Division Description Changes — Bills — Tax Laws Amendment (Combating Multinational Tax Avoidance) Bill 2015; in Committee — 10th Nov 2015

Change	Division
senate vote 2015-11-10#2 Edited by mackay staff on 2016-01-08 16:58:43	Title Bills — Tax Laws Amendment (Combating Multinational Tax Avoidance) Bill 2015; in Committee Tax Laws Amendment (Combating Multinational Tax Avoidance) Bill 2015 - in Committee - General purpose financial report Description ~~<p class="speaker">Peter Whish-Wilson</p>~~ <p>I would like to speak to the two Greens amendments before the Senate tonight. The second amendment is schedule 1 before item 5; the third amendment is at the end of the bill in clause 2 and that is the better targeting tax transparency. The first one is around consolidated accounts.</p> <p>I understand that Senator Xenophon has an amendment that is very similar to our amendment on consolidated accounts. It is clear from the second reading speeches that the philosophy and the policy intents are very similar, but the difference is that we would like to have a threshold of $500 million to bring this in. From my understanding, I do not think it is so difficult for the government to enact this legislation. If the amendment gets up, and I certainly hope that it does, it is a very reasonable way to increase exposure and disclosure, as I said before, by looking at the loopholes.</p> The majority voted in favour of [an amendment](http://www.openaustralia.org.au/senate/?gid=2015-11-10.139.1) moved by Independent Senator [Nick Xenophon](https://theyvoteforyou.org.au/people/senate/sa/nick_xenophon). This amendment would require all companies (both Australian and international) with a revenue of $1 billion a year or more to give a general purpose financial report rather than a special purpose financial report, "which are scant in their detail" (see Xenophon's [full explanation](http://www.openaustralia.org.au/senate/?gid=2015-11-10.139.1)). ### What does the bill do? The [bill](http://parlinfo.aph.gov.au/parlInfo/search/display/display.w3p;query=Id:legislation/billhome/r5549) strengthens the laws against [tax avoidance](https://en.wikipedia.org/wiki/Tax_avoidance) for certain companies. For example, it introduces anti-avoidance measures to deal with [multinational companies](https://en.wikipedia.org/wiki/Multinational_corporation) with an annual global income of more than $A1 billion that use schemes to avoid having to pay tax in Australia or at least reduce that tax to a minimum. To learn more about the bill, see the [bills digest](http://www.aph.gov.au/Parliamentary_Business/Bills_Legislation/bd/bd1516a/16bd045). <p>I would call the special purpose entities and the special purpose accounts that they use a loophole. They apply to ASIC. As we heard in quite a bit of evidence in the Senate committee, they do not have the highest levels of disclosure. In fact, they have very low levels of disclosure. We heard of a lot of examples where this has been used. It quite shocked those on the committee that some very big companies were not disclosing tax at all. I remember being there when Greg Medcraft and ASIC were asked directly about this at estimates as well on numerous occasions.</p> <p>It is up to us here to propose that this loophole—I will call it a loophole—be closed. No doubt it was put in place originally to lower requirements for corporations. I am trying to think of some of the reasons that it might have been allowed. No doubt we—we being the collective parliament—were lobbied, or someone in government was lobbied about red tape, equality, comparisons with other tax jurisdictions, because these kind of things might put off investors in this country. I would be quite happy for the minister to explain, if he could, why these special purpose entities and special purpose accounts were set up in the first place.</p> ~~<p class="speaker">Mathias Cormann</p>~~ <p>I thank Senator Whish-Wilson for his contribution. The government does not support this amendment or the amendment circulated by Senator Xenophon. This is not a loophole. Imposing a requirement that an entity must prepare general purpose accounts would be, in our judgement, an excessive compliance burden, because much of this information would be utterly irrelevant for tax compliance purposes.</p> <p>The commissioner already collects a significant amount of information that relates to taxpayers on the tax return form. To the extent that more information would be helpful for the commissioner to independently administer the tax law: he already has very broad powers to require this to be produced and he can obtain that information. The commissioner already has sufficient and significant powers under his general information gathering powers. The commissioner can already require further information to be included on the income tax return to the extent that it is useful for tax compliance purposes.</p> <p>The key difference between the general purpose accounts and the special purpose accounts is that additional information on related party transactions is provided. This information is already available to the commissioner, as it is disclosed in the international dealings schedule attached to the income tax return. Let me just say that again very slowly: this information is already available to the tax commissioner as it is disclosed in the international dealings schedule attached to the income tax return.</p> <p>The proposed country-by-country reporting standards already provide detailed information to the tax office on international profit-shifting. Nothing further would be gained by requiring an entity to prepare another set of general purpose accounts. General accounts would only reveal Australian entity information, so what you are proposing does not go as far as what is already in train. The draft country-by-country rules go further and require accounting information from all the entities in a multinational group. The country-by-country legislation is already best practice and consistent with OECD best practice for mandatory transfer pricing information to be provided to the tax office.</p> <p>The OECD debated whether to make country-by-country transfer information public. It was determined that this should not be made public. Doing this for tax purposes would go beyond best practice and, as such, the government is not going to support this proposal by the Greens and Senator Xenophon.</p> ~~<p class="speaker">Nick Xenophon</p>~~ <p>In relation to the general discussion about this bill and the amendments and the contribution made by Senator Whish-Wilson, does Minister Cormann agree that general purpose financial reports provide more information? I have in front of me the <i>Statement of Accounting Concepts SAC</i><i>2</i><i>:</i><i> Objective of general purpose financial reporting</i>, which is prepared by the Public Sector Accounting Standards Board of the Australian Accounting Research Foundation and by the Accounting Standards Review Board. The statement defines a 'general purpose financial report' as:</p> <p class="italic">… a financial report intended to meet the information needs common to users who are unable to command the preparation of reports tailored so as to satisfy, specifically, all of their information needs;</p> <p>In contrast, special purpose accounts reporting is much more constrained. It gives next to no information about a company. It may just give their revenue for the year. It gives a paucity of information. General purpose accounts are not onerous. They are equivalent to the information that a publicly listed company provides to the ASX.</p> ~~<p class="speaker">Mathias Cormann</p>~~ ~~<p>What I can say to Senator Xenophon is that the government does not agree to the imposition of additional red tape which imposes additional costs without delivering an additional benefit.</p>~~ <p>The global expert, when it comes to the appropriate policy frameworks and standards for taking effective action against multinational tax avoidance, is the OECD. Indeed, a former Labor Assistant Treasurer, David Bradbury, the former member for Lindsay, works in that part of the OECD these days, reporting to Pascal Saint-Amans. What this government is doing is following international best practice as set out by the OECD.</p> <p>This exact point that Senator Whish-Wilson and Senator Xenophon are putting on the table was carefully considered by the OECD. The OECD, in our view for good reasons, made a judgement that it would not be appropriate or consistent with best practice to require the publication of this sort of information. As I said in my response to Senator Whish-Wilson, this does not provide additional information for tax compliance purposes that the tax commissioner cannot already get or does not already obtain through the income tax return or the associated schedules. This is essentially just imposing an additional compliance burden and an additional cost for the sake of it. Australia has to watch its international competitiveness. We should not just willy-nilly impose additional costs on business for the sake of it when it does not add value, and we certainly should not be doing it outside the well-considered framework of international best practice as laid out by the OECD. For these reasons the government will not be supporting either Senator Whish-Wilson's or Senator Xenophon's amendment.</p> ~~<p class="speaker">Peter Whish-Wilson</p>~~ <p>) ( ): Can the minister explain why big companies like Glencore, with $35 billion worth of assets, apply for special purpose accounting, and does the minister accept that there is a role for forensic accounting and a public interest in having these accounts available? I understand you can go to where these corporations are domiciled or registered and the accounts have to be released, but why do they apply through subsidiaries in other countries to have minimal disclosure in their accounts?</p> ~~<p class="speaker">Mathias Cormann</p>~~ <p> ) ( ): I am not going to discuss the individual tax affairs of individual taxpayers—that would not be appropriate. Senator Whish-Wilson talks about forensic accounting and asks whether I support that. I support the system that we have in Australia where the tax commissioner independently administers and enforces compliance with our tax laws. I think that that independence is very important indeed if people are to have confidence in the integrity of our system. I do not think we want to politicise the administration of our tax laws, and I think the tax commissioner ought to have the powers—and the tax commissioner has the powers—that he needs to ensure that those businesses generating profits in Australia, including multinational businesses, pay their fair share of tax here in Australia consistent with our laws.</p> <p>Of course the bill that is in front of us is a significant step forward because it will give the tax commissioner additional powers. It will enable the tax commissioner to see through any contrived arrangements where a multinational company is seeking to avoid paying tax consistent with our laws here in Australia by taking advantage of those contrived arrangements. The Senate should support this bill unamended. We should not go down a path which all of the international experts have considered carefully and said is not the right way to go.</p> ~~<p class="speaker">Nick Xenophon</p>~~ <p>If we can go back to the question I put to the minister a few minutes ago, in terms of general purpose financial reporting, the information provided—what is proposed in my amendment and in the amendment to be moved by the Australian Greens—is effectively the sort of information that you would see in a publicly listed company in this country. In other words, the first direct question to the finance minister is that what is being requested here is no more and no less, effectively, than what public companies have to provide to the ASX. With my proposed amendment, if you are part of a company that has $1 billion a year revenue, then that will be not be onerous. My second question is that the minister says the information is already provided to the Australian Taxation Office—that is my understanding of how he responded to a question from the Senator Whish-Wilson—so how can it be an additional cost of compliance to file it with ASIC, for instance, or for it to be made publicly available?</p> ~~<p class="speaker">Mathias Cormann</p>~~ <p>This is a tax integrity bill. What we are focusing on here is making sure that the tax commissioner has the powers that he needs to enforce compliance with our tax laws. What I said very clearly in response to Senator Whish-Wilson was that a requirement that an entity must prepare general-purpose accounts would be an excessive compliance burden because much of this information would be utterly irrelevant for tax compliance purposes and all of the information that is relevant for tax compliance purposes can already be obtained by the tax commissioner.</p> ~~<p class="speaker">Peter Whish-Wilson</p>~~ <p>Minister, you keep talking about the tax commissioner having the powers they need—putting aside whether they have the resources. Isn't the issue not necessarily that they have the powers to chase corporations who might be minimising or avoiding their tax but detection in the first place? Isn't it about having the information available? Especially for an office that is under pressure and that has lost so many of its staff over the years, isn't the issue that this information is available to the public and for forensic accounting, and it would actually be reverse red tape—it would give all of us the information we need. There is a really good forensic accountant in Tasmania who does just about everyone's work for them on a volunteer basis, not to mention the ones within professional organisations. This would open it up so that we could all help deal with this problem.</p> <p>The problem, as I highlighted in my speech on the second reading, and which was very obvious in the Senate inquiry, is that the tax office has been shredded by the minister's government—4,400 jobs have been cut from the tax office, and the minister is here tonight telling us that all the commission needs is powers. Fine if the commissioner gets those powers when they need them, but you have to detect the avoidance in the first place. You have to have the resources and the ability to detect things before you can prosecute a case or hold these corporations to account if they are avoiding tax. This is about having the information available so that detection can occur, and that is what this amendment is about. I would have thought it was a no-brainer.</p> ~~<p class="speaker">Mathias Cormann</p>~~ <p>Firstly, I completely reject the assertions that Senator Whish-Wilson made about a shredded tax office and the tax office being under pressure. It is true that the previous Labor government imposed an efficiency dividend on the tax office which led to a reduction of about 3,500 ASL positions. It was quite appropriate for the previous Labor government to do that because in the 21st century, in 2015, the administration of our tax laws is not the same as it was 20 or 30 years ago</p> <p>It is not paper based in the same way. There are more sophisticated compliance mechanisms and tools available these days. Of course, the tax office will continue to be at the global leading edge when it comes to pursuing, implementing and administering our tax laws in a modern and efficient way—and they are doing a great job.</p> <p>Specifically in relation to international tax avoidance, the government has provided an additional $87.6 million to the ATO over three years to investigate international tax avoidance. To date, the program has raised over $400 million in tax liabilities, and it is estimated to raise about $1.1 billion in total. This suggestion that we are not resourcing the tax office appropriately is wrong. Even if Senator Whish-Wilson's assertion were right, it does not link at all with his final sentence in support of his amendment, because, as I have indicated before, his amendment and Senator Xenophon's amendment do not add anything when it comes to providing information to the tax office, because the information required for tax compliance purposes is already available and within reach of the tax commissioner.</p> ~~<p class='motion-notice motion-notice-truncated'>Long debate text truncated.</p>~~

~~Peter Whish-Wilson~~
I would like to speak to the two Greens amendments before the Senate tonight. The second amendment is schedule 1 before item 5; the third amendment is at the end of the bill in clause 2 and that is the better targeting tax transparency. The first one is around consolidated accounts.
I understand that Senator Xenophon has an amendment that is very similar to our amendment on consolidated accounts. It is clear from the second reading speeches that the philosophy and the policy intents are very similar, but the difference is that we would like to have a threshold of $500 million to bring this in. From my understanding, I do not think it is so difficult for the government to enact this legislation. If the amendment gets up, and I certainly hope that it does, it is a very reasonable way to increase exposure and disclosure, as I said before, by looking at the loopholes.
The majority voted in favour of [an amendment](http://www.openaustralia.org.au/senate/?gid=2015-11-10.139.1) moved by Independent Senator [Nick Xenophon](https://theyvoteforyou.org.au/people/senate/sa/nick_xenophon).
This amendment would require all companies (both Australian and international) with a revenue of $1 billion a year or more to give a general purpose financial report rather than a special purpose financial report, "which are scant in their detail" (see Xenophon's [full explanation](http://www.openaustralia.org.au/senate/?gid=2015-11-10.139.1)).
### What does the bill do?
The [bill](http://parlinfo.aph.gov.au/parlInfo/search/display/display.w3p;query=Id:legislation/billhome/r5549) strengthens the laws against [tax avoidance](https://en.wikipedia.org/wiki/Tax_avoidance) for certain companies. For example, it introduces anti-avoidance measures to deal with [multinational companies](https://en.wikipedia.org/wiki/Multinational_corporation) with an annual global income of more than $A1 billion that use schemes to avoid having to pay tax in Australia or at least reduce that tax to a minimum.
To learn more about the bill, see the [bills digest](http://www.aph.gov.au/Parliamentary_Business/Bills_Legislation/bd/bd1516a/16bd045).
I would call the special purpose entities and the special purpose accounts that they use a loophole. They apply to ASIC. As we heard in quite a bit of evidence in the Senate committee, they do not have the highest levels of disclosure. In fact, they have very low levels of disclosure. We heard of a lot of examples where this has been used. It quite shocked those on the committee that some very big companies were not disclosing tax at all. I remember being there when Greg Medcraft and ASIC were asked directly about this at estimates as well on numerous occasions.
It is up to us here to propose that this loophole—I will call it a loophole—be closed. No doubt it was put in place originally to lower requirements for corporations. I am trying to think of some of the reasons that it might have been allowed. No doubt we—we being the collective parliament—were lobbied, or someone in government was lobbied about red tape, equality, comparisons with other tax jurisdictions, because these kind of things might put off investors in this country. I would be quite happy for the minister to explain, if he could, why these special purpose entities and special purpose accounts were set up in the first place.
~~Mathias Cormann~~
I thank Senator Whish-Wilson for his contribution. The government does not support this amendment or the amendment circulated by Senator Xenophon. This is not a loophole. Imposing a requirement that an entity must prepare general purpose accounts would be, in our judgement, an excessive compliance burden, because much of this information would be utterly irrelevant for tax compliance purposes.
The commissioner already collects a significant amount of information that relates to taxpayers on the tax return form. To the extent that more information would be helpful for the commissioner to independently administer the tax law: he already has very broad powers to require this to be produced and he can obtain that information. The commissioner already has sufficient and significant powers under his general information gathering powers. The commissioner can already require further information to be included on the income tax return to the extent that it is useful for tax compliance purposes.
The key difference between the general purpose accounts and the special purpose accounts is that additional information on related party transactions is provided. This information is already available to the commissioner, as it is disclosed in the international dealings schedule attached to the income tax return. Let me just say that again very slowly: this information is already available to the tax commissioner as it is disclosed in the international dealings schedule attached to the income tax return.
The proposed country-by-country reporting standards already provide detailed information to the tax office on international profit-shifting. Nothing further would be gained by requiring an entity to prepare another set of general purpose accounts. General accounts would only reveal Australian entity information, so what you are proposing does not go as far as what is already in train. The draft country-by-country rules go further and require accounting information from all the entities in a multinational group. The country-by-country legislation is already best practice and consistent with OECD best practice for mandatory transfer pricing information to be provided to the tax office.
The OECD debated whether to make country-by-country transfer information public. It was determined that this should not be made public. Doing this for tax purposes would go beyond best practice and, as such, the government is not going to support this proposal by the Greens and Senator Xenophon.
~~Nick Xenophon~~
In relation to the general discussion about this bill and the amendments and the contribution made by Senator Whish-Wilson, does Minister Cormann agree that general purpose financial reports provide more information? I have in front of me the Statement of Accounting Concepts SAC2: Objective of general purpose financial reporting, which is prepared by the Public Sector Accounting Standards Board of the Australian Accounting Research Foundation and by the Accounting Standards Review Board. The statement defines a 'general purpose financial report' as:
… a financial report intended to meet the information needs common to users who are unable to command the preparation of reports tailored so as to satisfy, specifically, all of their information needs;
In contrast, special purpose accounts reporting is much more constrained. It gives next to no information about a company. It may just give their revenue for the year. It gives a paucity of information. General purpose accounts are not onerous. They are equivalent to the information that a publicly listed company provides to the ASX.
~~Mathias Cormann~~
~~What I can say to Senator Xenophon is that the government does not agree to the imposition of additional red tape which imposes additional costs without delivering an additional benefit.~~
The global expert, when it comes to the appropriate policy frameworks and standards for taking effective action against multinational tax avoidance, is the OECD. Indeed, a former Labor Assistant Treasurer, David Bradbury, the former member for Lindsay, works in that part of the OECD these days, reporting to Pascal Saint-Amans. What this government is doing is following international best practice as set out by the OECD.
This exact point that Senator Whish-Wilson and Senator Xenophon are putting on the table was carefully considered by the OECD. The OECD, in our view for good reasons, made a judgement that it would not be appropriate or consistent with best practice to require the publication of this sort of information. As I said in my response to Senator Whish-Wilson, this does not provide additional information for tax compliance purposes that the tax commissioner cannot already get or does not already obtain through the income tax return or the associated schedules. This is essentially just imposing an additional compliance burden and an additional cost for the sake of it. Australia has to watch its international competitiveness. We should not just willy-nilly impose additional costs on business for the sake of it when it does not add value, and we certainly should not be doing it outside the well-considered framework of international best practice as laid out by the OECD. For these reasons the government will not be supporting either Senator Whish-Wilson's or Senator Xenophon's amendment.
~~Peter Whish-Wilson~~
) ( ): Can the minister explain why big companies like Glencore, with $35 billion worth of assets, apply for special purpose accounting, and does the minister accept that there is a role for forensic accounting and a public interest in having these accounts available? I understand you can go to where these corporations are domiciled or registered and the accounts have to be released, but why do they apply through subsidiaries in other countries to have minimal disclosure in their accounts?
~~Mathias Cormann~~
) ( ): I am not going to discuss the individual tax affairs of individual taxpayers—that would not be appropriate. Senator Whish-Wilson talks about forensic accounting and asks whether I support that. I support the system that we have in Australia where the tax commissioner independently administers and enforces compliance with our tax laws. I think that that independence is very important indeed if people are to have confidence in the integrity of our system. I do not think we want to politicise the administration of our tax laws, and I think the tax commissioner ought to have the powers—and the tax commissioner has the powers—that he needs to ensure that those businesses generating profits in Australia, including multinational businesses, pay their fair share of tax here in Australia consistent with our laws.
Of course the bill that is in front of us is a significant step forward because it will give the tax commissioner additional powers. It will enable the tax commissioner to see through any contrived arrangements where a multinational company is seeking to avoid paying tax consistent with our laws here in Australia by taking advantage of those contrived arrangements. The Senate should support this bill unamended. We should not go down a path which all of the international experts have considered carefully and said is not the right way to go.
~~Nick Xenophon~~
If we can go back to the question I put to the minister a few minutes ago, in terms of general purpose financial reporting, the information provided—what is proposed in my amendment and in the amendment to be moved by the Australian Greens—is effectively the sort of information that you would see in a publicly listed company in this country. In other words, the first direct question to the finance minister is that what is being requested here is no more and no less, effectively, than what public companies have to provide to the ASX. With my proposed amendment, if you are part of a company that has $1 billion a year revenue, then that will be not be onerous. My second question is that the minister says the information is already provided to the Australian Taxation Office—that is my understanding of how he responded to a question from the Senator Whish-Wilson—so how can it be an additional cost of compliance to file it with ASIC, for instance, or for it to be made publicly available?
~~Mathias Cormann~~
This is a tax integrity bill. What we are focusing on here is making sure that the tax commissioner has the powers that he needs to enforce compliance with our tax laws. What I said very clearly in response to Senator Whish-Wilson was that a requirement that an entity must prepare general-purpose accounts would be an excessive compliance burden because much of this information would be utterly irrelevant for tax compliance purposes and all of the information that is relevant for tax compliance purposes can already be obtained by the tax commissioner.
~~Peter Whish-Wilson~~
Minister, you keep talking about the tax commissioner having the powers they need—putting aside whether they have the resources. Isn't the issue not necessarily that they have the powers to chase corporations who might be minimising or avoiding their tax but detection in the first place? Isn't it about having the information available? Especially for an office that is under pressure and that has lost so many of its staff over the years, isn't the issue that this information is available to the public and for forensic accounting, and it would actually be reverse red tape—it would give all of us the information we need. There is a really good forensic accountant in Tasmania who does just about everyone's work for them on a volunteer basis, not to mention the ones within professional organisations. This would open it up so that we could all help deal with this problem.
The problem, as I highlighted in my speech on the second reading, and which was very obvious in the Senate inquiry, is that the tax office has been shredded by the minister's government—4,400 jobs have been cut from the tax office, and the minister is here tonight telling us that all the commission needs is powers. Fine if the commissioner gets those powers when they need them, but you have to detect the avoidance in the first place. You have to have the resources and the ability to detect things before you can prosecute a case or hold these corporations to account if they are avoiding tax. This is about having the information available so that detection can occur, and that is what this amendment is about. I would have thought it was a no-brainer.
~~Mathias Cormann~~
Firstly, I completely reject the assertions that Senator Whish-Wilson made about a shredded tax office and the tax office being under pressure. It is true that the previous Labor government imposed an efficiency dividend on the tax office which led to a reduction of about 3,500 ASL positions. It was quite appropriate for the previous Labor government to do that because in the 21st century, in 2015, the administration of our tax laws is not the same as it was 20 or 30 years ago
It is not paper based in the same way. There are more sophisticated compliance mechanisms and tools available these days. Of course, the tax office will continue to be at the global leading edge when it comes to pursuing, implementing and administering our tax laws in a modern and efficient way—and they are doing a great job.
Specifically in relation to international tax avoidance, the government has provided an additional $87.6 million to the ATO over three years to investigate international tax avoidance. To date, the program has raised over $400 million in tax liabilities, and it is estimated to raise about $1.1 billion in total. This suggestion that we are not resourcing the tax office appropriately is wrong. Even if Senator Whish-Wilson's assertion were right, it does not link at all with his final sentence in support of his amendment, because, as I have indicated before, his amendment and Senator Xenophon's amendment do not add anything when it comes to providing information to the tax office, because the information required for tax compliance purposes is already available and within reach of the tax commissioner.
~~Long debate text truncated.~~