures and whether they are operating with opaque or atypical tax arrangements.

Given the global momentum towards ensuring firms pay their fair share of tax, it is in the public interest that shareholders have more information of this kind. The measure in schedule 1 of the bill targets Australian public companies, listed and unlisted, to disclose their subsidiaries and where they are located. This will hold companies to account, particularly the large corporate groups, requiring them to be more transparent about their corporate structures and about whether they are operating with opaque tax arrangements, such as through subsidiaries located in low-tax jurisdictions. 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, in the UK, they have a similar measure already in place.

Schedule 2 of this bill is a revenue-raising measure. It targets a known tax-planning arrangement by limiting multinational enterprises' debt deductions, ensuring they pay their fair share of tax in Australia and helping level the playing field for Australian businesses. Because debt is tax deductible, multinationals can adjust their debt levels and use related borrowings to minimise the amount of tax they pay. The increasing occurrence of this tax avoidance practice has resulted in international efforts, led by the OECD, to address tax integrity risk and directly limit debt related deductions. Most OECD countries, such as the UK, the US and most of the European Union, have already implemented earnings based interest limitation rules. The proposed thin capitalisation amendments in this bill will bring Australia in line with these jurisdictions.

We have to do a lot more on multinational taxation. We have two-fifths of multinational profits currently booked through tax havens, which is an incredible amount. We've got some $100 billion of Australian money sitting in tax havens, 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 other countries' tax laws. These aren't just tax avoidance mechanisms, these are also the places where terrorists, kidnappers, crime syndicates and drug lords store their money. We have to crack down on those tax havens because they're a cancer on the global tax system.

In Victoria, we had the incident a couple of years ago of the Stawell tyre dump being transferred to a company in Panama in order to avoid their clean-up obligations. Some nine million tyres were sitting at that dump, and the owners attempted to shift ownership offshore to Panama—to a tax haven—and thereby avoid their liabilities. It's the sort of problem that Labor wants to address—not only this sort of corporate behaviour but also, as an aside, to introduce a circular economy, where an owner of nine million tyres would see them as a great asset to be recycled and used as crumbed rubber to make our national regional and rural road system more resilient. But I digress.

Over nearly a decade in government, the coalition tinkered around the edges. They made tweaks here and there, but throughout their term they very clearly showed which side they were on. When I think back, there might have even been a prime minister in the past, and other members of former coalition governments—I can't quite recall the details, but there was certainly use of tax havens. It has certainly been clear to us, and to a lot of Australians, that over the last 10 years we've seen that those sitting opposite were sitting there partially because they weren't on the side of Australians. They were on the side of multinational tax dodgers. Before the 2022 election, they told Australians not to support anyone who proposed to raise taxes on multinational tax dodging. Just think about that for a second. Labor takes the view, however, that the international group of more than 100 countries that came together in 2021 to strike a deal on global taxation has made a step in the right direction. As the Australian government, we're now working to see those measures implemented.

The coalition have been walking away from the issue of multinational taxation despite this being deeply unfair to Australian firms. If you're a new start-up business, you're not banking your money in the Bahamas, you're not looking for an accounting lurk to run through the Cayman Islands and you don't have an army of lawyers and accountants to seek out every loophole. Instead, you're working hard every day to try and come up with a new business model so that your business can survive and thrive. But right now, you face the potential of being cheated by multinational firms and tax dodgers who are using tax havens. So we have a lot more to do to level the playing field and support those Australian businesses. You just need to look back at the history in this space.

The coalition voted against our multinational tax measures when we were in office last time—including one measure which saw Chevron paying an additional $300 million in tax. I'm sure all local members can think of great ways that they could use hundreds of millions of dollars of revenue for Australians in their electorates. When those opposite came to office, they abandoned multiple multinational tax measures which were ready to go, and they were on the go-slow—a very go-slow—on multinational taxation while in office, which was for 10 years.

Labor has a strong track record in this space. The last leap forward on transparency was introduced by the Gillard government in 2012. Then Assistant Treasurer, David Bradbury, put in place the legislation that has ensured public transparency of tax payable by large corporate entities. The landmark changes allowed for the publication of the tax liabilities of large corporate entities, including multinational corporations. Then we had almost a decade of inertia on transparency and the on-again off-again approach to multinational tax integrity by those opposite. In the nine years from 2013 to 2022 leaders around the globe stepped up efforts to crack down on international tax avoidance by large companies and high-net-worth individuals. We had the Panama papers, the Lux leaks and the Paradise papers all reveal the deliberate sophisticated tactics global companies had been using to shift profits around the world in order to pay less tax. 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 all multinational profits.

Yet the first thing the coalition did when they came into government was to hollow out the tax office, sacking 4,700 staff—fewer people to be looking into these sorts of behaviours. Two years into government they realised how much that was costing them and they set up a task force to plug the hole. They claimed the task force would restore billions in revenue, but that claim just highlighted how much the cuts they'd made to the tax office had cost Australian taxpayers. It had not occurred to them that depleting the workforce that were meant to be policing the tax affairs of global multinationals would come at a huge cost to the Australian tax base, so they announced a bold new tax avoidance taskforce and hoped no-one would notice they were just fixing the problem caused by their own cuts to the tax office. Funding that task force remained their go-to on multinational tax integrity even up until the 2022 election. It was their only idea, and it was generated out of the own goal they scored when they first cut back tax office staff.

In 2012 the coalition even voted against the Labor government's laws to close a multinational tax avoidance loophole. They said it was retrospective and they couldn't support it. Was it retrospective? No, it wasn't. They were wrong again. But they still cast their votes against closing that multinational tax avoidance loophole. Then in 2017, with the coalition in government, that very same law was used to secure a $340 million judgement against Chevron—another mistake, but no contrition. They just patted themselves on the back. We even had the spectacle of former prime minister Morrison, the then Treasurer—he didn't have any other ministries at that stage, I don't think—claiming credit for a court outcome based on laws he actually voted against. (Quorum formed) I was reflecting on the spectacle of former prime minister Morrison, who was the then Treasurer, claiming credit for a court outcome based on laws that he actually voted against.

In 2013 the Labor government introduced the biggest ever package to crack down on multinational tax avoidance. What did the coalition do? They voted against it. Labor introduced changes that increased tax transparency by allowing for the annual release of corporate tax transparency data from our largest and wealthiest firms, and the coalition voted against that too. The coalition have taken a meandering path on tax transparency, but they never end up taking us forward. In 2016 they were committed to a register of beneficial ownership to tackle the problem of Australia's unusually opaque share registry, but nothing ever happened. In 2019 the coalition had to admit close to the election that, actually, they'd killed off the idea.

Those opposite might be sitting there thinking, 'Oh, that's Labor going back over what we did in 10 years or'—more to the point—'didn't do in 10 years,' but it is important to reflect on not only what we're doing on making sure that multinationals pay their fair share but what those opposite didn't do over 10 years.

Susan Templeman (Macquarie, Australian Labor Party) Share this | Link to 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.

Tania Lawrence (Hasluck, Australian Labor Party) Share this | Link to this | Hansard source

Australia is the country of a fair go, not the country of 'anything goes'. When we see the lists, posted each year, of very wealthy companies that have not paid any tax at all, or paid only a pittance, the hackles quite naturally start to go up. A few years ago an Australian Treasurer, Hon. Joe Hockey, managed to simplify his party's policies for everyone by suggesting that there were two types of people: leaners and lifters. It was the sort of ugly, divisive world view that explains why we still see policies like robodebt. The coalition are the masters of piling onto people who are already doing it tough.

When we turn the gaze to the other side of town, however, we can quite legitimately ask whether a wealthy corporate citizen is also a good corporate citizen. If they are making a million bucks or a billion bucks and not paying their fair share of tax—not funding schools and hospitals, not doing their bit for the very community they're making money from—then I think we can well identify them as leaners, can't we? This applies regardless of whether a company is domestic or international, but somehow it rankles with me even more when it's a multinational not doing its fair share, not pulling its weight. It's like someone you don't even know showing up at your house and helping themselves to the roses in your front yard. But we do know who the multinationals are—the large ones, at least.

Technology companies, like Amazon, Apple and Google, operate all over the world, as do many mining and manufacturing companies. We know a lot about these companies. We know how much they are valued at, what their assets are and, to a great extent, their annual revenue, and that annual revenue is sometimes quite large. For example, in the case of the advertising revenue of Google and Facebook in Australia last year, the Financial Review noted that Google reported $8.4 billion in revenue but only $1.95 billion in Australian revenue, after naming the rest in its reseller arrangements with its international parent company. It paid $92.6 million in income tax. If there's anyone else who is paying 1.1 per cent in tax, please step forward. Facebook made $1.62 billion, but only $224.6 million in Australian revenue locally after accounting for its own reseller expenses. Facebook paid $42.8 million in tax. That's 3.4 per cent.

These are ballpark figures, but you get the idea. They are great tax rates if you can get them. It's not the case, however, that the tax missed out on by the ATO and the Australian community somehow shows up on the ledger of another country. Rather, multinational companies shop around and station themselves in places where they can simply make the most money. The other side of the coin is that communities—not just Australian communities but communities all over the world—miss out on the tax revenue that they need. Some of these countries are desperately poor. There, the motivation to fix this issue is not so much a question of the fair go but, rather, is rooted in a severe need for predictable food, water, housing and social services.

The Treasury Laws Amendment (Making Multinationals Pay Their Fair Share—Integrity and Transparency) Bill 2023 is our response to the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting. Australia is one of over 135 countries and jurisdictions that are implementing 15 actions to tackle tax avoidance. That list of countries includes China, the USA, Russia, the UK, most EU countries and many poor countries, which need their tax base to be firm and not eroded. The OECD notes in its action plan that globalisation has had many good effects. It has boosted trade and investment, supported growth, created jobs and lifted millions of people out of poverty. The OECD also notes that over the decades there has been a trend towards the evasion of just tax payments by multinationals and that, as a result, governments are harmed, individual taxpayers are harmed and businesses are harmed.

This legislation also acts to improve the competition and dynamism in our economy. How can a new local player enter a realm of business where there is a dominant multinational in place that is hardly paying any tax at all? The new domestic player isn't suddenly going to have a headquarters overseas. They are here and are expected to pay tax here. It is hard enough for a new entrant in technology, in manufacturing or in whatever field of commerce, without having to compete on price with a dominant player whose tax burden is tiny compared with theirs. As the member for Paterson remarked earlier in this debate, Australians expect everyone to pay their fair share. An economy where new entrants are welcome is a more dynamic, more competitive and fairer economy. These changes will have useful effects, not just for the revenue base but in assisting the economy as a whole.

The legislation does a couple of useful and reasonable things. Schedule 1 requires public companies to provide information about subsidiaries in their annual financial reports—completely reasonable. Schedule 2 amends the thin capitalisation rules by replacing the current asset base test with an earnings based test, as recommended by the OECD—totally reasonable. We have for many years simply put up with a worsening situation whereby corporations have been allowed the fiction of moving profits to locations where they have little or no actual activity and, conversely, failing to pay tax where their activity is in fact occurring, such as right here at home.

This legislation is in the public interest, not just here but across the world. It is, as my friend the member for Bean said, a step in the right direction. Will it result in an act that remains unamended for the next 20 years? I sincerely doubt that. Should we wait until we're sure it is perfect? Absolutely not. We enact this legislation knowing that it is a start to creating a fairer Australian tax system and that there is more work to be done. Some corporations will do the right thing and respond constructively to these parallel and similar legislative changes in many like-minded countries across the world. Others will slide about the globe like pieces of soap, and that will require further action.

This legislation was part of the Albanese government's platform going to the election last year. The Australian people voted for this legislation. We have a mandate and a duty to act, and we begin now.

Sam Rae (Hawke, Australian Labor Party) Share this | Link to 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.

Matt Thistlethwaite (Kingsford Smith, Australian Labor Party, Assistant Minister for Defence) Share this | Link to 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.

Daniel Mulino (Fraser, Australian Labor Party) Share this | Link to this | Hansard source

Tonight, we discuss one of the most important areas of taxation policy and, indeed, I think many would say, one of the most important areas of policy, full stop. What we're discussing tonight goes to the very heart of the sustainability and integrity of our tax system, which in turn goes to the capacity of government to fund services that are so important for our society. Multinational taxation is an issue that has been becoming more and more important over recent decades for a range of factors that I'll touch on before going to the specific issues of this bill. We are coming out of a period where, as the previous speaker mentioned, not enough has been done. That's why this step forward—this significant step forward—that we see tonight is so important.

Why is multinational taxation becoming more and more of an issue? One obvious factor is that we're living in a more and more globalised world. More and more economic activity, more and more innovation, and more and more value-add are being undertaken by companies that straddle the globe. What that means is that those companies have the capability of shifting their profits to whichever jurisdiction they wish. That has serious consequences for the ability of individual jurisdictions to maintain taxation at a level that is needed for services to be provided. Another issue is that not only are we seeing a significant proportion of economic activity being undertaken by multinationals but an increasing proportion of economic activity is being undertaken in the digitised world. What that means is that it's less and less obvious where the transaction that is taxable occurs. Does it occur at the point where the person presses the button? Does it occur at the point where the company that is managing the transaction is incorporated? Does it occur at the point where the good is sent from or the service is provided? There are so many complications, depending on the specifics, but the digitised world is a much more difficult one to tax. It's more difficult to figure out how it should be taxed, and, of course, on top of that, it's more difficult to actually undertake the taxation as well.

I would argue there are other trends as well. For example, over the recent decades, there has been the rise of a lot of forms of asset in the corporate world, like intellectual property or the value of an algorithm. These are very difficult to place in a geographic or physical sense, and yet these aspects of a corporation have real value. These aspects of a corporation are invested in—their intellectual property, their brand and, as I said, a lot of IT aspects. So, from a taxation point of view, it makes it very difficult to tax a lot of these multinationals in a way that makes sense. Finally, we see borrowing. Borrowing has always been there, but the rise of debt around the world has added to the difficulties of multinational taxation because the interest, as a result of internal borrowings within corporate structures, can be shifted in such a way as to shift corporate profits to jurisdictions with the lowest tax rates.

I want to make the point that, in addition to all of these complexities with taxation, in OECD and G20 countries we see rising needs for taxation, because we see, and rightly so, increasing calls from the public for strong public services, for social services that are sophisticated, that provide a strong social safety net. We see pressures on those social services because of an ageing society. We see pressures on those social services because the cost of providing many of those services is increasing faster than inflation. So, on the one hand, we have an erosion of the tax base and, on the other hand, we have ever greater needs for solid reliable tax revenue to provide the services that people rightly expect.

As the previous speaker mentioned, governments will rely upon forms of taxation, such as income taxation, that often fall very heavily on people who aren't in as good a position to pay, towards the tax system, as compared with, say, multinational corporations. So it provides a tension point, and many question the fairness of the system quite apart from its effectiveness. What we see today is a series of measures that go to making a fairer and more effective tax system, a more sound system, in terms of its policy basis. For those two core reasons, what we see tonight is a very significant step forward.

What we're seeing tonight is a step being taken by the Australian government that is very much aligned with the OECD G20 base erosion profit-shifting initiative, the BEPS initiative, which has formed a very important alignment across all of the major economies of the world over the last decade. It's very important that this initiative form part of this government's moves to continue Australia's moving forward on a range of multinational tax issues in alignment with other major economies.

The BEPS package is an OECD G20 initiative. That covers a significant proportion of world GDP. One of the core policy rationales is that taxation should be restored or at least aligned, to some degree, to the place where the economic activities and value creation occur. Why is this important? I think it's very important from a fairness perspective but also from a policy soundness perspective.

Firstly, from a policy soundness perspective, it makes more sense for the taxation revenue to be aligned, as far as possible, to where the economic activity is occurring rather than according to tax minimisation or tax avoidance. If it's aligned with where the economic activity is occurring, it is aligned with where the economic inputs are being joined together to create the economic value-add, where the capital, the labour, the land and the know-how are being added together to create what the consumer is wanting, what the consumer is paying for. It's where the profits are being created. If that is not what we are trying to align our tax system towards, we will almost inevitably find ourselves aligning the taxation of activities with where they can be shifted to the lowest possible tax rate, which does not make any policy sense.

I would argue that there is also a very important fairness principle here. It is important that taxation occurs where the economic value-add occurs, because that is where the multinational corporation is receiving so much social and public support. Multinationals depend on roads and transport infrastructure. Multinationals depend on the skills training for their workers that is provided, by and large, by the public sector. Multinationals' workers rely on the social safety net and, indirectly, multinationals do. So multinationals don't act in a vacuum.

The value-add of multinationals is very much built upon the fact that they are operating in an orderly society, with rule of law and all of the other benefits that accrue from the institutions that occur in the kind of society that Australia provides. In addition to that, multinationals benefit, as does the broader society, from all of the kinds of other social and economic infrastructure that they directly and indirectly benefit from. So it's entirely sensible and fair that the taxation system aligns to where the value-add, the economic activity, occurs for that reason also.

The second broad policy objective of the BEPS program is closing loopholes so that there is a sensible, sound taxation of economic activities, not one based upon contrived accounting arrangements which have no bearing on the actual sources of profit. Finally, there should also be an increase in transparency.

I believe this bill is a step forward on all of these three key measures. It definitely aligns the taxation revenue more closely with where the economic activity and economic value-add occurs. It will definitely close off loopholes where there are contrived arrangements, where thin capitalisation is used as a means by which profit is shifted from one jurisdiction to a lower tax jurisdiction, where it doesn't actually relate to the underlying economic meaning or grounding of the transaction itself. Finally, it's a significant step forward when it comes to transparency.

It is critical, as I mentioned before, that this is a part of the broader BEPS initiative, because this is a global phenomenon. It is very important that Australia design its multinational tax initiatives so that they are broadly aligned with the initiatives that the OECD and G20 are taking up. If we don't have alignment, if we have countries trying to move on their own and acting unilaterally, we find there is a significant pressure towards a race to the bottom. That is why it is so important that this bill is aligned with that broader initiative.

The BEPS initiative contains 15 actions, which have been grouped across four themes. Three relate to the broad theme of coherence, six relate to substantive efforts to adjust the taxation sources, five relate to transparency and two relate to the horizontal issues of digitisation and multinational instruments. As I mentioned, digitisation in particular has been driving challenges to the ability of individual governments to tax economic value-add right across the economy.

This bill contains two very important measures that go to the heart of transparency. The first, schedule 1, relates to multinational tax transparency. It will hold companies to account, particularly large corporate groups, requiring them to be more transparent about their corporate structures and whether they are operating with opaque tax arrangements. This information will be inherently good, because sunshine is the best disinfectant. More transparency is a sensible thing. It will also enable better economic analysis. It is so critical, in this very complicated area, for governments to be in a better position to decide whether their multinational tax arrangements are fit for purpose. Companies will be required to disclose this additional information as part of their annual financial report, which of course they have to prepare anyway. The additional information required will create very little additional red tape or compliance burden, and this is in line with other major jurisdictions such as the United Kingdom. On the issue of transparency, schedule 1 is a significant step forward.

As I mentioned, the other schedule relates to thin capitalisation. I won't go through all of the details, but this relates to a number of well-known tax planning arrangements whereby some multinationals set up debt arrangements between different parts of their organisational structure so as to contrive interest payments that might be high in one jurisdiction, with income then flowing to another jurisdiction in such a way that overall taxes across the group are minimised. This bill has been designed with a considerable amount of consultation. It is designed in such a way that there is flexibility and that it won't unintentionally capture arrangements which are designed to reflect genuine intragroup borrowings.

There are a number of arrangements. For example, thin capitalisation rules will be adjusted to limit an entity's debt-related deductions to 30 per cent of profits using EBITDA. This new earnings-based test will replace the current safe harbour test. It will allow debt deductions denied under the entity-level EBITDA test to be carried forward and claimed in a subsequent income year, and it will retain an arms-length debt test as a substitute test, which will apply only to an entity's external or third-party debt, disallowing deductions for related-party debt under this test. The earnings based approach, I might add, is very much in line with the earnings based approach that's been adopted in a number of other jurisdictions such as the UK, the US and most of the EU.

To return to the overarching rationale for this: we have a transparency measure, we have a substantive measure related to thin capitalisation and at the heart of all of this is an attempt to make our tax system fairer but also more soundly based on policy. Through the measures in this bill, we are going to align tax revenue more closely with where the actual taxable value add and economic activity occurs, and that is very sensible from a policy perspective. It really is the most sound way in which to approach the taxation of economic activity. It is also, in my opinion, a fair approach because it reflects the fact that, where multinationals operate in Australia and benefit from all of the things that our society provides, whether it be training, transport infrastructure, social infrastructure, the rule of law or anything else, they should contribute to that. It closes a loophole and it provides transparency, so it's very aligned with international moves to provide a more effective and fairer tax system.

Alicia Payne (Canberra, Australian Labor Party) Share this | Link to this | Hansard source

I rise to speak in support of the Treasury Laws Amendment (Making Multinationals Pay Their Fair Share—Integrity and Transparency) Bill 2023, a bill that will deliver fair outcomes in our taxation system by holding large multinational corporate groups to account on their taxation arrangements in Australia. I would like to start by thanking the Assistant Minister for Competition, Charities and Treasury, the member for Fenner, Andrew Leigh, for all his hard work and commitment to bringing fairness to our taxation system by championing the need to level the playing field for Australian businesses and increase transparency.

Boosting fairness and transparency when it comes to the tax arrangements of multinational corporations was a key issue the Albanese government during the 2022 election campaign. Ensuring multinationals pay their fair share of tax is not only good policy at home; it also demonstrates Australia's commitment to the global momentum towards ensuring that corporations pay their fair share of tax across national jurisdictions and borders in which they operate. We on this side of the House understand that multinationals need to pay their fair share of tax and that, when they don't and they obfuscate that obligation, it hurts all Australians. Multinational tax avoidance means that we have less money for the resources to fund our schools and our hospitals and less money for the NDIS, social security system and other government services that support our communities.

Multinational tax avoidance is bad for local small businesses too because they ultimately find themselves competing on a tilted playing field against the large multinationals, which are using tax dodges that aren't available to the small businesses. This bill is a critical step in restoring that balance and transparency in our tax system when it comes to multinationals, especially in the wake of the recent PwC leaking scandal. The Albanese government is determined to restore faith and integrity to our system.

Schedule 1 to this bill prioritises disclosure and aims to hold large corporate groups to account by requiring them to be more transparent about their corporate structures and whether they are operating with opaque tax arrangements such as through subsidiaries located in low-tax jurisdictions. As part of this, the companies concerned will be required to disclose this information as part of their annual financial report, a practice that is in line with international approaches and measures already in place in jurisdictions such the United Kingdom. This disclosure will essentially become a fourth element of a company's annual financial support, a document which currently comprises a company's financial statements, notes to those statements and the director's report. This additional disclosure will improve information flow from companies by requiring information from their subsidiaries. This measure will likely be applied to large corporate groups that have set up complex corporate structures in the form of multiple subsidiaries. Approximately 470 large corporates with revenue exceeding $250 million are likely to have multiple subsidiaries. In turn, this disclosure information is critical in supporting enhanced economic analysis and will help to inform whether tax laws are operating as intended in collecting the right amount of revenue.

Schedule 2 of the bill is focused on ensuring that multinationals pay their fair share of tax in Australia and in turn on helping level the playing field for Australian businesses. The bill proposes to achieve this by amending Australia's interest limitation or thin capitalisation rules. In a nutshell, these reforms will essentially limit the scope of a multinational's debt deductions and address profit-shifting risks associated with the operations of multinational enterprises.

The thin capitalisation rule amendments proposed in this measure will take a direct approach to limiting debt related deductions by restricting the level of deductible interest expense to an entity's earnings, and this approach reflects the OECD's best-practice guidance. These changes will bring Australia into line with other comparable jurisdictions, such as the UK, the US, Canada and most EU countries. Each of these countries has their own nuanced version of the rules. This bill has been designed to balance tax integrity with other considerations, such as continuing to ensure Australia is an attractive destination for investment.

The Albanese government has approached this key reform with absolute diligence. These amendments were first announced in April 2022 as part of our government's election commitment platform. This bill will deliver a fairer operating environment for small- and medium-sized businesses in my electorate of Canberra and around the country and will aim to create a set of rules that are consistent across the board. In this way business across Australia can be assured that our government is serious about fairness in the tax system and creating a fair and balanced competitive environment.

This bill is an important start when it comes to making multinationals pay their fair share of tax in Australia and making sure our local small- and medium-sized enterprises aren't unfairly disadvantaged because they don't have access to sophisticated profit- and tax-shifting arrangements across national borders. We all know that multinational tax avoidance won't be fixed overnight, but this bill is a big step in the right direction.

The magnitude of this issue is why the Albanese government has moved so decisively. To illustrate the depth of the challenge ahead, at the moment we have two-fifths of multinational profits booked through tax havens and some $100 billion of Australian money sitting in tax havens—places like the Bahamas and Panama, jurisdictions known for their very low tax rates and where, on one estimate, four-fifths of the money is there in breach of other countries' tax laws. These tax havens aren't just employed as tax avoidance mechanisms; they are identified places and locations where terrorists, kidnappers, crime syndicates and drug lords store their money, so taking action to crack down on tax havens and multinational tax avoidance is not just good economic and tax policy but also important as a national security and safety measure.

After a decade of neglect and disinterest on this issue from those opposite, Australians can finally breathe a sigh of relief that they now have a good government that is committed to addressing this issue and is taking a more forward-leaning approach than our predecessors did. I know that this is something that my constituents here in the Canberra community are passionate about—seeing multinationals paying their fair share so that we have that money to pay for the services that all Australians need.

The record of the coalition on multinational tax avoidance speaks for itself. They dithered and failed to deliver any real reform on the issue during their last period in office, tinkering at the edges but never delivering reform on the side of Australian taxpayers and small businesses when it came to tackling the issue head on. I'm proud to be a member of the Albanese Labor government that stands by the core principle of fairness on the issue of multinational tax avoidance. Our government won't stand for a situation that allows multinational companies to get away with brazen arrangements that see profits that ought to be taxed in Australia transferred offshore.

Everything that the Albanese government does to address the multinational tax base is focused on ensuring that we can deliver the best public services to Australians. This also includes recognition that in a competitive economy we want businesses to be competing on making and delivering great products and services, looking after their workers and undertaking research and development, not competing with one another to find the next shady scheme that will see them conceal profits in a tax haven. Labor has a strong track record when it comes to fairness in public policy, and this bill to make multinationals pay their fair share builds on that tradition.

Sharon Claydon (Newcastle, Australian Labor Party) Share this | Link to this | Hansard source

What a delight it is to rise in this chamber this evening to speak on the Treasury Laws Amendment (Making Multinationals Pay Their Fair Share—Integrity and Transparency) Bill 2023. This is a commitment. This bill comes from a solemn commitment that the Albanese government made in opposition: that should we come to government we would seek to ensure that multinationals started to pay their fair share of tax in this country. I don't think there are too many Australian people that would not be with the government on this matter. Nothing gets under the skin of Australian people like the burning sensation of being ripped off by a global national swanning in and reaping the benefits of everything the nation has to offer, only to scarf off their profits to tax havens overseas and, by virtue of that action, dud Australian citizens in the process.

It was no surprise to anyone who knows the Australian Labor Party that during the 2022 election campaign, we made a commitment to ensure that multinationals would pay their fair share of tax. This legislation before us is the very beginning of levelling that playing field for the Australian people, for Australian businesses and for Australian workers who, let's face it, are doing the heavy lifting and making very significant contributions to our revenue base here in Australia. Let's acknowledge the efforts made by both Australian citizens, in terms of our workforce, and those who have small- or medium-sized businesses right across Australia.

These reforms start creating a level playing field for Australian businesses. Importantly they are increasing transparency as well. Critically, they are holding companies to account, particularly those large corporate groups whose structures are often pretty opaque, and making sure a light is shone on those corporate structures. We want to shine a light on any evidence that would suggest that those structures are operating in some kind of opaque manner or have atypical tax arrangements. Those are matters that we want to eradicate in order to ensure that we've got a fair system of taxation operating.

Given the enormous global momentum that is gathering towards ensuring that firms pay their fair share of tax, this piece of legislation before us this evening is in the public interest. It's in the public interest that shareholders have a lot more information to hand about the companies that they might be investing in or taking an interest in in any way, shape or form. There are very good reasons why we are pursuing this legislative agenda in the House of Representatives this evening.

The people of Newcastle, who I represent in this chamber, are hard workers. They're paying their fair share of tax. We have many small businesses that are making terrific contributions to the vibrancy of our communities. They are people who are working hard, trying to make ends meet and who make extraordinary contributions towards our local community as a result of their hard work. Those small businesses are also paying their fair share of tax. These people and these small businesses don't have the millions of dollars at their disposal to run off and get advice on how to avoid paying taxes. Let's not mince words here: that's exactly what large multinational entities are doing. They have no allegiance to this nation or to any one particular place. They like to be regarded as global citizens when it suits them—they can avoid paying taxes in any nation in which they operate. It brings the reputation of global multinational companies into disrepute when there is no allegiance to any nation anywhere—when large powerful entities choose not to make a contribution and pay their fair share in any nation.

In Australia, we have a particular interest in making sure that those global entities do pay their fair share of tax, because we know that taxation in Australia is put to good use. It's part of how we establish a fair and equitable society. People pay their taxes, and those funds are distributed to provide essential, vital services for our citizens. Whether it's the provision of our tremendous universal healthcare system, Medicare, whether it's access to quality education or whether it's ensuring that we pay our workers decently and provide safe, respectful workplaces, these are important projects that our taxation system helps underpin, across Australia and in our local communities. That's why Labor took to the election campaign a commitment to ensure multinationals pay their fair share of tax and a commitment to evening out the playing field. It has to be said that the playing field has been very skewed towards large entities with almost unlimited funds and legal advice at their disposal to avoid paying their fair share of tax.

These reforms, as I said, are going to help hold companies to account, especially large corporate groups, the ones that tend to think they belong to no-one and are somehow above the law. Well, that's not going to be the case in our nation. These amendments are about making things more transparent so that large multinational enterprises are competing in a manner that is apparent to small businesses and workers, who are already paying more than their fair share of tax. In recent years we've witnessed a most alarming trend of corporations exploiting loopholes that exist in the current system. They engage in 'tax planning', which is singly focused on avoiding paying a fair share of tax. This not only erodes public trust and confidence, but it also puts a grossly unnecessary burden on hardworking taxpayers—working men and women who are doing all of the heavy lifting, not just in terms of the labour they provide and the productivity they ensure for our nation but in terms of the dividends they pay back through their taxes. Those workers and those small and medium-sized businesses have told us well and truly that they want to see everybody making a fair contribution, not just them. The current system is undercutting the existing structures that are meant to ensure an equitable redistribution of funds for the essential public services that I spoke about earlier. That's ensuring that Australian citizens, wherever they live—it doesn't matter what your postcode is or what your pay packet or bank balance looks like—should be assured of essential public services, and that's what our taxation system provides.

The OECD estimates that base erosion and profit shifting now costs countries between US$100 billion and US$240 billion—really eye-watering figures—in lost revenue every year. That figure is growing annually. It's already an enormous figure. I would suggest that it's really quite difficult for most Australian people to even imagine what US$100 billion looks like, or US$240 billion. But we know that that is the loss year in year out and that that figure is indeed growing. That's the equivalent of at least four to 10 per cent of global corporate income tax revenue—just gone, No-one's got access to it; it is absolutely gone. That means that governments right across the world—it's not just a problem for the Australian government—are denied hundreds of billions of dollars that should be going towards providing services and infrastructure and that should be lowering the tax burden on workers and reducing debt for nations.

But all that potential is lost when companies are fully exploiting loopholes and getting so-called tax planning advice that enables them to dodge their responsibility of being decent global citizens. It undermines the fairness and integrity of our taxation system here in Australia, and, as I said, it's unfair to small business and other businesses operating in Australia that these big multinationals get a competitive advantage over them and can claim more of the market share because they're dodging their tax—and it's a dodgy practice—while Australian companies are paying for that abuse. As I said, global multinationals can pay armies of lawyers and accountants millions of dollars, because they're aiming to reduce their tax liability by billions, so they don't mind investing a few mill into making sure their accountants get them out of having to pay their fair share of tax. All the while, Australian workers, families and small businesses are the losers.

Well, we're not getting to tolerate that on this side of the House. I don't think the Australian people want their governments, of any persuasion, to enable or turn a blind eye to these kinds of practices. This is utterly unacceptable, and it's especially unacceptable at a time when the Australian people are facing pressures around cost of living. Inflation has been hurting Australian families and Australian workers. And while inflation is easing, thanks to the fiscal responsibility of the Albanese Labor government as well as the hard work of the Australian people—let's never forget that—I know that many people in my electorate are still finding the cost-of-living pressures very real, very significant, and are still finding day-to day expenses extremely difficult to manage. So, it is only fair that multinational enterprises pay their fair share of tax so that individuals who are feeling those cost-of-living pressures are not put under undue pressure to fill the gaps and to fund the programs we all rely on, so that there is a more equal and fair system, when these multinationals get off scot-free. That is not the Australian way. That is not what Australian people want to see. This bill finally seeks to tackle the problem of corporate tax avoidance head on. I commend this bill to the House. I hope that all 151 members of this House of Representatives will see their way to support this important legislation.

Steve Georganas (Adelaide, Australian Labor Party) Share this | Link to this | Hansard source

This Treasury Laws Amendment (Making Multinationals Pay Their Fair Share—Integrity and Transparency) Bill 2023 is an important piece of legislation that is way overdue. It was a commitment by the Labor opposition in the lead-up to the 2022 election campaign, and this government is committed to ensuring, that multinationals pay their fair share of tax—that people who set up offshore companies where there is not much transparency are brought back into the fold to be on equal terms with other businesses that are doing the right thing and not offshoring assets, setting up accounts overseas and keeping that grey area over transparency. So this bill is a good thing. It's something that's way overdue and something we should be supporting in this House, and we heard the member for Newcastle say that she hopes every 151 members of this House support it. As I said, this legislation will provide a level playing field for Australian businesses and increase transparency.

When I think of the businesses in my electorate of Adelaide, small, medium and large businesses, some are doing it tough, are working extremely hard and have put everything into their business to create a business that creates jobs and assists our economy. These people are doing the right thing, paying their fair share of tax, which goes into our education, our hospitals, our police and a whole range of things. What do you say to those people when there are companies out there who are evading our local tax laws by setting up companies overseas, offshoring their money and having zero transparency? That creates an uneven playing field and it creates uneven competition.

For example, we know that Chevron paid very, very little tax. They're a big multinational company, they've got offices set up all around the world—hard to track et cetera. What do you say to BHP, who have been doing the right thing in terms of paying their fair share? But it is even worse when we look at the current economic climate that exists today here in Australia, because many families are doing it tough. Interest rates have gone up. People are struggling to pay their bills et cetera, and the parliament, both the opposition and the government, are doing all that we can to assist those people. But what do you say to those people who pay their fair share of tax—the nurses, the workers, the policeman, our everyday supermarket workers?

It is a very unfair system when a very small group of people have the ability, through tax agents and through the resources that they have, to avoid paying tax in this nation. Paying tax means, as I said earlier, that we can afford our hospitals, our education, our roads and everything else that we perhaps sometimes take for granted in this nation. And it helps the economy because, when money is spent here in Australia, it spins off into other areas.

As I said at the outset, this was a commitment in 2022 in the run-up to the election, and the Albanese government is ensuring through this legislation that multinationals pay their fair share of tax and that it levels the playing field for Australian businesses, and that it ensures transparency—knowing exactly what the make-up of a particular business is. This legislation will hold companies to account, particularly large corporate groups for their corporate structures and whether they are operating with opaque or atypical tax arrangements. Given the global momentum towards ensuring that firms pay their fair share of tax, it is in the public interest that shareholders also have more information and know that the companies they're investing in are legit and not avoiding tax in the country they're based in or where they live.

Most companies are doing the right thing. We know that. But there are a proportion of multinationals that are not doing the right thing. They're operating under the current rule. That's why we need, in schedule 1, the 'Multinational tax transparency—disclosure of subsidiaries'. This will target Australian public companies, listed and unlisted, to disclose the subsidiaries and where they are located—in other words, if they have offices overseas, where they are and what income they earn, and to monitor and ensure that they are doing the right thing.

This will hold companies to account, particularly those larger corporate groups, requiring them to be more transparent about their corporate structures and whether they are operating under opaque tax arrangements, such as through subsidiaries located in low tax jurisdictions. We know where they all are—the Cayman Islands, the Bahamas and a whole range of places.

This information will support better economic analysis and help inform whether tax laws are operating as intended in collecting the right amount of revenue. It's not a tax grab and it's not the governments wanting to take your money. It's about doing the right thing. It's about ensuring that those companies are paying the correct tax, just like all those companies I mentioned earlier, in my electorate—and in everybody else's electorate—small businesses, medium-sized businesses and large businesses, who work extremely hard. It's a tough gig, running your own business. But it's also about the everyday Australians who earn a salary or small wage. They don't have much to declare on their tax, in terms of expenses, yet these people are paying their taxes. It's an unfair playing field.

Australia has always prided itself on being a fair country, a country of equal opportunity, a country that gives everybody a level playing field. This is not the case with our big corporates and massive multinationals. That's why companies will have to disclose the information I mentioned earlier, as part of their annual financial report, to help reduce compliance burdens. This is in line with international approaches. For example, the UK has a similar measure already in place, as do the EU countries and many others around the world.

The other part of this is the revenue raising measure. It targets known tax planning arrangements by limiting M&E debt deductions and ensuring that they pay their fair share of tax in Australia. This helps level the playing field for Australian businesses. We have to give Australian businesses all the support that we can, and the least we can do is offer them an economic or business climate that is on the same playing field. At the moment, it's not.

This bill was campaigned on and promised by the Labor government, and we intend on delivering it. We want to make sure that it's harder for businesses to be opaque, to ensure that they're paying their taxes, that those taxes go into the revenue that can then be used in Australia's public expenditure, on building roads and hospitals, making sure that our kids and grandkids get an education, and to ensure that we have enough money for the different funds and grants that support small and large businesses. So it's an important measure. It's a measure, as I said from the outset, that I hope every member of this House supports.

We've seen too many stories of massive companies in the media, such as on 60 Minutes. There's always an expose of particular multinationals who pay zero tax yet have estimated earnings in the billions of dollars. What we're saying is that this is not a fair system. Even though it's a small group, they are jeopardising our legitimate businesses, who work hard—even our large businesses. I mentioned BHP earlier, where one of their competitors is paying zero or very little tax in Australia. These are the things that will assist our economy and raise revenue for us, as I said, to spend on those things that we need to spend on.

An earnings based approach to debt deductions will ensure that deductions are directly tied to an entity's economic activity earnings. This is a good approach in the legislation to addressing the tax planning practices of multinationals as well. We've seen many stories in the media in this area where those that can afford the big tax agents or accountants and have lots of resources at their fingerprints can set up this specific bookwork et cetera to get away with it, or to make it so opaque that no-one can actually follow up on it et cetera. Schedule 2 amends Australia's interest limitation capitalisation rules. The amendments alter the exemptions with the existing thin capitalisation rules, and this excludes smaller entities with less than $2 million in debt deductions.

There are a lot of things in this bill, but, as I said, the most important part is that we ensure that they have a level playing field. We owe it to our small businesses and those businesses that are doing the right thing. More importantly, we owe it to everyday Australians who earn minimal wages yet are still expected to pay their tax and have very few deductions. In the majority of cases, these are the people that look after us in hospitals, like nurses; the police that secure us and protect us; and our teachers, who educate our children and grandchildren. I think we owe it to those people to ensure that these big multinationals cannot get away with that. They have an obligation to this nation, just like we all do and just like everyday citizens do, to do the right thing. I think it's abhorrent that in today's world, where we know this is happening, we are letting them get away with it.

I urge everyone to vote for this particular bill because it brings a level playing field. It is the right thing to do. We spend a lot of time in this place doing all sorts of things. We've spent the last 10 or six years with one side denying that anything was wrong with robodebt and the other side pushing it. There's a case where we went after the poorest of the poor in this nation and no-one shrugged a shoulder, yet here are people who are actually ripping off this nation, working people and businesses doing it hard. I find it hard to believe that there may be some opposition to this. It's mind-boggling to think that anyone would oppose this particular bill. As I said, it is the right thing to do. We've got a duty, and we owe it to our constituents and to those Australians that pay their tax in the proper manner. These Australians perhaps have no other choice but to pay, and earn much less than what these multinationals earn, yet we spent six to seven years chasing after the poorest of the poor with robodebt. In this case we shrug our shoulders and think nothing of it. That's why this is important.

This is perhaps a bill that should have been passed in the last 10 years, after the exposes on 60 Minutes and a whole range of things that we've seen on TV and in the media. I did a google before I came in here to have a look at what came up. There is page after page of different exposes on multinational companies that pay zero tax and have no allegiance to any country but themselves, yet we chase after people with a small debt to Centrelink. This is not right. That's why, once again, I urge everyone in this place to ensure that they vote for this bill. It would be unthinkable to not vote for it. We've got a duty to those people that I mentioned earlier.