Katy Gallagher (ACT, Australian Labor Party) Share this | Link to this | Hansard source

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.

Peter Whish-Wilson (Tasmania, Australian Greens) Share this | Link to this | Hansard source

I think one thing we all agree on here in the Senate is that everybody should pay tax. We probably also agree that everybody should pay their fair share of tax. However, I understand there will be some subjective disagreements on what that fair share is. I can guarantee one thing we also agree on is that for some people to pay no tax is totally unacceptable, and for corporations to pay no tax is totally unacceptable.

The combating multinational tax avoidance issue has been before us now for the last three years. We have had a series of legislation that we have scrutinised and voted on. A number of us have sat on the committees that have taken evidence in relation to these bills.

I want to step back a little bit further, before I talk to those specific pieces of legislation and the legislation in front of us today, and thank the stakeholders. Going back to 2012-13, stakeholders came and visited, I think, just about each and every one of us in our offices. I am talking about stakeholders such as Micah Challenge, and the various community groups who sat down with each senator and their staffers and said, 'This issue of multinational tax avoidance is a very serious one. Why is it that the government is not acting on chasing some of the biggest and wealthiest corporations in the world to make sure they pay their fair share of tax?'

The Tax Justice Network is one example of a volunteer, not-for-profit network of community groups, mostly church groups, who have spent years coordinating across the globe to provide information to senators, members of parliament and officials within government departments to make sure that we are well informed on the serious issue of tax avoidance—not just by multinationals, by wealthy individuals, by private companies and by public companies, including small companies. This is an issue that we face every day. I want to thank on the record all those people who have come up to Parliament, and recognise and reflect on the fact that sometimes democracy works really well. We listened, as did the fantastic journalists in this country, who have also been very dogged in their pursuit of getting tax justice more broadly for stakeholders, and in fact for all Australian taxpayers who pay their fair share of tax and for all citizens who vote in this country. This is an international effort. This is not just Australia acting unilaterally. This is part of the G20. It is part of much broader discussions about how, between countries, we can combat tax avoidance by megacorporations.

In the 2015-16 budget, the government introduced a package of three key reforms to combat multinational tax avoidance. The first bill was called MAAL, the multinational anti-avoidance law. It sought to stop multinationals with significant Australian activities booking profits overseas to avoid paying tax in Australia. There was a doubling of penalties for large companies that enter into tax avoidance or profit shifting schemes and there was country by country reporting, which required large multinationals, of over $1 billion in capitalisation, to report to the Australian Taxation Office their income received and tax paid in every country where they operate. The underlying principles of these measures—transparency and information—allow us to make decisions about who is and is not paying their fair share of tax. It is quite remarkable that in this day and age there is very little information sharing between countries and that there are very lax reporting standards, even within countries such as Australia.

I remember very well when that package came to parliament. We had previously had a bill—it was originally a Labor bill—for tax transparency, for both public and private companies over $100 million to disclose basic metrics about their tax affairs. I remember that bill very well, because I was sitting in the chair when the bill came to the Senate. The speaking list collapsed and the bill was voted down unopposed. I spoke to my party room about this issue, because it was obviously extremely important to stakeholders. When the MAAL bill came to the Senate, I put up as a cheeky amendment the previous bill on tax transparency. What transpired was a significant debate in this place. In the end, to get the bill through before the Christmas break, which was essential, because that was when the reporting was due to start—

Sam Dastyari (NSW, Australian Labor Party) Share this | Link to this | Hansard source

You really want to go there?

Peter Whish-Wilson (Tasmania, Australian Greens) Share this | Link to this | Hansard source

Had that reporting not started then, we would have had to wait another 15 months to get transparency. The Greens managed to secure transparency for public companies of over $100 million in value and private companies of over $200 million. Would we have liked to have seen more companies thrown into the net? Yes, we would, but in the end we chose to get this essential reform through parliament. It was a pragmatic, important decision that has delivered us important first steps forward—albeit maybe baby steps. I do remember very well, Senator Dastyari, through you, Chair, that fantastic billboard you put up all around Sydney, saying that the Greens had voted down multinational tax transparency. There they were, Labor lies up on billboards for everyone to see. We hold no bitterness over that, because we are achieving something in parliament for the people who put us here. We are taking on the big end of town. We are making sure that they pay their tax that goes to school hospitals, to schools, to policing and to our social security net. If it is fair enough for us to be paying our fair share of tax and that that is enforced, then so should it be for big, wealthy corporations, who for too long have got away with simple things such as profit shifting, which brings me to the content of the bill today.

Schedule 1 of the Treasury Laws Amendment (Combating Multinational Tax Avoidance) Bill 2017 seeks to amend the Income Tax Assessment Act 1936, the Taxation Administration Act 1953 and associated acts to introduce a new diverted profits tax, or DPT, from 1 July 2017. If the diverted profit tax applies, the Diverted Profits Tax Bill 2017 would impose tax on the amount of the diverted profit at the rate of 40 per cent. What do we mean by diverted profit? A diverted profit occurs where I as a company earn a profit and report it in a country other than my home country of Australia. Why would I do that? It is quite simple. In countries like Singapore the corporate tax rate is 15 per cent. We discovered in our Senate inquiry that some companies who, for example, were selling commodities like iron ore were saying, 'We're selling the iron ore at, let's say, $150 a tonne. We'll attribute $15 a tonne to the production of it in Australia. The other $135 of value comes from our trading arm in Singapore. Therefore, we'll divert our profits to be taxed at the lower rate in Singapore,' which means we in Australia miss out. That is what 'diverted profit' means, and this bill is designed to stop that. The bill is designed to crack down on entities that try and do that. The report of The Senate Economics Legislation Committee inquiry into the bill states that the primary objectives of the diverted profits tax are:

Let us be honest: unfortunately, a lot of these contrived arrangements have actually been legal. They are not ethical and they are certainly not moral, and they put a burden on low income Australians, especially, who have to pay their tax. But all these wealthy corporations have got away with it because our system is set up to allow them to avoid paying tax. This is trying to crack down on that. The last objective is:

The report continues:

The DPT targets multinationals entering into arrangements with offshore related parties that lack economic substance, in order to divert their Australian profits to lower tax countries and avoid paying Australian tax.

This is not the same necessarily as we saw with the Panama papers, where individuals and companies were using a shadowy, murky set of tax arrangements across different companies set up in tax havens where there is no transparency. These are actually some very well known companies: we heard evidence about Apple, Microsoft and other technology companies that were not paying any tax in our country at all through their overseas arrangements. Ireland has been down this road and so has England, with what is called a Google tax, to try and crack down on this kind of thing. In fact, this legislation is very similar to that. The diverted profit tax:

… will apply to large multinationals considered to be significant global entities with annual global income of $1 billion—

one billion Australian dollars—

or more with total assessable income, exempt income and non-assessable non-exempt income—

try and say that one really quickly—

of more than $25 million with schemes that involve associated entities that do not have the economic substance to justify their income.

We will be supporting this legislation, but I will be putting up an amendment in the Committee of the Whole. At the moment, the bill gives the tax commissioner discretion to pursue, aggressively or otherwise, companies that are diverting 20 per cent or more of their tax. So what happens if a company is caught red-handed, let's say through an audit, of diverting 15 per cent of its tax? If that tax is in the hundreds of millions or billions of dollars, it is a lot of money we have to make up for by going after Australians to pay their tax or raising revenue through other measures. So the Greens would like to lower that threshold to 10 per cent and give the commissioner discretion to go after multinational corporations at a level of 10 per cent rather than 20 per cent. That allows us to capture more diverted profits in taxation. I think it is a more sensible and aggressive approach.

I am not exactly sure why 20 per cent was chosen as a benchmark by the government. I know there are always costs and benefits of going after multinational corporations. Sadly, as we found out in our committee, when the tax office takes on the big end of town the legal cases can go on for a decade. In fact, some are still going on after five or six years and these corporations still have not paid any tax. I understand that the ATO has to commit taxpayer funds in the first place to pursue some of these companies and perhaps they look at it on a risk-weighted basis, as in, it is not worth going after companies with less than 20 per cent, but, I would like to hear that justification from the Treasurer or from Senator Cormann on behalf of the Treasurer. This is not a second reading amendment. The Greens will be putting up an amendment in the Committee of the Whole.

I have still got a few minutes to go, but I will not take up any more of the Senate's time. We have a lot of legislation to go. I am proud to be a part of the Senate that worked with the government and with Labor and with the crossbenchers to introduce a second substantial set of legislation that actually takes on multinational tax avoidance. There is still a lot more we can do. There are other countries looking at what we are doing here in Australia. Some are even criticising us for doing this without a global agreement, so I do commend the government for getting on with this. I know Labor has some track record going back over the years with tackling this issue.

I have already thanked the stakeholders who brought this to our attention. Lastly, I would like to thank one of my predecessors, a former senator, Christine Milne, who used to sit in this chair here, who led the party room after the resignation of Bob Brown. It was Christine who introduced and got up the first Senate inquiry into multinational tax avoidance on behalf of the community groups that came to see them. Senator Ketter, Senator Dastyari and others in this chamber were all a part of that inquiry. It has put pressure on the government. The Senate has done its job by scrutinising this issue and putting pressure on the government to deliver this legislation. We need to keep that pressure up, because we still have a long way to go and there are still a large number of measures. In fact, the Greens put up nearly 22 extra measures at the last election on what we can do to tackle multinational tax avoidance. We have still got a long way to go, but this is a great step forward. I look forward to speaking to my amendment in Committee of the Whole.

Chris Ketter (Queensland, Australian Labor Party) Share this | Link to this | Hansard source

I rise today to speak to the Treasury Laws Amendment (Combating Multinational Tax Avoidance) Bill 2017 and Diverted Profits Tax Bill 2017. Following on from Senator Whish-Wilson's comments, I want to make a reference to the fact that it was the Senate Economics References Committee which looked very closely at this whole issue of multinational tax avoidance. It provided a report back in August 2015. You cannot tax what you cannot see was part 1 of the reports into corporate tax avoidance. It identified a number of these issues.

Senator Whish-Wilson touched on the fact that, during the course of those hearings, particularly in Sydney—very memorable hearings under the able chairmanship of Senator Dastyari, who is now present in the chamber—we heard extraordinary testimonies from some of the multinational companies in relation to their audacious tax planning arrangements. They were very unrepentant at the time about what they were doing in Australia and in other countries to avoid tax altogether.

I also want to, as I have on previous occasions, reflect the fact that the Greens did play a part and former Senator Milne was very much a part of the setting up of that inquiry, which I think has done some very useful work. But, if this government was serious about getting tough on multinationals, they would do something about the one in three companies that pay no tax. We know that the 2014-15 tax transparency data shows that more than one in three large firms pay no tax, including 109 companies that paid no tax despite reporting more than $1 billion in total income.

Transparency is so important. The report covers 1,904 companies in total, but it is only available because of the former Labor government's tax transparency laws, which were passed in 2013, to the objection of the coalition. I will also, in passing, mention that, unfortunately, the coalition and Greens combined to water down those tax transparency laws, taking two-thirds of private companies out of the reporting net.

It is no surprise that the government is trying to put through this corporate tax integrity scheme in the same week that it is arguing for a $50 billion tax handout to big banks and multinationals. A diverted profits tax is estimated to raise just $200 million over the forward estimates, when Labor's 2016 election multinational tax package would have delivered $1.6 billion over the forward estimates. This alone tells you which of the major parties is serious when it comes to improving the integrity of Australia's corporate tax framework.

The Labor Party will vote for these bills, but they clearly do not go far enough. Labor believes that these bills do not justify the passage of the government's enterprise tax plan. Like other Labor senators, I want to remind the Senate that the issue of multinational tax avoidance has a chequered history during the coalition's time in government. In the additional comments on the economics committee's final report, we drew attention to the government's inconsistency. As I mentioned, the government watered down the tax transparency measures following that. Subsequent efforts by the Abbott-Turnbull governments to address multinational tax avoidance have been patchy and belated, lagging behind the expectations of the Australian community that multinational companies pay their fair share of tax and behind measures announced by the Labor opposition.

Schedule 1 of the bill, which relates to the diverted profits tax, is a welcome start to the coalition's late arrival to action on this topic. Labor will work with the government wherever possible to deter profit shifting and to improve transparency and information sharing with the Australian tax office. The structure of the diverted profits tax is strangely similar to the UK conservative government's diverted profits tax, which goes to show that despite the Treasurer's claims of the government being world leading the Turnbull government is actually behind the times.

Schedule 2, which increases administrative penalties for those companies who do not comply, is also welcome. But, again, a government behind the times is simply following on the shadow Assistant Treasurer's private members bill introduced in February 2016, which would have raised penalties for noncompliant reporting in country-by-country reporting by fiftyfold. The government has essentially implemented Labor policy, albeit rising to a hundredfold.

Schedule 3 updates Australia's rules on transfer pricing to bring it into line with the OECD transfer-pricing guidelines that were approved by the OECD Council in May 2016. These amendments are welcome and we must do everything we can to ensure that intra-party transfers reflect the proper economic value of these transactions. As I mentioned previously, the economics references committee heard on many occasions that cleaning up these rules for transfer pricing, particularly through international consensus, is vital.

It is clear that some multinationals will go to extreme, even absurd, lengths to conceal their tax minimisation practices. The audacity of certain multinationals in refusing to comply with legitimate and reasonable requests for information leaves me with reason to suspect that the current framework for tackling multinational tax avoidance needs significant improvement. The unwillingness of many multinationals to discuss openly their tax arrangements underscores the need to establish mechanisms to increase transparency. Perhaps the most reckless part of the government's inability to combat multinational tax avoidance is their false attempts at true reform. The difference between Labor and Liberal could not be starker: we will put people first. The 2016 budget has shown Mr Turnbull and the Liberal Party will look after high-income earners and multinationals.

The government have seriously mismanaged the budget. The recent mid-year budget update has confirmed the Prime Minister's and the Treasurer's economic plan is in tatters, leaving Australia's gold-plated AAA credit rating at real risk. The figures confirm that debt and deficits are continuing to blow out at the same time as the economy is shrinking and full-time jobs are disappearing. Net debt has blown out to an estimated $317 billion since the Liberals took office, up from $184 billion when they took office. Deficits over the forward estimates have blown out by another $10 billion. Since their first budget, the budget deficit for 2017-18 has blown out tenfold, from $2.8 billion to $28.7 billion. The projected surplus in 2020-21 has shrunk and is now wafer thin, leaving us in the danger zone when it comes to our AAA credit rating.

While this legislation is a welcome change, the Prime Minister and the Treasurer must rule out making harsh cuts to pensioners and vulnerable Australians in the 2017 budget, as flagged by Mr Tony Shepherd and the Menzies Research Centre today. Australians simply do not want a repeat of the horror 2014 budget; they do not want to see harsh cuts to pensioners, families and people with disability. Mr Tony Shepherd is the author of the Commission of Audit report that provided the blueprint for the disastrous 2014 budget. Labor will not forget that the Commission of Audit recommended abolishing family tax benefit part B, increasing the pension age to 70 and cutting pension indexation. The truth is that Australia's pension system is well-targeted and sustainable compared to many other developed countries. Figures from the OECD show that Australia spends a relatively small proportion of our GDP on payments to the elderly. Public spending on old age pensions across the OECD averaged 7.9 per cent of GDP. Australia spends just 3.5 per cent of GDP on old age pensions, making it one of the lowest spenders on pensions in the developed world. Australian pensioners have worked hard all their lives; they deserve a decent standard of living in retirement. They certainly do not deserve to be treated like a burden by Prime Minister and his mates at the big end of town.

Mr Turnbull and the Liberals just do not get the issue of fairness. They will always put the interests of big business ahead of pensioners and ordinary Australians. Nevertheless, Labor will support these bills; however, there is still more work to be done. People can look at Labor's 2016 election platform to see the kinds of sensible reforms on gearing ratios and transparency in reporting that can give Australians the confidence that corporations are making their proper public contribution to our society. (Quorum formed)

Malcolm Roberts (Queensland, Pauline Hanson's One Nation Party) Share this | Link to this | Hansard source

As a servant to the people of Queensland and Australia, I want to address some fundamental issues in tax collection. This legislation seeks to put in place a diverted profits tax, a punitive measure against companies that seek to avoid their fiscal obligations to the Australian people, to be levied on international companies—multinationals—at a rate of 40 per cent. Whilst a valuable symbolic measure, this tax is really just a gesture and is unlikely to raise much of a sweat in the boardrooms of foreign tax dodgers. Tax avoidance by multinational companies is a massive cost to our nation's finances, worth many hundreds of billions of dollars. It is an issue which Pauline Hanson's One Nation party intends to address. In fact, we have raised it many times.

The International Tax Agreements Act 1953—introduced by Sir Robert Menzies, the then Prime Minister—is one of the offending pieces of legislation by which Australia has been swindled out of its taxation revenue. This and related legislation provides for double taxation agreements with other countries. Double taxation agreements aim to define residency and source rules, which in turn lead to the avoiding and eliminating of double taxation of income or capital in each country. Double taxation agreements contain rules that draw firstly on the domestic laws of this country to attribute a sole country of residence to persons or corporations who would otherwise be regarded as dual residents. While sounding reasonable, this is open to major abuse. This act and associated legislation is in need of major reform. We have to get to the root cause of this, and we go back to there.

Some of the fundamentals: in 1986, then Commissioner of Taxation, Trevor Boucher, introduced self assessment with assistance from the Second Commissioner of Taxation, Mr Carmody. On the face of it, self assessment makes sense. Self assessment is based on assessing millions of tax returns from everyday Australians—individual taxpayers. It makes sense, because if we can think of corporate and individual taxpayers as a triangle, then at the base of the triangle we have the overwhelming majority, which are millions of individual taxpayers. At the top of the triangle, the peak, we have a few multinational companies. Self assessment was aimed at reducing costs and driving more people into the lower group, self assessing and developing a culture of honesty.

With everyday Australians, who feel responsible for the state of our country and the need to contribute our country, that has worked. But for the few multinationals at the very top of the triangle, it gave them a way out. They have been dodging tax for generations. Self assessment has enabled some of these companies—through their power, through the complexity of the taxation regulations and through the complexity of accounting systems—to have their own proprietary accounting systems, which are basically impermeable to the people without experience within that tax system. It makes it very, very complicated and difficult for the Australian Taxation Office. In addition, if the Australian Taxation Office is able to decipher that, the power behind these companies to wear out the Australian Taxation Office in the courts is enormous.

We need simplification. We need external accountability and external assessment to be brought back. But even bringing back external assessment would simply require enormous resources. What we need is a comprehensive review of our taxation system. Mr Shorten, as Leader of the Opposition leading up to the last election, and then Prime Minister Malcolm Turnbull both ruled out tax reform. They will not even discuss, let alone let us look at, the Henry tax review. The 1986 decision was wrong. It may have been largely correct, but the 1986 decision on self assessment was wrong. Before we can get any movement in taxation and get comprehensive reform, we must come up and admit that. Then we have two choices: do we keep patching the current tax system and do we make it externally assessed—then the Australian Taxation Office enters into auditing major multinational companies, with all of the trauma that I have just discussed—or do we step outside our current tax system and comprehensively reform the current tax system? Tax is the price of civilisation; it is a necessary evil. While I cannot attribute this quote to a name at the moment, and I regret that, tax can also be the destroyer of civilisation.

What we find at the moment is that we have major multinational companies that are not individuals, yet are treated as individuals under our law. That is the concept of incorporating. The multinational companies are led by individuals—that is correct—but those individuals are driven by systems that involve key performance indicators or whatever the latest buzzword term is these days. Key performance indicators do not drive loyalty to Australia. Key performance indicators drive serving the corporations' needs.

Those organisations have no interest and no desire to be taxed in this country. They have every incentive, every desire, to continue to avoid tens of billions of dollars of tax that they must pay. Everyday mums and dads pay for the infrastructure that those companies use. Those companies use that infrastructure with very little in the way of funding from them. Sadly, the Treasurer and the tax commissioner have locked themselves into this idea of self-assessment and that we can bring these major multinationals to heel. That is not possible, because the fundamental drivers, the motives, for these companies are at odds with the motives of the Australian taxpayer.

We need a system that is outside the current system, and I propose to you that we need to think strategically about this. Let me give you some examples as to why. In the 1980s, as Treasurer, Paul Keating came very, very close to getting his goods and services tax adopted. The Prime Minister of the day, Bob Hawke, was running his tax summit, and it looked as though the Treasurer at the time, Paul Keating, would get his GST through. But, at the last moment, the then Prime Minister, Mr Bob Hawke, got the wobbles and the wheel fell off the tax cart. Paul Keating was devastated. He really believed in the need for a GST. But just a few years later, when John Hewson raised the issue of a GST, what did Paul Keating do? He smashed John Hewson for raising a GST—such is the nature of debate in politics in this country being so party politicised, so party polarised, so destroying of accountability and truth.

Then I bring you to another example. In the late 1990s, just 10 years later, Pauline Hanson was making a huge inroad into Australian politics and she dared, in her naivety, to float the idea that we should have an open discussion about taxation, because back then she said the multinational countries were raping this country and not paying their fair share of tax and avoiding tens of billions of dollars in taxation—according to the former Deputy Assistant Commissioner of Taxation, Jim Killaly, who retired early last year, hundreds of billions of dollars of taxation. Pauline Hanson had the temerity—or, should I say, the naivety—in her introduction to politics to think that truth would drive a debate. She raised for debate a taxation system in the hope that it would get scrutiny and produce something effective—and, if not, directly lead to something else in that debate.

Prior to Pauline Hanson, the then member for Oxley, raising that, the drivers of that taxation system raised the taxation system with then Treasurer, Peter Costello, Australia's best Treasurer and someone for whom—based upon the reports I have read in the media—I have some regard. He said, according to the originators of that tax system, that it was well deserving of assessment to see if it would work. But the moment Pauline Hanson came out with it, because of her upward trajectory in the polls, Peter Costello crucified her for that taxation system. It was never assessed; it was just ridiculed, based on ignorance and the media. That is who runs this country. Apart from a few individuals behind each party, the powerbrokers, we have the media—and that is costing our country tens of billions of dollars, if not hundreds of billions of dollars.

So we are not going to get an objective discussion simply by floating a taxation system—and that is why we do not. What I would put to you is that we need to first of all have a discussion about the weaknesses and the destructive power of the current tax system. I do not think there would be too many people who would support it once they had the facts, but we do not see the facts very often. We will be bringing you more of the facts. But let us have a discussion about the destructive impact of the current tax system. When I am travelling in regional Queensland, our voters, our supporters, and even those who vote for other parties are telling us that their No. 1 issue is tax. Their No. 2 issue is regulation and the No. 3 issue is energy prices. Then, in regional Queensland, it is the theft of property rights. Taxation is at the top of people's needs. They want it addressed. It is destroying business and it is destroying employment.

Then we have the Labor Party wanting to bring in a carbon dioxide tax. We have just a mish-mash of one tax on top of another tax. That is right: the workers' party, the party of Ben Chifley and John Curtin, wants to bring in a tax that is aimed at increasing the cost of manufacturing and increasing the cost of energy, so that people will use less of it. This is the level of debate in this country on taxation. It is all about squashing each other, rather than protecting the Australian taxpayer. What we need here is to go beyond this window-dressing.

I had a very interesting conversation with the Commissioner of Taxation, Mr Chris Jordan, and one of his senior executives, Jeremy Hirschhorn, last Friday. I asked them what sort of revenue they would expect to raise from these measures. Twenty minutes later, there was no answer; just vague comments and no specific calculation. We understand why. It is because it is so difficult. We have a staffer who used to work in the Australian Taxation Office. I have friends who work in the Australian Taxation Office. It is very difficult to understand the size of this issue. And, until we understand the size of the issue, this bill will not do much.

I have turned around businesses. I have led the turnaround of businesses. I have led the establishment of major innovations of business in this country. I have led football teams. I understand what is important about the energy that needs to be brought to bear on an issue. If the person at the very top does not have an understanding of what is involved, how can he or she be committed? How can he or she really inspire others to follow? If the Australian Taxation Office has no understanding or cannot convey to a senator an understanding of what this bill will bring us in the way of increased revenue, what hope is there? We need a discussion on the detrimental effects of the current taxation system. Then what we need is—after the admission that it is out of control and is not serving the people, the economy and the nation of Australia—to understand and to find some principles for developing an effective, efficient, honest, fair and transparent taxation system. Once we have those defined and have agreement to, concurrence on and commitment to them, then a taxation system will fall out of that. The principles design the system.

So, while we commend the government for raising this multinational tax issue, we say that, at the moment, it is really just window-dressing. We need the captain of the Australian Taxation Office to have the power and the resources to do his job. We need the team members in the Australian Taxation Office to have the ability, through resources, to do their jobs. We need to transform this from window-dressing into something that actively brings multinationals to heel so that the people of Australia can actually have their tax burdens lowered.

We are having a discussion in this country at the moment on penalty rates, on which we will have more to say this Thursday. It is very, very simple. I have worked as a coalminer, I have had a weekly wage, I have had to work overtime and I have had to work on Sundays. One year I worked 10 weeks in a row with only one day off, and that was Christmas Day. I valued penalty rates and I valued public holiday penalty rates. As an employee, I understood that what was really important to me was net pay. As an employer, I know that what interests employers is gross pay.

I had a conversation with the former secretary of the Australian Council of Trade Unions, Dave Oliver. I said to him, 'What is your greatest problem that you think exists in Australia?' He told me, 'Compliance and increasing wages.' I said to him: 'Do you understand the tax system? While you're well intentioned in increasing pay, because you are increasing gross pay much more than you are increasing net pay you are driving jobs out of this country and you are increasing unemployment.' We need to have an honest discussion on the difference between net pay and gross pay—in other words, taxation. We need to have an honest, comprehensive and open discussion on the destructive power of the current tax schemozzle.

We will be supporting this bill. We urge the government to join us in going much further in having an honest discussion and then an honest and constructive debate. The people of Australia need to be set free from the burdens of this tax schemozzle.

David Leyonhjelm (NSW, Liberal Democratic Party) Share this | Link to this | Hansard source

I rise to speak on the Treasury Laws Amendment (Combating Multinational Tax Avoidance) Bill 2017 and the Diverted Profits Tax Bill 2017.

The tax office is a bully, and parliamentarians here are egging it on. Bullies beat up on unpopular kids, and there is no-one more unpopular at the moment than multinational companies. Bullies fear getting caught by the schoolteacher so they beat up on popular kids behind the sheds rather than out in the open. The tax office fears the courts because the courts regularly find that the multinationals are in the right and that the tax office is in the wrong, so the tax office has asked the government to introduce these bills currently before the Senate. What they do is prevent multinationals from having access to the courts for 12 months from the point at which they come under attack from the tax office. This is a gross violation of the rule of law, and it is scandalous that the government in this parliament is so openly encouraging the tax office to act like a lawless bully.

The bills currently before the Senate allow the tax office to slap a 40 per cent tax on whatever they choose. If the multinational does not immediately pay, it also faces an interest cost on this unpaid tax at the bank bill rate plus seven per cent. If the tax office subsequently decides that it made a mistake, any tax paid by the multinational is returned plus any interest costs incurred by the multinational with respect to the bank bill rate. But the tax office does not return the seven per cent component of any interest cost.

The message to multinationals is clear: if the tax office is right, pay up; if the tax office is wrong, you must still pay up. If you want to fight the tax office in the courts, you will have to wait a year, during which you will rack up an enormous interest cost. The consequences of these draconian bills are clear: we will see fewer multinationals do business and employ people here compared to what we would see if Australia had a competitive company tax rate, clearly defined tax rules and a commitment to the rule of law. Australia is closed for business. The government could not be any clearer.

Nick Xenophon (SA, Nick Xenophon Team) Share this | Link to this | Hansard source

The Treasury Laws Amendment (Combating Multinational Tax Avoidance) Bill 2017 and the Diverted Profits Tax Bill 2017 are a step in the right direction. I have a very different view from our colleague Senator Leyonhjelm in relation to this because, if a company is not paying tax at a fair rate compared to Australian companies by virtue of the arrangements it can make to avoid or minimise tax through complex arrangements, trusts and intermediaries overseas, that is not fair. That is actually costing the Australian government revenue that could be spent on hospitals, schools and essential services. Yet it also impacts on Australian businesses that have to compete on an unlevel playing field.

My colleagues and I support the general thrust of this legislation and acknowledge the work that has been undertaken by the government to combat multinational tax avoidance. This first started some two to three years ago when the then Treasurer, the Hon. Joe Hockey, now the ambassador to Washington, so maybe I should call him His Excellency. You are nodding, Mr Acting Deputy President Back, so maybe I should call him His Excellency. The fact is that what Mr Hockey did was very useful, but he did play a very significant role in the G20 to push this issue forward, and he should be genuinely commended for doing so.

Peter Whish-Wilson (Tasmania, Australian Greens) Share this | Link to this | Hansard source

He was pushed.

Nick Xenophon (SA, Nick Xenophon Team) Share this | Link to this | Hansard source

Senator Whish-Wilson said he was pushed. You could be pushed into worse places than the Australian embassy in Washington!

In relation to this bill, it is important to bear in mind that the additional burden that hardworking Australians and taxpaying businesses bear as a result of multinational tax avoidance should not be understated. However, as my colleague in the House of Representatives, the member for Mayo—and there still is a seat of Mayo despite whatever the duopoly may want to do to wipe out the seat of Mayo. That is something that can be resisted with great urgency. Anyone who thinks that they will get rid of the seat of Mayo by some sort of deal between the Liberal and Labor parties has got another think coming in the state of South Australia. It is a regional seat, it needs to stay regional and we need to have at least three regional seats in the state of South Australia.

But Ms Sharkie stated that there are some areas in which the bill could be strengthened, and I support very much what she said. The sufficient-foreign-tax test should become more stringent. Naturally, tax rates between countries will differ, but this bill proposes that the diverted profits tax would only activate when tax-reduction strategies result in a 20-per-cent-or-more reduction in total tax paid. That seems to be a very generous—if not exemption—threshold before action is taken. Imagine if you told the tax office, 'Look, my company is going to pay you within about 20 per cent of the tax, so we might pay you 20 per cent less than what we have to pay you.' I do not think the ATO would take too kindly to an Australian company that tried that tactic.

The Senate Economics Legislation Committee in its report on this legislation stated that competing views were expressed in relation to the 20 per cent tax-reduction threshold. The Corporate Tax Association and Group of 100 submitted that a 20 per cent tax reduction threshold meant that countries that are trading partners rather than tax havens will be tarred with the diverted profits tax brush.

By contrast, the Tax Justice Network-Australia was concerned that the 20 per cent threshold was too high:

...a multinational enterprise with profits of $100 million in Australia would be permitted to avoid up to $20 million before being caught by the DPT. Given the threshold test does not require the ATO to take action, but allows them to, provided they have cause to believe the test of the transaction lacking economic substance applies, a lower threshold allows the ATO more ability to take action

That is a very important consideration. Why should a multinational company have a 20 per cent leeway in the amount of tax it can pay when, as I indicated earlier, it would be untenable—indeed, laughable—if an Australian company said, 'Well, I'm 20 per cent out in terms of the tax we should pay, but you should leave us alone'? Effectively, that is the signal we are sending to those multinational companies.

My colleagues and I believe that this threshold should be lowered to 10 per cent such that, in the technical jargon, the foreign tax liabilities of foreign entities resulting from tax-avoidance schemes are 90 per cent or more of the reduction in the tax liability. This would also further reduce the incentive to shift genuinely Australian based businesses offshore just to take advantage of lower tax elsewhere. That is another important consideration. There are some Australian companies that are saying: 'If multinationals can avoid or minimise tax in a way that we cannot, why do we have to keep having our operations here in Australia? Why don't we think of shifting or having subsidiaries overseas in the Cayman Islands and other parts of the world where they can minimise their tax?'

I note that the Australian Greens have circulated an amendment to give effect to this and I indicate that my colleagues and I will support it and urge all others to do so as well. It is a much more sensible and pragmatic approach and it is fairer to Australian companies that otherwise would miss out by having that unlevel playing field.

This bill is only the starting point on a range of measures that the government should consider in strengthening Australia's ability to recover unpaid tax from multinationals. Multinational tax avoidance is particularly widespread in the area of the big technology giants. In 2014 an investigation by the Financial Review concluded that between 2002 and 2013 Apple had shifted an estimated $8.9 billion in unpaid taxes from its Australian operations to tax havens in Ireland. Although the numbers are secret, the tax-dodging strategy is not. The same investigation by the Financial Review referred to Apple Sales International's 2009 accounts, which state:

The company is not tax resident in any jurisdiction … The average tax rate for all jurisdictions in which it operates is approximately 4 per cent.

Paying a four per cent tax rate is something that Australian companies would simply dream of, but the fact that Apple, through Apple Sales International and a tax haven in Ireland, can do so is completely unacceptable and is a disgrace. The huge multinationals Facebook and Google are no different. These two companies have a duopoly on online advertising that is only strengthened with every passing week and month. Digital advertising is the biggest source of advertising revenue in the local media sector, and I believe that many of us do not realise the commercial and social impact they are having.

Stephen Parry (President) Share this | Link to this | Hansard source

It being 2 pm, we move to questions without notice.