This interim report summarises the findings of the Senate
Inquiry into corporate tax avoidance and aggressive minimisation, after holding
five public hearings and receiving more than one hundred submissions. Given
both the public interest and new issues that have been raised over the course
of the inquiry, it will continue through the latter half of the year with a
provisional final reporting date of 30 November 2015.
This interim report makes 17 recommendations over four
evidence of tax avoidance and aggressive minimisation;
multilateral efforts to combat tax avoidance and aggressive
potential areas of unilateral action to protect Australia's
revenue base; and
the capacity of Australian government agencies to collect
It is expected that the final report will focus primarily on
transfer pricing and profit shifting, with a secondary focus on:
excessive debt loading;
foreign companies avoiding permanent establishment in Australia;
the use of tax havens;
exemptions from general purpose accounting; and
the role of private accounting firms in tax avoidance.
Background to the interim report
The Senate Inquiry into Corporate Tax avoidance was referred
to the Economics References Committee on Thursday 2 October 2014.
It was prompted by the publication a week earlier of the Tax
Justice Network Australia (TJN) and United Voice report, Who Pays for Our
Common Wealth: the Tax practices of the ASX 200, on Friday 29 September
The Australian Taxation Office (ATO) appeared with Treasury
Revenue Group at Senate Additional Estimates a few weeks later, on Wednesday 22
October 2014, where the TJN report was the subject of intense scrutiny and
Tax avoidance was part of G20 conference discussions in Brisbane
15–16 November 2014, specifically the development of the Base Erosion and
Profit Shifting (BEPS) Action Plan.
When the inquiry met for its first hearing in Sydney on
Wednesday 8 April 2015, there was recognition among both senators and witnesses
that this issue was complex.
But when the 'tech majors'—Apple, Google and
Microsoft—appeared before the committee, it became clear just how simple the
principles of tax minimisation are.
Regardless of the political preferences of the senators on
the committee, all can be confident that they have helped the public understand
how the principles of operating an incorporated entity in Australia have
In the past, a multinational company with a branch in
Australia had a local board that was tasked with maximizing profits. But
increasingly, Australian operations of multinational companies are becoming
agents, shifting revenue offshore specifically to minimize Australian profits.
This was evident throughout the inquiry.
The American headquartered technology companies run their
Australian operations as marketing and distribution companies and shift revenue
earned in Australia to other jurisdictions. The legitimacy of these transfers
will continue to be a focus of the inquiry.
Australia's largest tax payer, BHP Billiton, found itself in
the awkward position of being unable to inform the committee at a public
hearing about the activities of its marketing hub operations in Singapore, only
to read in newspapers that these were a matter of public record in the city
The pharmaceutical industry appears to set drug prices in
Australia based on maintaining a small but astonishingly consistent profit
margin of 3 to 4 per cent, while paying much larger revenues to parent
Commissioner of Taxation, Mr Chris Jordan, has used the
inquiry to effectively promote the work of the ATO in leading efforts to
increase global cooperation to combat tax avoidance.
The ATO also aided the committee by suggesting an
alternative to the TJN's model for calculating effective tax rates, which is
included as an appendix to this interim report.
The chair of the committee wishes to acknowledge Senator
Christine Milne's contribution to the work of this committee during its inquiry
into corporate tax avoidance and aggressive minimisation. It was on her
initiative that the matter was referred to the committee and the committee
wishes to record its sincere thanks for her unwavering support throughout this
Evidence of tax avoidance and aggressive minimisation
3.68 The committee recommends
that the Australian Government work with governments of countries with
significant marketing hub activity to improve the transparency of information
regarding taxation, monetary flows and inter-related party dealings.
Multilateral efforts to combat tax avoidance and aggressive minimisation
4.43 The committee recommends
that the Australian Government continue to take a leadership role in finalising
and implementing the efforts of the OECD in addressing problems associated with
base erosion and profit shifting. However, the committee also considers that
international collaboration should not prevent the Australian Government from
taking unilateral action.
Potential areas of unilateral action to protect Australia's revenue base
5.31 The committee recommends
that a mandatory tax reporting code be implemented as soon as practicable but
no later than the current timeframe for the proposed voluntary public
transparency code. Any Australian corporation or subsidiary of a multinational
corporation with an annual turnover above an agreed figure would be required to
publicly report financial information on revenue, expenses, tax paid and tax
benefits/deductions from specific government incentives, such as fuel rebates
and research and development offsets.
5.32 The committee recommends
maintaining existing tax transparency laws which apply to both private and
5.39 The committee recommends
establishing a public register of tax avoidance settlements reached with the
ATO where the value of that settlement is over an agreed threshold.
5.40 The committee recommends
that the government consider publishing excerpts from the Country-by-Country
reports, and suggests that the government consider implementing
Country-by-Country reporting based closely on the European Union's standards.
5.45 The committee recommends
that the ATO, in conjunction with Treasury and other relevant agencies, provide
an annual public report on aggressive tax minimisation and avoidance activities
to be tabled in Parliament. This report could include estimations of forgone
revenue, evaluate the effectiveness of policy and propose potential changes.
5.85 The committee recommends
that the Australian Government tender process require all companies to state
their country of domicile for tax purposes.
5.86 The committee recommends
mandatory notification by agencies to the relevant portfolio Minister when
contracts with a dollar value above an agreed threshold are awarded to
companies domiciled offshore for tax purposes.
The capacity of Australian government agencies to collect corporate taxes
6.25 The committee recommends
an independent audit of ATO resourcing, funding and staffing.
6.26 The committee recommends
the ATO report to parliament, at least annually on:
the number of audits or disputes launched concerning
the number of cases settled with multinational corporations;
the number of successful legal proceedings concluded against
multinational corporations; and
the staff resources allocated to tax compliance of multinational
6.71 The committee recommends
that taxation legislation be amended so that non-reporting entities are
required to disclose related party information in financial reports under the
Corporations Act if notified to do so by the ATO.
6.72 The committee recommends
that the concept of 'grandfathered large proprietary companies' be removed from
the Corporations Act, and these companies be required to lodge financial
reports with the Australian Securities and Investments Commission (ASIC).
6.73 The committee recommends
that all proprietary companies are required to review and confirm their size with
6.74 The committee recommends
that the confidentiality provisions in section 127 of the ASIC Act be amended
to allow ASIC to share information with the ATO without having to notify the
6.75 The committee recommends
that people who propose to become directors of companies be required to provide
evidence of their identity to the ASIC.
6.76 The committee recommends
that ASIC amend Class Order 98/98 so that a company is not eligible for
financial reporting relief, where the ATO notifies the company and ASIC that the
relief does not apply to that company.
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