Coalition Senators note the majority report and the issues raised
in the serious matter of corporate tax avoidance.
Coalition Senators note that corporate tax avoidance is a
Coalition Senators also note the need to continue the process to
strengthen Australia's crackdown on corporate tax avoidance.
Coalition Senators however note that some comments in the
majority report represent an overreach in some of its criticisms.
Coalition Senators note the significant reforms by the government
to crackdown on corporate tax avoidance and note that the government has taken
significant steps to crack down on corporate tax avoidance since being elected
Coalition Senators note the success of the Multinational
Anti-Avoidance Law (MAAL) and the Diverted Profits Tax (DPT), both of which
have been integral parts of the government’s additional $7 billion a year in
sales revenue coming into the tax net.
Coalition Senators commend the ATO for its diligent efforts to
combat corporate tax avoidance.
Coalition Senators are very critical of this inquiry, and want to
emphasise its unnecessarily protracted nature.
By contrast, Coalition Senators note that in the four years it
has taken to produce this report, which contains precious little new insight,
the Government has been getting on with the job in addressing multinational tax
avoidance and tax system integrity.
Chapter 3—“Where to from here?” (recommendations 1-2)
Coalition Senators do not support Recommendation 1 of the
committee’s report, noting that the Turnbull Government is already
strengthening Australia’s thin capitalization rules, which limit the amount of
debt deductions that multinational entities can claim in Australia. The measure
announced in the 2018-19 Budget will require companies to align the value of
their assets for thin capitalization purposes with the value included in their
Recommendation 1 would instead fundamentally change the thin
capitalization rules, including removing the existing ‘arms-length’ test. This
is at odds with findings in a 2014 Board of Tax review which supported the
retention of the test.
The board found that without the test, many major projects may be
at risk. This would have significant impact on future investment, and the
viability of certain projects that may require debt financing but are unable to
meet the recommended worldwide gearing ratio test.
Coalition Senators note that the Government’s tax integrity
reforms have already resulted in an additional $7bn a year in sales revenue
coming into the tax net. These included reforms like establishing a Tax
Avoidance Taskforce in the ATO on
1 July 2016, the Diverted Profits Tax and the Multinational Anti-avoidance Law.
They also included:
- Legislating anti-hybrid rules, a key BEPS recommendation;
- signing the OECD Multilateral Instrument on 7 June 2017;
- doubling the penalties for multinationals avoiding tax;
increasing penalties for breaches of tax reporting obligations by
- implementing OECD recommendations for Country-by-Country
Reporting to give the ATO greater access to multinational transfer pricing
- aligning Australia’s transfer pricing rules with the latest OECD
Coalition Senators wish to remind the Senate that Labor opposed
many of these reforms, but the Government persisted, achieved legislative
passage and delivered results. As a result of this legislation, the ATO has
raised $5.2 billion from large multinational companies.
Coalition Senators wish to use this inquiry as an example to
highlight how the Labor Party is headlines over action. Their approach puts at
risk investment and jobs.
By contrast, Coalition Senators wish to draw attention to the
work of the Government, which is providing the requisite tools to the ATO so
that it can address tax compliance by multinational companies.
Coalition Senators reject the summary from Professor Richard Vann
that the impact of governments has been akin to “much heat, little light so
far”. By contrast, Coalition Senators feel that the government has been
successful in applying pressure on multinational corporations that try to avoid
paying tax in Australia, and as a consequence many of the companies in question
have changed how they report taxable activities in Australia.
Coalition Senators note recommendation 2 and acknowledge the
importance of maintaining the integrity of the corporate tax base.
Chapter 4—“Trumpeting transparency” (recommendations 3-9)
Coalition Senators note that the Government has legislated to
ensure that companies are required to provide the Australian Tax Office with
the information it requires to determine the right amount of tax that companies
Coalition Senators agree that transparency is important to ensure
that companies pay the right amount of tax, however a balance must be struck
between taxpayer confidentiality and the need for any information made public
to be well understood and relevant.
Coalition Senators note that the Government is pressing ahead
with tougher rules to prevent multinationals from avoiding tax, and will
increase transparency and improve enforcement by giving tax whistleblowers
With reference to Recommendation 4, Coalition Senators note the
Government’s commitment to improving transparency around who owns, controls and
benefits from companies, so as to assist relevant authorities in combating
illicit activities including tax evasion, money laundering, bribery, corruption
and terrorism financing.
Further to Recommendation 4, Coalition Senators note that as part
of the Open Government Partnership National Action Plan, the Government
consulted publicly on improving the transparency of beneficial ownership
information for all companies, both public and private. Coalition Senators acknowledge
that the Government is currently considering how best to implement this reform.
With reference to Recommendation 5, Coalition Senators note that
the Australian Accounting Standards Board (AASB) is currently consulting on how
to introduce the International Accounting Standards Board’s revised Conceptual
Framework for Financial Reporting into Australia and improve the consistency,
comparability and transparency of financial reports prepared in accordance with
the Australian Accounting Standards. The consultation paper addresses the
special purpose financial statement problem cause by Australia’s unique
accounting requirements that allow entities to self-assess as ‘non-reporting
Coalition Senators recommend that the Government defer consideration
of Recommendation 5 to enable it to take into account any matters arising of
Coalition Senators do not support Recommendation 7 of the
committee’s report. The OECD’s Base Erosion Profit Shifting (BEPS)
recommendation on country-by-country reports explicitly states that
jurisdictions should enforce legal protections of the confidentiality of the
Coalition Senators note that the purpose of country-by-country
reporting is to increase revenue authorities’ access to and understanding of
the global tax position of multinational corporations. The country-by-country
reporting program allows the tax administrations of participating countries,
including Australia, to leverage the information contained in country-by-country
reports to better identify potential tax risks – particularly in respect of
transfer pricing matters.
The Australian Taxation Office condemns the proposal that
country-by-country documentation be publicly released. The Commissioner of
Taxation stated in his evidence before Senate Estimates on 25 October 2017:
"The arrangement, through the OECD - we signed a
multilateral agreement. That agreement is based on the information that is
exchanged. The information is to be kept within the confines of the relevant
tax authorities. If people call for this to be made public - no-one would give
us anything, so there’d be nothing to make public. We’ve signed up to an
international agreement, as with the others, to say that this will occur as
long as the information is only provided to tax authorities”
Coalition Senators note the immense value of this
country-by-country reporting, and reaffirm its transformative power. As the
Commissioner of the Australian Taxation Office noted in his evidence before the
Senate Economics Legislation Committee at Estimates of 17 March 2017:
“Our people think this is of enormous benefit to get the
level of detail that we’ve never had before in a proactive way.... this is
transformational in our international tax work”
Coalition Senators note that Australia is bound by an
international multilateral agreement. As noted by Deputy Commissioner,
International, Mr Mark Konza in evidence before the Economics Legislation
Committee at Estimates of 28 February 2018:
“We're a party to a global deal where all the countries got
together, examined the issue and agreed that these files would be transferred
between the countries, as long as confidentiality was maintained. For Australia
to move unilaterally to publish them would be to break a deal that we've made
as a country.”
Coalition Senators do not support public release of information
gained through country-by-country reporting.
Chapter 5—“Offshore oil and gas” (recommendations 10-13)
Coalition Senators note that Recommendations 11-13 ought not to
be considered until after the Government’s response to the Callaghan Review
into the Petroleum Resources Rent Tax.
Other reform comments
Coalition Senators wish to draw attention to the 2018-19 Budget,
in which the Government announced further measures to ensure businesses are
paying their fair share of tax. These include:
- Strengthening the rules that limit interest deductibility to stop
companies shifting profits out of Australia, including requiring companies to
align the value of their assets with the value included in their financial
Broadening the scope of large multinationals being subject to the
Multinational Anti-Avoidance Law (MAAL) and the Diverted Profits Tax (DPT)
Coalition Senators also note that the 2018-19 Budget strengthens
the definitions of a large multinational (or Significant Global Entity) to
ensure that it operates as intended. This will ensure that large multinational
businesses that are ultimately owned by private entities or investment entities
are not inadvertently excluded from the application of tax integrity rules such
as the DPT and MAAL.
Coalition Senators recognise that globalisation and digitisation
of the economy present challenges for the international and Australian tax
frameworks. Under existing frameworks, digital businesses can have a
significant economic presence in Australia without making a significant
contribution to tax revenues here. Coalition Senators have observed the
Government’s commitment to making sure that digital businesses pay their fair
share of tax in Australia and its active engagement with the OECD in exploring options
for taxing the digital economy. Coalition Senators understand that the
Government will shortly be consulting on recent international developments and
how digital businesses are taxed in Australia.
Furthermore, Coalition Senators note that the Government is
introducing tough new laws to prevent multinationals from avoiding tax by
addressing hybrid mismatch arrangements.
Whatever mechanisms are identified to address these issues and
concerns, consideration must be given to ensure that any requirement does not
unreasonably add burden and red-tape to businesses, noting the majority of
businesses are law-abiding corporations. Accordingly any disclosure obligation
built into the reporting process should consistently capture any forms of
serious illegal behaviour, not just corporate tax avoidance in isolation. It
would not be best regulatory practice to impose red-tape on law-abiding firms
requiring them to establish internal processes to prevent remote likelihood
Senator Jane Hume Senator
the Hon Ian Macdonald
Deputy Chair Senator
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