I must confess that I am a little bit confused about where the Turnbull government stands on multinational tax avoidance. Just last sitting week parliament passed a government bill that wound back one of Labor’s key tax transparency measures. The bill I refer to is the Tax and Superannuation Laws Amendment (Better Targeting the Income Tax Transparency Laws) Bill. It follows the tradition of those opposite of inserting a misnomer into the title of the bill to hide their real intent, because the bill passed last month does not better-target Labor’s laws; it guts them. This was just one in a series of wind-backs of Labor’s anti-avoidance reforms, through which the government has so far handed back $1.1 billion to multinational companies. So it is quite puzzling to see the government put forward legislation to strengthen the provisions, having already weakened them in several other pieces of legislation.
Having said that, the provisions in this bill are a positive, albeit small, step forward, and we support them. But even with the passage of this bill the government’s measures are a far cry from the serious action on multinational tax avoidance that Labor has announced with our $7.2 billion package. I will talk more about that later, but let me first outline why the issue of multinational tax avoidance is so important.
In June last year I met with representatives of Micah Challenge, a Christian anti-poverty organisation. During my time in the Senate I have had many meetings with Micah Challenge. They do an excellent job advocating for the world’s poor. At the time of my meeting last year, Micah Challenge had joined with the Tax Justice Network, a global movement campaigning for measures to tackle tax avoidance by multinational companies. I have spoken in this place previously about my meeting with Micah Challenge and the issue of tax justice, but I will return to some of the points I made in that speech, because they are relevant to the bill we are debating today.
It would interest many people, and possibly even shock them, to learn that multinational companies manage to use their tax arrangements to unfairly avoid paying around $160 billion in tax in developing countries. This is the estimate from UK charity Christian Aid. By comparison, the world’s annual aid contribution is only $135 billion a year. In other words, multinational tax avoidance in developing countries is greater than the combined foreign aid budgets of all contributing nations.
So, as you can see, seriously combating this problem would go a long way towards eliminating extreme poverty. When it comes to poverty alleviation, tax revenue can have some advantages over development assistance, provided the government receiving it and spending it is doing so in a proper and transparent way. For example, tax revenue is a more stable and secure source of income, which can help countries plan for the long-term future. Also, the governments of recipient countries are accountable to their own citizens for the expenditure of the money, rather than to a foreign government.
Having said that, tax revenue should be a supplement to development assistance and not a substitute for it. Development assistance should play an important role in alleviating extreme poverty, for as long as it persists. I will continue to campaign fervently for this government to reverse its cruel and heartless $11.3 billion in cuts to its aid budget. I will also continue campaigning for tax justice.
To highlight the ridiculousness of multinational tax avoidance, I mentioned in my speech last year the story of the sugar cane cutter working in Zambia for USD$14 a day, who paid more absolute tax than the multinational company Zambia Sugar, despite the latter making $18 million in profit. A similar example is that of the richest man in the world, Warren Buffet, pointing out that he pays a lower rate of tax than his secretary. All this would be quite funny if it was not so tragic that multinational companies making profits in the millions and billions can end up paying barely any tax, while the tax burden falls to middle income earners.
You may be asking yourself, why I am talking about poverty in developing countries when we are debating a bill that relates to Australia. Well, the answer is quite simple. Tax justice is as much an issue in developed countries like Australia as it is in developing countries. All countries, no matter how wealthy, have people who are experiencing poverty and disadvantage. This poverty and disadvantage is exacerbated when big companies do not pay their fair share of tax, because in order to fund essential services the tax burden falls to low- and middle-income earners. There is clearly something awry in Australia when the three richest people have more wealth than the poorest one million.
But the issue of multinational tax avoidance is relevant to the issue of global extreme poverty regardless of which jurisdiction you are talking about. This is a global problem and, when action is taken by developed countries, multinationals find it more difficult to avoid their tax obligations in countries where poverty is rife. The more countries around the world there are that crack down on tax avoidance in their own jurisdictions, the fewer places multinational companies will have to shift and hide their profits.
Let me take some time to explain how multinational tax avoidance works, because it is very relevant to this bill and, of course, this debate. Multinational businesses use sophisticated accounting techniques and a complex web of companies to shift their profits from higher taxing jurisdictions to lower taxing jurisdictions. This is increasingly becoming a problem when advances in information and communications technology are making business increasingly globalised. Also, with an increasing amount of business taking the form of selling intangible assets like information or online services, it is becoming easier for businesses to choose where they conduct their business from and harder for governments to make rules defining where business is conducted.
It is relatively easy to track how much tax an individual or a company should pay when all their activity is confined within our borders, but it becomes a whole lot trickier when an intricate web of companies forming a consolidated entity operates across national borders. If a company can effectively shift most or all of its profits to a tax haven, it can avoid paying any tax or, at least, paying a reasonable share of tax that is commensurate with community standards. One of the popular ways for multinationals to artificially shift profits from one jurisdiction to another is through the payment of licence fees or royalties from subsidiaries to a head company. Another popular arrangement is where the head company grants the subsidiary a loan, and the loan repayments help the subsidiary to write off some of their profits. If you look objectively at these arrangements—the amount of the licence fees and loans, and where the head company is situated—the structure makes no commercial sense, except from the point of view of minimising the company’s tax bill. It is thoroughly ridiculous, for example, that a small territory like the Cayman Islands, a tax haven with a population of around 60,000 people, is home to 100,000 registered companies. How many of these 100,000 companies actually do business in the Caymans, other than on paper?
We have recently had a report from a Senate inquiry which reveals just how aggressive some multinational firms have become with this activity. In its submission to the tax inquiry, the tax office reported that more than half of Australia’s cross-border trade—over $300 billion a year—is from companies transferring money between their own subsidiaries. The inquiry heard evidence that one big multinational firm may have paid as little as two per cent tax on billions of dollars in revenue. By contrast, an average Australian wage earner pays 21c in the dollar. If an average wage earner were able to pay the same rate of tax as that multinational company, they would pay $15,000 less a year. This is an insidious problem that is only going to get worse as finance becomes more mobile. It is a problem that needs action not just from individual countries but from the global community.
The Tax Justice Network proposed three measures to help combat the problem of multinational tax avoidance. They include the automatic exchange of information between tax authorities in different countries; a public register that lists the owners and beneficiaries of companies, trusts and foundations; and requiring multinational companies to break down their financial reporting on a country-by-country basis. We on this side of the chamber have gone a long way towards implementing what the Tax Justice Network has been campaigning for. We are very proud of our record when it comes to increasing transparency and clamping down on tax avoidance by large multinational companies.
I will just briefly summarise the measures to tackle tax avoidance that Labor has implemented during our time in government. We passed legislation that plugged loopholes in Australia’s transfer-pricing rules and anti-avoidance provisions. We amended the Taxation Administration Act to require the Australian Taxation Office to publish information about the income, taxable income and tax paid by companies earning over $100 million. We also passed legislation which cracked down on companies overvaluing assets in international transactions. I should mention at this point that the last three measures I referred to were opposed by the coalition and, as I mentioned earlier, one of them was recently reversed by a government bill.
Senator O’Neill: Shame!
Senator BILYK: You are absolutely right, Senator O’Neill—shame! Labor in government also signed 28 bilateral information-sharing agreements with tax agencies in other countries, including the Cayman Islands and Monaco, which netted around $730 million in additional tax between 2012 and 2014. And we gave the Australian Taxation Office $109 million to set up a specific audit program looking at the use of offshore marketing hubs. This program has already paid dividends, with 13 companies hit with revised tax bills worth $250 million. The tax office estimates that this program will return $1 billion in additional revenue to Australia over four years. Of course, there is more to be done in this area. In March this year, Labor announced a further package of new measures, which will return $7.2 billion to Australia over the next decade. This package was developed after extensive consultation with experts and was independently costed by the Parliamentary Budget Office.
Like Labor, this government talks tough on multinational tax avoidance. But unlike us, those opposite talk the talk but they do not and cannot walk the walk. In the 2015 budget, the former Treasurer Mr Hockey announced changes to part IVA, the anti-avoidance provisions, of the Income Tax Assessment Act. I wonder if those opposite know how much revenue the Treasury estimated that this so-called crackdown would extract in additional revenue. Does anyone want to guess? Heads are down. According to the budget papers, it would extract zero, nothing, absolutely zip. It is interesting that Mr Hockey as shadow Treasurer referred to Labor’s tightening of the part IVA provisions as ‘an unnecessary overreaction’ and ‘more red tape for business’. I guess at the time he was revealing what he really thought, because his subsequent changes were mostly cosmetic.
Let us not forget that, while puffing their chests and claiming a crackdown on multinational companies, the government have actually wound back antiavoidance measures put in place by Labor, handing back $1.1 billion to multinational companies. Yes, that is absolutely right: $1.1 billion. While we are disappointed with the government’s record on multinational tax avoidance, we will support the current bill. We are willing to support the reforms contained in this bill because we believe that some action to crack down on multinational tax avoidance is better than none.
The bill has four schedules. Schedule 1 introduces the concept of a ‘significant global entity’, a term which applies to 1,000 companies with annual income over $1 billion. Schedule 2 amends the existing antiavoidance provision to counter instances where multinational firms use artificial arrangements to avoid paying corporate tax in Australia. Up to 100 companies are likely to be affected by this measure. Schedule 3 doubles the maximum penalties for firms involved in tax avoidance and profit-shifting schemes, except where they have a reasonably arguable positon. And schedule 4 implements the Organisation for Economic Cooperation and Development’s action plan on transfer pricing documentation and country-by-country reporting. There are no precedents anywhere else in the world for the corporate tax measures in this bill.
Given that these measures are untested, not even Treasury has been able to estimate how much revenue it will bring in. In fact, it remains to be seen if this bill will raise even one extra dollar of Australian tax. Imagine what the reaction of those opposite would be if Labor introduced a package of tax avoidance measures which had a series of asterisks next to the costings. But of course we did not do that. Instead, we laid out a detailed plan, in consultation with stakeholders, and had it costed by the Parliamentary Budget Office. Unlike the bill currently before the chamber, the PBO has determined that it would raise $7.2 billion in revenue.
The government’s bill focuses on companies that artificially avoid booking revenue in Australia—in other words, ensuring that revenue raised here is declared here. However, the bill does nothing to address the major problem underpinning multinational tax avoidance—the use of debt deductions to send money offshore. Tackling debt deductions is a core element of our reforms and will close one of the major loopholes that multinational companies use to avoid their tax obligations. We have never said that our package is the final word on tackling multinational tax avoidance, but we have called on the government, and will continue to do so, to adopt our measures alongside their own.
Mr Turnbull recently said the following at the Prime Minister’s Prizes for Science dinner:
If somebody else has done something that is even better than what we have thought of, then we will, recognising that plagiarism is the sincerest form of flattery; we will pinch it and use it.
Well, Labor has a package that would represent some real action in cracking down on multinational tax avoidance. Labor’s plan has been independently costed by the Parliamentary Budget Office and we know that it will raise real revenue—$7.2 billion of it. If the government have the good sense to pinch our ideas, if they have the good sense to adopt our package, then we say, ‘You’re absolutely welcome to it.’ We want and need real action to make our tax system fairer. We want and need to take the burden off small businesses and low- and middle-income earners. Perhaps, if the Turnbull government raises some real money from those who can most afford it, they will not have to spend so much time attacking low- and middle-income earners.
Each dollar raised by making multinational companies pay their fair share of tax could replace a dollar that the government has sought to rip from the pockets of pensioners, young jobseekers, university students or people just visiting the doctor. It just goes to show the twisted priorities when the government is openly canvassing a 15 per cent tax on everything—a tax which hits the people who can least afford it the hardest—yet they will not take strong action to ensure that our biggest and wealthiest companies pay their fair share.
The government really needs to get serious about multinational tax avoidance. Our new Prime Minister, Mr Turnbull, is trying to tell us that we have a 21st century government. Let me tell you what a 21st century government does. It considers the problems of the 21st century and it applies 21st century solutions. But that is not what the government have done. As I keep reminding the Senate, the so-called 21st century government took Australia’s largest, most modern infrastructure project, the 21st century National Broadband Network, and proceeded to roll it out using 20th century technology. That was after they delayed the project by two years and blew out the cost by $26 billion. And this so-called 21st century government still do not have a serious, effective solution to address dangerous climate change by cutting Australia’s carbon emissions.
I mentioned earlier that advances in information and communications technology and the growing global trade of intangible goods and services is exacerbating the problem of multinational tax avoidance. A 21st century government is one that will get serious about tackling this problem. The bill is a small step in the right direction, but the government should get on board with Labor’s reforms—which, as I have said, will raise $7.2 billion from Australia’s multinational companies. If they did, it would be a big step towards addressing the inequity that allows many of those who can most afford it to pay the lowest rates of tax. It would also go a long way towards restoring fairness to Australia’s taxation system. If Prime Minister Turnbull wants to show he is serious about tackling multinational tax avoidance and if he wants to show that he can drag the right wing of his party kicking and screaming into the 21st century, then he should adopt Labor’s multinational tax package. The 21st century is beckoning. Let’s see if our self-proclaimed 21st century Prime Minister can answer that call.