Division Description Changes — Bills — Treasury Laws Amendment (Making Multinationals Pay Their Fair Share — Integrity and Transparency) Bill 2023; Second Reading — 9th Aug 2023

Change	Division
representatives vote 2023-08-09#1 Edited by mackay staff on 2023-12-29 11:19:55	Title Bills — Treasury Laws Amendment (Making Multinationals Pay Their Fair Share — Integrity and Transparency) Bill 2023; Second Reading Treasury Laws Amendment (Making Multinationals Pay Their Fair Share — Integrity and Transparency) Bill 2023 - Second Reading - Criticise Government policy Description ~~<p class="speaker">Carina Garland</p>~~ <p>I rise today in support of the Treasury Laws Amendment (Making Multinationals Pay Their Fair Share—Integrity and Transparency) Bill 2023. This bill gives effect to the Albanese Labor government's election commitment to crack down on multinational tax avoidance and improve transparency of corporate subsidiaries, and as such has been foreshadowed since it was announced in April 2022. This legislation levels the playing field for Australian business and increases transparency. This important legislation represents a crucial step towards creating a fair and just economic landscape, ensuring that multinational corporations contribute their rightful share to society as well as promoting transparency in tax practices. Given the global push to ensure that corporations pay their fair share of taxes, it is in the public interest for shareholders to have access to more information of this nature.</p> The majority voted against an [amendment](https://www.openaustralia.org.au/debate/?id=2023-08-01.125.2) to the *usual second reading motion, which is "that the bill be read a second time" (parliamentary jargon for agreeing with the main idea of the bill). Because this vote was unsuccessful, the usual second reading motion will remain unchanged. The amendment was introduced by Hume MP [Angus Taylor](https://theyvoteforyou.org.au/people/representatives/hume/angus_taylor) (Liberal). ### Amendment text* > That all words after "That" be omitted with a view to substituting the following words: > *> "whilst not declining to give** the bill a second reading, the House notes:* > *> (1) the former Coalition government imple*mented more than a dozen measures to combat multinational tax avoidance including by: > *>> (a) playing a leading role in the original OECD BEPS project, and committing to the OECD two-pillar solution to multinational tax;** and* >> *>> (b) introducing the Multinational Tax Avoidance Law; the Diverted Profits Tax; strengthening the thin capitalisation and transfer pricing rules; doubling penalties** for multinational tax avoidance; and establishing the Tax Avoidance Taskforce;* > > (2) that despite promising to only raise taxes on multinationals at the election, the Labor Government have broken promises to raise taxes on superannuation, on unrealised capital gains, on franking credits, and end small business tax incentives; > *> (3) that the origi*nal form of this Bill, and its last-minute changes, show once again that Labor have an anti-business approach to consultation, regulation and policy to support business; > *> (4) independent economist Chris Richardson expects that Labor will breach the 23.9% tax-to-GDP cap in** their first year in office; and* > *> (5) that higher taxes are not a solution** to a cost-of-living crisis and collapsing productivity under Labor".* <p>These measures are based on the 2013 OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting. Over 135 countries and jurisdictions are working together within this inclusive framework to take steps to combat tax avoidance, strengthen the coherence of international tax legislation and promote a more transparent tax environment. With this in mind, it is important to note that the aim of these reforms is to hold companies to account, particularly large corporate groups, with respect to their corporate structures and whether they are operating with opaque or atypical tax arrangements. In recent years we have seen a worrying trend in which many multinational firms have used loopholes and complicated financial arrangements to reduce their tax responsibilities. As a result, they have avoided paying their fair share of taxes, placing the burden of funding important public services, infrastructure and social programs on the rest of society. This must stop.</p> <p>The amendments in schedule 1 to the bill are intended to improve tax transparency by requiring Australian public companies to disclose information about their subsidiaries in their annual financial reports. These amendments apply to the financial year commencing on 1 July 2023. This will hold firms accountable, particularly large corporations, by compelling them to be more transparent about their corporate structures and whether they are using opaque tax arrangements, such as subsidiaries in low-tax jurisdictions. This data will aid in producing better economic analysis and will help to determine whether tax arrangements are collecting the appropriate amount of revenue. It is helpful to know that stakeholder feedback in August 2022 and April 2023 influenced this measure. It is a measure that is a significant step towards improved tax openness, and it supplements ongoing efforts to develop a beneficial ownership register and public country-by-country reporting, on which the government is continuing to consult with stakeholders.</p> <p>While schedule 1 is a transparency measure, schedule 2 is a revenue raising measure. It aims to limit multinational entities' debt deductions, ensuring that they pay their fair share of tax in Australia and helping to level the playing field for Australian enterprises. We know that a lack of coherence in international tax rules creates international tax gaps in a global digital economy where large multinational entities aggressively engage in tax avoidance practices. This practice was highlighted by the OECD report titled <i>Addressing </i><i>b</i><i>ase </i><i>e</i><i>rosion and </i><i>p</i><i>rofit </i><i>s</i><i>hifting</i>, which resulted in the Base Erosion and Profit Shifting Action Plan. The OECD stated that this plan was a response to the perception that domestic and international rules on the taxation of cross-border profits are broken and that taxes are paid only by the naive. This government is not naive. Australians are not naive. Through this bill, multinational entities will discover that we as a country are not naive.</p> <p>At a functional level, schedule 2 introduces new thin-capitalisation earnings based tests for the new general class investors. Specifically, this measure will limit an entity's debt related deductions to 30 per cent of profits. This new earnings based test will replace the current safe harbour test. An earnings based approach to debt deductions ensures that deductions are directly tied to an entity's economic activity and earnings. This is a robust approach to addressing the tax planning practices of multinationals. This is an important measure. Because debt is tax deductible, multinationals can adjust their debt levels and use related-party borrowings to minimise the amount of tax they pay.</p> <p>The increasing occurrence of this tax avoidance practice has resulted in international efforts, as highlighted earlier by the work of the OECD, to address tax integrity risks and directly limit debt-related deductions for multinational entities. It's worth noting that jurisdictions such as the United Kingdom, the United States and most of the European Union have already implemented earning-based interest-limitation rules. The proposed thin capitalisation amendments will bring Australia in line with these jurisdictions and ensure that we are not the final frontier when it comes to multinational entities and tax avoidance.</p> <p>I also acknowledge there has been some criticism of the speed of these changes. It is important to remember, and for me to reiterate here, that these amendments were first announced in April 2022 as part of Labor's election commitment platform. They have since been subject to extensive stakeholder consultation, and the final legislative approach reflects this stakeholder feedback to accommodate genuine arrangements as much as possible, noting that this is a tax integrity measure. Additionally, we know—and it should come as no surprise to both the House and the majority of hardworking, taxpaying Australians—that postponing these changes would present a revenue and tax avoidance risk by allowing taxpayers—in this case multinational entities—to artificially restructure their arrangements to avoid the new rules and gain a tax benefit.</p> <p>I said earlier that we as a government are not naive, and the speed of these changes taking effect following extensive and considered consultation speaks to this fact. This bill is an overdue response to the growing concern over income inequality and the erosion of public trust in the fairness of our tax system. The current state of affairs is not only inequitable but also undermines the trust and confidence citizens have in their government and the corporate sector. We have got to do more on multinational taxation. We have two-fifths of multinational profits currently sitting in tax havens. We have got some $100 billion of Australian money sitting in tax havens—places like the Bahamas and Panama, where there are very low tax rates and where on one estimate four-fifths of the money is there in breach of other countries' tax laws. These aren't just tax avoidance mechanisms. These are also the places where terrorists, kidnappers, crime syndicates and drug lords store their money. With this in mind, I found it truly remarkable that those on the other side of the House issued media releases criticising this government for wanting to do more on multinational taxation.</p> <p>In Victoria, my home state, we had the incident a couple of years ago of the Stawell tyre dump being transferred to a company in Panama in order to avoid their cleanup obligations. Some nine million tires were sitting at the dump, and the attempt of the owners to shift ownership off to Panama for a tax haven was all designed to avoid their liabilities. It is this sort of problem that Labor—the government—wants to address. Over nearly a decade in government, those opposite tinkered around the edges making the odd tweak here and there, but throughout their time in government they clearly showed which side they were on—and it was not on the side of Australians but on the side of rogue multinational tax dodgers.</p> <p>The profit of multinational profit shifting is a massive one. Globally, around $600 billion of profits are estimated to be shifted to tax havens. That's almost 40 per cent of multinational profits. However, the first thing the coalition did when they came into government was hollow out the tax office, sucking out almost 5,000 staff. Two years into government, they realised how much that was costing them and so they set up a taskforce to plug the hole—the very hole that they created. It was before the federal election last year when those opposite told Australians not to support anyone that proposed to raise taxes on multinational tax dodging. That is pretty outrageous and makes us really question what side the Liberal coalition are on.</p> <p>Labor takes the view—our government takes the view—that the international group that came together in 2021—more than 100 countries—to strike a deal on global taxation has made a step in the right direction. As someone standing on the government side of the House, I'm pleased to say that we are now working to see those measures implemented. Those opposite have been walking away from the issue of multinational taxation, despite this being deeply unfair to Australian firms.</p> <p>If you're a new start-up business, you're not banking your money in the Bahamas; you're not looking for an accounting lurk to run through the Cayman Islands; and you certainly don't have an army of lawyers and accountants who are looking to find the arbitrary to cross the international tax system to exploit it and seek out every loophole possible. On the contrary, new start-up businesses in Australia are working hard, putting in long hours and doing their absolute best to manage cash flow, balance the books and launch a new business. However, as it stands right now, they face the potential of being cheated by multinational entities and tax dodgers who are using tax havens in favourable jurisdictions. We clearly have to do more to level the playing field and support those Australian businesses. I'm really pleased that our government is doing just that. Let there be no mistake: Labor is closing these loopholes that will improve the integrity, transparency and credibility of our tax system.</p> <p>It's important to highlight that a feature of the bill includes provisions to strengthen the enforcement of tax laws and increase penalties for non-compliance. By doing this, we create a strong deterrent against tax avoidance and evasion, ensuring that all companies, regardless of their size or influence, play by the rules and pay their fair share. A transparent and fair tax system can enhance our nation's credibility and attractiveness to foreign investors, providing stability, predictability and a level playing field for business. It's essential to understand that this legislation is not about punishing successful businesses but rather about building a more just and equitable society. When multinational entities pay their fair share of taxes, we can fund better education systems, health care, infrastructure and social safety nets for our citizens, promoting economic and social development for all Australians. When multinationals don't pay their fair share, individuals and families—all of our communities—suffer the most. Over the years, we have seen things like the Panama papers, the Lux leaks and the Paradise papers reveal that the deliberate, sophisticated tactics global companies have been using to shift profits around the world to pay less tax have been bad for the world.</p> ~~<p>In closing, I want to mention the words of the always inspiration US President Barack Obama:</p>~~ ~~<p class="italic">We shouldn't make it legal to engage in transactions just to avoid taxes …</p>~~ ~~<p>He went on to say that there is:</p>~~ ~~<p class="italic">… the basic principle of making sure everyone pays their fair share.</p>~~ <p>This basic principle is the essence of what makes the Labor government a Labor government—fairness and making sure that we're able to build a better future where no-one's left behind. I am proud that we, as a Labor government, are playing our part in this important issue. I commend the bill to the House.</p> ~~<p class='motion-notice motion-notice-truncated'>Long debate text truncated.</p>~~

~~Carina Garland~~
I rise today in support of the Treasury Laws Amendment (Making Multinationals Pay Their Fair Share—Integrity and Transparency) Bill 2023. This bill gives effect to the Albanese Labor government's election commitment to crack down on multinational tax avoidance and improve transparency of corporate subsidiaries, and as such has been foreshadowed since it was announced in April 2022. This legislation levels the playing field for Australian business and increases transparency. This important legislation represents a crucial step towards creating a fair and just economic landscape, ensuring that multinational corporations contribute their rightful share to society as well as promoting transparency in tax practices. Given the global push to ensure that corporations pay their fair share of taxes, it is in the public interest for shareholders to have access to more information of this nature.
The majority voted against an [amendment](https://www.openaustralia.org.au/debate/?id=2023-08-01.125.2) to the usual second reading motion, which is "*that the bill be read a second time*" (parliamentary jargon for agreeing with the main idea of the bill). Because this vote was unsuccessful, the usual second reading motion will remain unchanged. The amendment was introduced by Hume MP [Angus Taylor](https://theyvoteforyou.org.au/people/representatives/hume/angus_taylor) (Liberal).
### Amendment text
> *That all words after "That" be omitted with a view to substituting the following words:*
>
> *"whilst not declining to give the bill a second reading, the House notes:*
>
> *(1) the former Coalition government implemented more than a dozen measures to combat multinational tax avoidance including by:*
>
>> *(a) playing a leading role in the original OECD BEPS project, and committing to the OECD two-pillar solution to multinational tax; and*
>>
>> *(b) introducing the Multinational Tax Avoidance Law; the Diverted Profits Tax; strengthening the thin capitalisation and transfer pricing rules; doubling penalties for multinational tax avoidance; and establishing the Tax Avoidance Taskforce;*
>
> *(2) that despite promising to only raise taxes on multinationals at the election, the Labor Government have broken promises to raise taxes on superannuation, on unrealised capital gains, on franking credits, and end small business tax incentives;*
>
> *(3) that the original form of this Bill, and its last-minute changes, show once again that Labor have an anti-business approach to consultation, regulation and policy to support business;*
>
> *(4) independent economist Chris Richardson expects that Labor will breach the 23.9% tax-to-GDP cap in their first year in office; and*
>
> *(5) that higher taxes are not a solution to a cost-of-living crisis and collapsing productivity under Labor".*
These measures are based on the 2013 OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting. Over 135 countries and jurisdictions are working together within this inclusive framework to take steps to combat tax avoidance, strengthen the coherence of international tax legislation and promote a more transparent tax environment. With this in mind, it is important to note that the aim of these reforms is to hold companies to account, particularly large corporate groups, with respect to their corporate structures and whether they are operating with opaque or atypical tax arrangements. In recent years we have seen a worrying trend in which many multinational firms have used loopholes and complicated financial arrangements to reduce their tax responsibilities. As a result, they have avoided paying their fair share of taxes, placing the burden of funding important public services, infrastructure and social programs on the rest of society. This must stop.
The amendments in schedule 1 to the bill are intended to improve tax transparency by requiring Australian public companies to disclose information about their subsidiaries in their annual financial reports. These amendments apply to the financial year commencing on 1 July 2023. This will hold firms accountable, particularly large corporations, by compelling them to be more transparent about their corporate structures and whether they are using opaque tax arrangements, such as subsidiaries in low-tax jurisdictions. This data will aid in producing better economic analysis and will help to determine whether tax arrangements are collecting the appropriate amount of revenue. It is helpful to know that stakeholder feedback in August 2022 and April 2023 influenced this measure. It is a measure that is a significant step towards improved tax openness, and it supplements ongoing efforts to develop a beneficial ownership register and public country-by-country reporting, on which the government is continuing to consult with stakeholders.
While schedule 1 is a transparency measure, schedule 2 is a revenue raising measure. It aims to limit multinational entities' debt deductions, ensuring that they pay their fair share of tax in Australia and helping to level the playing field for Australian enterprises. We know that a lack of coherence in international tax rules creates international tax gaps in a global digital economy where large multinational entities aggressively engage in tax avoidance practices. This practice was highlighted by the OECD report titled Addressing base erosion and profit shifting, which resulted in the Base Erosion and Profit Shifting Action Plan. The OECD stated that this plan was a response to the perception that domestic and international rules on the taxation of cross-border profits are broken and that taxes are paid only by the naive. This government is not naive. Australians are not naive. Through this bill, multinational entities will discover that we as a country are not naive.
At a functional level, schedule 2 introduces new thin-capitalisation earnings based tests for the new general class investors. Specifically, this measure will limit an entity's debt related deductions to 30 per cent of profits. This new earnings based test will replace the current safe harbour test. An earnings based approach to debt deductions ensures that deductions are directly tied to an entity's economic activity and earnings. This is a robust approach to addressing the tax planning practices of multinationals. This is an important measure. Because debt is tax deductible, multinationals can adjust their debt levels and use related-party borrowings to minimise the amount of tax they pay.
The increasing occurrence of this tax avoidance practice has resulted in international efforts, as highlighted earlier by the work of the OECD, to address tax integrity risks and directly limit debt-related deductions for multinational entities. It's worth noting that jurisdictions such as the United Kingdom, the United States and most of the European Union have already implemented earning-based interest-limitation rules. The proposed thin capitalisation amendments will bring Australia in line with these jurisdictions and ensure that we are not the final frontier when it comes to multinational entities and tax avoidance.
I also acknowledge there has been some criticism of the speed of these changes. It is important to remember, and for me to reiterate here, that these amendments were first announced in April 2022 as part of Labor's election commitment platform. They have since been subject to extensive stakeholder consultation, and the final legislative approach reflects this stakeholder feedback to accommodate genuine arrangements as much as possible, noting that this is a tax integrity measure. Additionally, we know—and it should come as no surprise to both the House and the majority of hardworking, taxpaying Australians—that postponing these changes would present a revenue and tax avoidance risk by allowing taxpayers—in this case multinational entities—to artificially restructure their arrangements to avoid the new rules and gain a tax benefit.
I said earlier that we as a government are not naive, and the speed of these changes taking effect following extensive and considered consultation speaks to this fact. This bill is an overdue response to the growing concern over income inequality and the erosion of public trust in the fairness of our tax system. The current state of affairs is not only inequitable but also undermines the trust and confidence citizens have in their government and the corporate sector. We have got to do more on multinational taxation. We have two-fifths of multinational profits currently sitting in tax havens. We have got some $100 billion of Australian money sitting in tax havens—places like the Bahamas and Panama, where there are very low tax rates and where on one estimate four-fifths of the money is there in breach of other countries' tax laws. These aren't just tax avoidance mechanisms. These are also the places where terrorists, kidnappers, crime syndicates and drug lords store their money. With this in mind, I found it truly remarkable that those on the other side of the House issued media releases criticising this government for wanting to do more on multinational taxation.
In Victoria, my home state, we had the incident a couple of years ago of the Stawell tyre dump being transferred to a company in Panama in order to avoid their cleanup obligations. Some nine million tires were sitting at the dump, and the attempt of the owners to shift ownership off to Panama for a tax haven was all designed to avoid their liabilities. It is this sort of problem that Labor—the government—wants to address. Over nearly a decade in government, those opposite tinkered around the edges making the odd tweak here and there, but throughout their time in government they clearly showed which side they were on—and it was not on the side of Australians but on the side of rogue multinational tax dodgers.
The profit of multinational profit shifting is a massive one. Globally, around $600 billion of profits are estimated to be shifted to tax havens. That's almost 40 per cent of multinational profits. However, the first thing the coalition did when they came into government was hollow out the tax office, sucking out almost 5,000 staff. Two years into government, they realised how much that was costing them and so they set up a taskforce to plug the hole—the very hole that they created. It was before the federal election last year when those opposite told Australians not to support anyone that proposed to raise taxes on multinational tax dodging. That is pretty outrageous and makes us really question what side the Liberal coalition are on.
Labor takes the view—our government takes the view—that the international group that came together in 2021—more than 100 countries—to strike a deal on global taxation has made a step in the right direction. As someone standing on the government side of the House, I'm pleased to say that we are now working to see those measures implemented. Those opposite have been walking away from the issue of multinational taxation, despite this being deeply unfair to Australian firms.
If you're a new start-up business, you're not banking your money in the Bahamas; you're not looking for an accounting lurk to run through the Cayman Islands; and you certainly don't have an army of lawyers and accountants who are looking to find the arbitrary to cross the international tax system to exploit it and seek out every loophole possible. On the contrary, new start-up businesses in Australia are working hard, putting in long hours and doing their absolute best to manage cash flow, balance the books and launch a new business. However, as it stands right now, they face the potential of being cheated by multinational entities and tax dodgers who are using tax havens in favourable jurisdictions. We clearly have to do more to level the playing field and support those Australian businesses. I'm really pleased that our government is doing just that. Let there be no mistake: Labor is closing these loopholes that will improve the integrity, transparency and credibility of our tax system.
It's important to highlight that a feature of the bill includes provisions to strengthen the enforcement of tax laws and increase penalties for non-compliance. By doing this, we create a strong deterrent against tax avoidance and evasion, ensuring that all companies, regardless of their size or influence, play by the rules and pay their fair share. A transparent and fair tax system can enhance our nation's credibility and attractiveness to foreign investors, providing stability, predictability and a level playing field for business. It's essential to understand that this legislation is not about punishing successful businesses but rather about building a more just and equitable society. When multinational entities pay their fair share of taxes, we can fund better education systems, health care, infrastructure and social safety nets for our citizens, promoting economic and social development for all Australians. When multinationals don't pay their fair share, individuals and families—all of our communities—suffer the most. Over the years, we have seen things like the Panama papers, the Lux leaks and the Paradise papers reveal that the deliberate, sophisticated tactics global companies have been using to shift profits around the world to pay less tax have been bad for the world.
~~In closing, I want to mention the words of the always inspiration US President Barack Obama:~~
~~We shouldn't make it legal to engage in transactions just to avoid taxes …~~
~~He went on to say that there is:~~
~~… the basic principle of making sure everyone pays their fair share.~~
This basic principle is the essence of what makes the Labor government a Labor government—fairness and making sure that we're able to build a better future where no-one's left behind. I am proud that we, as a Labor government, are playing our part in this important issue. I commend the bill to the House.
~~Long debate text truncated.~~