Carina Garland (Chisholm, Australian Labor Party) Share this | Link to this | Hansard source

I rise today in support of the Treasury Laws Amendment (Making Multinationals Pay Their Fair Share—Integrity and Transparency) Bill 2023. This bill gives effect to the Albanese Labor government's election commitment to crack down on multinational tax avoidance and improve transparency of corporate subsidiaries, and as such has been foreshadowed since it was announced in April 2022. This legislation levels the playing field for Australian business and increases transparency. This important legislation represents a crucial step towards creating a fair and just economic landscape, ensuring that multinational corporations contribute their rightful share to society as well as promoting transparency in tax practices. Given the global push to ensure that corporations pay their fair share of taxes, it is in the public interest for shareholders to have access to more information of this nature.

These measures are based on the 2013 OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting. Over 135 countries and jurisdictions are working together within this inclusive framework to take steps to combat tax avoidance, strengthen the coherence of international tax legislation and promote a more transparent tax environment. With this in mind, it is important to note that the aim of these reforms is to hold companies to account, particularly large corporate groups, with respect to their corporate structures and whether they are operating with opaque or atypical tax arrangements. In recent years we have seen a worrying trend in which many multinational firms have used loopholes and complicated financial arrangements to reduce their tax responsibilities. As a result, they have avoided paying their fair share of taxes, placing the burden of funding important public services, infrastructure and social programs on the rest of society. This must stop.

The amendments in schedule 1 to the bill are intended to improve tax transparency by requiring Australian public companies to disclose information about their subsidiaries in their annual financial reports. These amendments apply to the financial year commencing on 1 July 2023. This will hold firms accountable, particularly large corporations, by compelling them to be more transparent about their corporate structures and whether they are using opaque tax arrangements, such as subsidiaries in low-tax jurisdictions. This data will aid in producing better economic analysis and will help to determine whether tax arrangements are collecting the appropriate amount of revenue. It is helpful to know that stakeholder feedback in August 2022 and April 2023 influenced this measure. It is a measure that is a significant step towards improved tax openness, and it supplements ongoing efforts to develop a beneficial ownership register and public country-by-country reporting, on which the government is continuing to consult with stakeholders.

While schedule 1 is a transparency measure, schedule 2 is a revenue raising measure. It aims to limit multinational entities' debt deductions, ensuring that they pay their fair share of tax in Australia and helping to level the playing field for Australian enterprises. We know that a lack of coherence in international tax rules creates international tax gaps in a global digital economy where large multinational entities aggressively engage in tax avoidance practices. This practice was highlighted by the OECD report titled Addressing base erosion and profit shifting, which resulted in the Base Erosion and Profit Shifting Action Plan. The OECD stated that this plan was a response to the perception that domestic and international rules on the taxation of cross-border profits are broken and that taxes are paid only by the naive. This government is not naive. Australians are not naive. Through this bill, multinational entities will discover that we as a country are not naive.

At a functional level, schedule 2 introduces new thin-capitalisation earnings based tests for the new general class investors. Specifically, this measure will limit an entity's debt related deductions to 30 per cent of profits. This new earnings based test will replace the current safe harbour test. An earnings based approach to debt deductions ensures that deductions are directly tied to an entity's economic activity and earnings. This is a robust approach to addressing the tax planning practices of multinationals. This is an important measure. Because debt is tax deductible, multinationals can adjust their debt levels and use related-party borrowings to minimise the amount of tax they pay.

The increasing occurrence of this tax avoidance practice has resulted in international efforts, as highlighted earlier by the work of the OECD, to address tax integrity risks and directly limit debt-related deductions for multinational entities. It's worth noting that jurisdictions such as the United Kingdom, the United States and most of the European Union have already implemented earning-based interest-limitation rules. The proposed thin capitalisation amendments will bring Australia in line with these jurisdictions and ensure that we are not the final frontier when it comes to multinational entities and tax avoidance.

I also acknowledge there has been some criticism of the speed of these changes. It is important to remember, and for me to reiterate here, that these amendments were first announced in April 2022 as part of Labor's election commitment platform. They have since been subject to extensive stakeholder consultation, and the final legislative approach reflects this stakeholder feedback to accommodate genuine arrangements as much as possible, noting that this is a tax integrity measure. Additionally, we know—and it should come as no surprise to both the House and the majority of hardworking, taxpaying Australians—that postponing these changes would present a revenue and tax avoidance risk by allowing taxpayers—in this case multinational entities—to artificially restructure their arrangements to avoid the new rules and gain a tax benefit.

I said earlier that we as a government are not naive, and the speed of these changes taking effect following extensive and considered consultation speaks to this fact. This bill is an overdue response to the growing concern over income inequality and the erosion of public trust in the fairness of our tax system. The current state of affairs is not only inequitable but also undermines the trust and confidence citizens have in their government and the corporate sector. We have got to do more on multinational taxation. We have two-fifths of multinational profits currently sitting in tax havens. We have 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. With this in mind, I found it truly remarkable that those on the other side of the House issued media releases criticising this government for wanting to do more on multinational taxation.

In Victoria, my home state, 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 cleanup obligations. Some nine million tires were sitting at the dump, and the attempt of the owners to shift ownership off to Panama for a tax haven was all designed to avoid their liabilities. It is this sort of problem that Labor—the government—wants to address. Over nearly a decade in government, those opposite tinkered around the edges making the odd tweak here and there, but throughout their time in government they clearly showed which side they were on—and it was not on the side of Australians but on the side of rogue multinational tax dodgers.

The profit of multinational profit shifting is a massive one. Globally, around $600 billion of profits are estimated to be shifted to tax havens. That's almost 40 per cent of multinational profits. However, the first thing the coalition did when they came into government was hollow out the tax office, sucking out almost 5,000 staff. Two years into government, they realised how much that was costing them and so they set up a taskforce to plug the hole—the very hole that they created. It was before the federal election last year when those opposite told Australians not to support anyone that proposed to raise taxes on multinational tax dodging. That is pretty outrageous and makes us really question what side the Liberal coalition are on.

Labor takes the view—our government takes the view—that the international group that came together in 2021—more than 100 countries—to strike a deal on global taxation has made a step in the right direction. As someone standing on the government side of the House, I'm pleased to say that we are now working to see those measures implemented. Those opposite 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 certainly don't have an army of lawyers and accountants who are looking to find the arbitrary to cross the international tax system to exploit it and seek out every loophole possible. On the contrary, new start-up businesses in Australia are working hard, putting in long hours and doing their absolute best to manage cash flow, balance the books and launch a new business. However, as it stands right now, they face the potential of being cheated by multinational entities and tax dodgers who are using tax havens in favourable jurisdictions. We clearly have to do more to level the playing field and support those Australian businesses. I'm really pleased that our government is doing just that. Let there be no mistake: Labor is closing these loopholes that will improve the integrity, transparency and credibility of our tax system.

It's important to highlight that a feature of the bill includes provisions to strengthen the enforcement of tax laws and increase penalties for non-compliance. By doing this, we create a strong deterrent against tax avoidance and evasion, ensuring that all companies, regardless of their size or influence, play by the rules and pay their fair share. A transparent and fair tax system can enhance our nation's credibility and attractiveness to foreign investors, providing stability, predictability and a level playing field for business. It's essential to understand that this legislation is not about punishing successful businesses but rather about building a more just and equitable society. When multinational entities pay their fair share of taxes, we can fund better education systems, health care, infrastructure and social safety nets for our citizens, promoting economic and social development for all Australians. When multinationals don't pay their fair share, individuals and families—all of our communities—suffer the most. Over the years, we have seen things like the Panama papers, the Lux leaks and the Paradise papers reveal that the deliberate, sophisticated tactics global companies have been using to shift profits around the world to pay less tax have been bad for the world.

In closing, I want to mention the words of the always inspiration US President Barack Obama:

We shouldn't make it legal to engage in transactions just to avoid taxes …

He went on to say that there is:

… the basic principle of making sure everyone pays their fair share.

This basic principle is the essence of what makes the Labor government a Labor government—fairness and making sure that we're able to build a better future where no-one's left behind. I am proud that we, as a Labor government, are playing our part in this important issue. I commend the bill to the House.

Andrew Leigh (Fenner, Australian Labor Party, Assistant Minister for Competition, Charities and Treasury) Share this | Link to this | Hansard source

Firstly, I want to thank those members who've contributed to this debate. The Australian government went to the 2022 election with commitments to tighten tax integrity and to play a meaningful part in driving international tax reforms. We made that commitment more than one year ago, and the time lines we set were to allow for meaningful consultation with affected stakeholders. That consultation has indeed taken place.

Through the exposure draft, Treasury has conducted 10 meetings with interested stakeholders, ranging from peak groups to individual firms. Since the bill was introduced, Treasury has carried out seven more consultation meetings, again, with a range of peak groups and investors. The exposure draft received 54 written submissions, and those submissions that asked to be made public have been published on the Treasury website.

More than a year on from the election, I stand here to speak in favour of a government that seeks to implement its election commitment. The measures we brought to parliament have benefited from the guidance and input of industry and civil society, but we bring these amendments to the parliament with a clear eye to the main game. For too long, multinational profit shifting has left a hole in our corporate tax revenue. For too long, artificial debt deduction mechanisms have been used and misused to allow revenue to drain away to low- or no-tax jurisdictions. When that happens, households and businesses pay more, and that's why this bill the government brings to the House is a pro-business measure.

As the member for Chisholm so articulately put it, this is about creating a level playing field across all Australian businesses. If you are a local small business just trying to make payroll, you're not thinking about how you're going to restructure your arrangements to set up a high-interest loan coming out of the Caymans so you can reduce your tax bill. If you're a regular mum-and-dad business just trying to get by, what you ask is to be placed on a level playing field with other firms. Multinational tax is complicated, but the very principles at stake in this bill are simple: do we want multinationals to pay their fair share, or do we want to allow the status quo to continue?

We have given industry over a year to prepare for these changes. The consultations have helped ensure our integrity measures are properly targeted to tighten loopholes that can be used to allow the strategic erosion of our tax base. We don't want to affect legitimate commercial arrangements. Our commitment is to shift the norms, not maintain the status quo, and that reflects the consensus embodied in the OECD/G20 process. That inclusive framework on base erosion and profit shifting has seen over 140 countries and jurisdictions collaborate on the implementation of measures to tackle tax avoidance to improve the coherence of international tax rules and to ensure a more transparent tax environment. It brings an end to the notion that we should just allow a race to the bottom in corporate taxation, with a global 15 per cent minimum floor on corporate taxation.

The commitments in this bill work in the spirit of the OECD/G20 reforms. We took them to the last election. They were confirmed in the October budget. They sit alongside our commitment to introduce a public country-by-country reporting register and to limit the deductions multinationals can make on payments relating to intangible assets when those payments are made to low-tax jurisdictions. They interact with other transparency reforms taking place in the EU and with like-minded countries such as Canada and the United Kingdom. We are committed to working with like-minded international partners in order to close multinational tax loopholes, in order to improve transparency, in order to implement the global minimum tax that was at the heart of the OECD/G20 arrangement. There is now a growing number of jurisdictions committed to implementing a global minimum tax from 2024, and these measures are designed to complement those key multinational tax reforms. Australia has championed the global 15 per cent minimum tax. We have committed to have that and the domestic minimum tax apply from 1 January 2024. We are delivering on our promise to make multinationals pay their fair share. We are doing it methodically and responsibly.

Schedule 1 of this bill is a transparency measure. It applies from 1 July 2023 and requires Australian public companies, listed and unlisted, to disclose information about their subsidiaries in their annual financial reports. Schedule 1 to the bill is part of the government's broader regulatory mix to improve corporate disclosures, ensuring that appropriate public scrutiny can be brought to bear to build trust in the integrity of the tax system. If you have significant assets hiding in the Caymans or the Bahamas or another tax haven, then it is only reasonable that your investors know about that and the potential tax risk that might pose. So we are asking public companies to make that information available to investors so investors can make an informed choice as they look across firms that are domiciled in tax havens and those that are not.

Schedule 2 to the bill amends Australia's thin capitalisation rules to limit the amount of debt that entities can deduct for tax purposes. The amendments introduce earnings based interest-limitation rules for general class investors to replace the existing asset base rules. Specifically, the current safe harbour rule lets an entity deduct debt up to a threshold of 60 per cent of assets. Under the new rule, that threshold will become 30 per cent of profits. That ensures that an entity's debt deductions are directly linked to its economic activity, to its earnings, which is a more robust approach to addressing the use of debt as a base-erosion and profit-shifting risk. This amendment is consistent with the OECD's best practice framework rules.

The amendments in schedule 2 also introduce the third-party debt test to replace the existing arm's-length debt test. While this test excludes related party debt—a higher base-erosion and profit-shifting risk activity—from being deductible for tax purposes, it's expected to be used by the property and infrastructure sectors to ensure genuine commercial arrangements can deduct third-party arm's-length debt without an earnings limitation. These amendments together implement the government's multinational tax election commitments, helping to ensure a fairer and more sustainable tax system.

In closing, I want to draw the House's attention to an amendment moved by the member for Wentworth. I have strong respect for the member for Wentworth and admire her keen interest in tax. There aren't many tax nerds in the parliament, and it's always good to see another member of that fraternity. Her interest in tax reform is admirable, and I understand that it comes from a desire to achieve a good outcome. But I have to say that the effect of the member for Wentworth's amendment would be to do the opposite. It would cost the budget millions of dollars by keeping open a multinational tax loophole, which would then have to be paid by small businesses and households—millions of dollars which would not be available to spend on services, such as health and education, and which would be flowing to the shareholders of multinational firms that have chosen to use artificial debt arrangements.

The member for Wentworth's speech referred to consultation, but, as I have taken the House through, there has been extensive consultation on this bill. The consultation on this bill has taken place through the ministers' offices and directly through the department. We have seen an exposure draft process, as is usual for this kind of reform. We have engaged extensively with industry, with civil society and with tax experts in crafting this bill. But we are committed to closing a multinational tax loophole. We are committed to a level playing field.

I do welcome the opposition's announcement that they will not be supporting the member for Wentworth's announcement. I welcome the announcement from the Liberal and National parties that they will be voting with the Labor Party to close this multinational tax loophole. It's the right thing to do. We must ensure that the misuse of debt arrangements does not gut corporate tax revenues in Australia. We must ensure that we stand up against the trends that have seen: globally, too many dollars of multinational tax profits channelled through no- or low-tax jurisdictions. We must stand up against the complicated corporate structures, the debt artifices, which see profits on which tax should be paid in Australia being siphoned offshore.

Every multinational tax expert acknowledges the importance of debt deductions and their abuse and the way in which that is forming a challenge to the multinational tax system. If we don't close down these loopholes, they will continue to cost the Australian taxpayer. It will be the constituents that sent us here who will have to pay higher taxes if multinational firms get away with these artificial debt contrivances. It'll be these local firms that are doing it tough and working long hours, who never have a thought of doing business in the Caymans, who will end up paying more if we leave these multinational tax loopholes open. It'll be Australia's services that suffer if we don't get the corporate tax revenues that will flow from closing multinational tax loopholes.

Closing multinational tax loopholes is not easy—and I want to commend the work the officials have done in engaging with a range of stakeholders, domestic and international, to put this package together—but tax reform needs to be done. The world is looking at the issue of multinational tax avoidance as a major challenge to the corporate tax base. If we don't do something about it, corporate tax itself could one day come under threat. So, we've done this. We've consulted with industry, we've consulted with stakeholders, and we've brought forward these important reforms today. I urge the House to support the bill but not to support the amendments that are being brought to it. I commend the bill to the House.

Milton Dick (Speaker) Share this | Link to this | Hansard source

The question is that the amendment moved by the honourable member for Hume be agreed to.