Monday, 27 March 2017
Treasury Laws Amendment (Combating Multinational Tax Avoidance) Bill 2017, Diverted Profits Tax Bill 2017; Second Reading
Labor will be supporting the Treasury Laws Amendment (Combating Multinational Tax Avoidance) Bill 2017 and the Diverted Profits Tax Bill 2017. The treasury laws amendment bill has three schedules. Schedule 1 implements the diverted profits tax. Schedule 2 increases the administrative penalties that the Commissioner of Taxation can apply to large multinationals to encourage them to better comply with their taxation obligations. This includes lodging tax documents on time and taking reasonable care when making statements. Schedule 3 updates a provision in the transfer pricing rules in Australia's tax law to incorporate recent changes to transfer pricing rules by the OECD.
The diverted profits tax in this bill reflects the second limb of the diverted profits tax that has been introduced in the United Kingdom. It aims to give the Commissioner of Taxation additional powers to ensure that tax paid by large multinationals reflects the economic substance of their activities, and it aims to do so by changing the payment and appeal processes that the commissioner can use in these situations. It also allows the commissioner greater latitude to act on limited information. The DPT may apply when the ATO believes the entity is transferring profits to a 'related entity' in a tax jurisdiction with an applicable tax rate below 24 per cent. Where the commissioner makes a DPT assessment, the taxpayer will have 21 days to pay the amount set out in the DPT assessment.
Following the issue of the notice of a DPT assessment, the taxpayer will be able to provide the commissioner with further information disclosing reasons why the DPT assessment should be reduced in part or in full during the period of review, generally 12 months after notice is given of the DPT assessment. If, at the end of that period of review, the relevant taxpayer is dissatisfied with the DPT assessment, or the amended DPT assessment, the taxpayer will have 60 days to challenge the assessment by making an appeal to the Federal Court of Australia. However, the taxpayer will generally be restricted to adducing evidence that was provided to the commissioner before the end of the period of review. By changing the payment and appeal processes in these situations and supporting the commissioner to act on limited information, the DPT is intended to encourage taxpayers to be more transparent and cooperative with the commissioner, hopefully leading to an agreed outcome during the 12-month review period. However, if an outcome cannot be reached within the 12-month review period then a penalty tax will apply on the amount of the diverted profit at a rate of 40 per cent. The combination of the up-front payment and the greater disclosure is intended to both speed up the resolution of disputes and capture taxable income that would otherwise have been diverted.
Schedule 2 to this bill allows the Commissioner of Taxation to apply greater administrative penalties to large multinationals. This increases the penalties that the commissioner can apply to multinationals who fail to meet obligations like lodging tax documents on time and taking reasonable care when making statements. This includes increasing the amount of the administrative penalty that applies when significant global entities do not lodge a return, notice, statement or other approved form with the commissioner on time. It also includes doubling penalties relating to statements and failing to give documents necessary to determine tax-related liabilities. We are supportive of these measures. However, I note that Labor has already acted on increasing penalties for non-compliant reporting by multinationals. It was back in February 2016 that the shadow Assistant Treasurer introduced a private member's bill designed to raise penalties for large multinationals who were not compliant with their country-by-country reporting obligations.
Schedule 3 to this bill amends a line of the Income Tax Assessment Act 1997 to update the provision that incorporates the OECD's transfer pricing guidelines. This will allow Australia's transfer pricing rules to incorporate the latest OECD guidelines. Excessive transfer pricing is when multinational firms shift their profits to low-tax jurisdictions by setting unrealistic prices for their actual commercial or financial dealings with their related parties. Australia's transfer pricing rules require an entity entering into a cross-border transaction to value that transaction according to the arms-length conditions and arms-length profits that might be expected to exist between independent entities that deal wholly independently with one another in comparable circumstances. The recent updates to the OECD's transfer pricing guidelines come out of the OECD's base erosion and profit shifting process. The updates are designed to better address issues surrounding intellectual property and hard-to-value intangibles.
In his speech to this bill in the other place, the Treasurer proclaimed:
This government will not stand for tax avoidance. We will not stand for the deliberate flaunting of our tax laws by major multinational enterprises.
The Treasurer has also said elsewhere:
The Labor Party, when they were in government, did absolutely diddly-squat when it came to the issue of making multinationals pay their fair share of tax.
These statements should be tested against the record of those opposite. The last major updates to strengthen transfer pricing rules were back in 2013, and they were introduced by the then Labor government. They went far further and did far more than the worthy but small amendment to the transfer pricing laws in schedule 3 to this legislation. We also passed legislation to strengthen the income tax law's general anti-avoidance provision in part IVA. Part IVA is the part of our income tax law that allows the commissioner to counteract tax schemes that are blatant, artificial and contrived. It allows the commissioner to act where schemes were entered into or carried out with a purpose of obtaining a tax benefit. Gaps had been identified in this provision. In government, we did the hard work on legislation to strengthen this provision and to close those gaps. We passed that legislation back in 2013.
It says it all that legislation to strengthen our transfer pricing rules and to strengthen our anti-avoidance laws were opposed by those opposite. When that bill came before parliament in 2013, Senator Sinodinos said:
We need less regulation, not more regulation. For that, among other reasons, we will be opposing this bill.
Senator Cormann said:
Let me just say up-front that the coalition will be opposing this bill, and we will be opposing it strongly, because we think it is not in our national interest. It is a bill that is undermining our national interest.
He later dismissed that bill as an 'overreaction'. For all of this government's rhetoric about making multinationals pay their fair share, back in 2013 they voted to oppose strengthening Australia's transfer pricing rules, and they voted against strengthening the general anti-avoidance rule. Those opposite voted in favour of tax loopholes and in favour of large multinationals dodging their tax obligations.
It is also worth remembering that the previous Labor government introduced tax transparency laws to require the public reporting of the tax paid by corporate tax entities with over $100 million in income. This was a great reform to bring some sunlight on to the tax that corporate tax entities pay and to better inform public debate.
Those laws were also opposed by those opposite. Then, when they got into government, they watered down those laws, with the help of the Greens, in what the government euphemistically called 'better targeting'. That deal has meant that tax transparency applies to large public firms with incomes over $100 million but only applies to private firms with incomes over $200 million.
As with many other things, multinational tax avoidance is an issue on which this government has been dragged to and forced to act by community outrage. Their record on corporate tax avoidance is similar to their record on the Future of Financial Advice reforms—a landmark achievement of the previous Labor government. Nowadays, they pretend that they are serious about consumer protections in this area, because they know that is what the Australian people expect. However, it was only a few years ago that they were voting against FOFA. Then, when they got into government, they set about trying to water down FOFA. Labor had to fight tooth and nail to stop them.
Over the last few years, Labor has done much to campaign on the issue of corporate tax avoidance. This includes the good work done through the Senate Economics References Committee's inquiry into corporate tax avoidance. That committee noted in its report:
Aggressive tax minimisation and avoidance can have a number of direct and indirect consequences for the broader economy and social fabric. Some submissions reflected growing concerns that tax avoidance causes serious harm, often to the most vulnerable groups in society, as unrealised corporate tax revenue denies governments revenue for essential public services, such as healthcare, education, effective law enforcement, aged care and roads.
The work of the committee tied in with the memorable declaration of the Commissioner of Taxation at Senate estimates early last year, when he said:
These companies have pushed the envelope on reasonableness. They play games. They string us along. They believe we can be stooged. However, enough is enough and no more of this. We will be reasonable with those that genuinely cooperate, but we will now take a much harder stance on those who do not.
Australians understand that taxes pay for our schools, for Medicare, for our hospitals, and for the public services that we use every day. They know that tax avoidance by large multinationals places an unfair burden on those who do pay tax. It places an unfair competitive disadvantage on those doing the right thing.
We know that there are some multinationals who rejoice in finding loopholes to exploit. We can only hope, for the sake of hardworking Australians, that this diverted profits tax will have a meaningful effect on tax avoidance. We support the intent of the legislation before the Senate. However, if you want to know the true priorities of this government, you should look at the numbers. This diverted profits tax was announced in the 2016 budget, and, although we do not have the 10-year figures, we know that over the forward estimates it is forecast to raise $200 million. We know that this diverted profits tax was part of a desperate attempt to distract from the government's $50 billion tax cut to large companies and big banks that was announced in the same budget. We know that those opposite are desperate to hide that tax cut behind a phoney war on tax avoidance. Those opposite are trying to pretend that they are serious about reducing multinational profit shifting.
The difference between us and those opposite could not be starker. With votes against closing tax loopholes, votes against tax transparency and now an unfunded $50 billion company tax cut, those opposite have a record that suggests they are not serious on this issue. By contrast, Labor went to the 2016 election with a plan to close debt deduction loopholes exploited by multinational companies. We will stand on our record—a record of closing tax loopholes used by multinationals, a record of greater tax transparency and a record of looking out for the interests of the Australian people as a whole.