Peter Hendy (Eden-Monaro, Liberal Party) Share this | Link to this | Hansard source

I rise to support the International Tax Agreements Amendment Bill 2014 and completely reject the disingenuous proposed second reading amendment from the shadow minister, the member for Fraser. I do not seek to speak at any length on this bill as it is an uncontroversial piece of legislation and, given that it is an uncontroversial bill, I think it is bizarre that the shadow minister has moved such a juvenile and hypocritical second reading amendment when there is supposedly bipartisan support in this parliament for dealing with multinational tax avoidance.

Simply put, this bill will amend the International Tax Agreements Act 1953 to give the force of law to the new tax treaty signed by Australia and Switzerland on 30 July 2013 during the term of the last government. As the Parliamentary Secretary to the Treasurer said in his second reading speech on this bill:

Tax treaties facilitate trade and investment by reducing barriers caused by the double taxation of residents in the two countries.

He noted that Australia has 44 bilateral tax treaties. As he said:

The new treaty will fulfil Australia's ‘most favoured nation’ obligations, contained in the existing tax treaty with Switzerland, to reduce its withholding tax rates on dividends, interest and royalties paid by Australian residents to Swiss residents.

The new treaty will also modernise the bilateral taxpayer information sharing arrangements and permit, for the first time, the exchange of taxpayer information for the purpose of preventing tax evasion. This greater transparency includes access to Swiss bank information that could help Australia better enforce its tax laws.

This bill gives me an opportunity to reflect on the international taxation agenda of the government and the upcoming G20 meeting which Australia is hosting in Brisbane on 12-14 November this year. International tax evasion is a scourge that needs the direct attention of world leaders.

The G20, or group of 20, is essentially the 20 largest economies in the world representing 85 per cent the world's economy meeting to cooperate on economic issues. As Chair of the G20 Finance Ministers Group this year, the Treasurer, the member for North Sydney, has done a particularly good job of keeping international tax harmonisation at the forefront of the agenda. My New South Wales parliamentary colleague Senator Bill Heffernan has also done an exceptional job of raising this issue in Australia and I commend him for the work he has been doing in this area. I also want to acknowledge the work of community groups in Australia who have worked in collaboration with international groups like Transparency International on such matters.

Not very long ago, I had the pleasure of meeting Carol Bartlett and Gail Talbot from Micah Challenge in my Bega electorate office. Micah Challenge is a worldwide Christian movement for increasing foreign aid to countries that need help. This year their work has a focus on tax evasion. They particularly referred me to the work of Transparency International and I undertook to add my voice to this part of their campaign in parliament. Transparency International seeks effective work from the G20 Anti-Corruption Working Group, which was set up in 2010. They point out the obvious fact that many of the biggest losers from international money laundering and other evasion are the poorest nations around the world, such as African nations. They argue that, if these matters could be dealt with effectively, it would reduce the level of international development aid that these poor nations require to help sustain their populations.

As the Treasurer stated in a speech on this topic to the Institute of International Finance in Brisbane on 20 February 2014:

Businesses are adopting new ways of doing business. That is due in part to the increasing integration of financial systems and economies around the world, as well as to the phenomenal growth of the internet and other technologies.

The international tax framework has not kept pace with these changes. Our tax systems were built for a world where business was predominantly confined to national borders. This is not the reality of the twenty-first century.

As a consequence, we have seen the erosion of domestic tax bases resulting from international tax planning that takes advantage of the gaps in our current taxation systems.

And citizens expect a comprehensive response from the G20 on this, given the inefficiencies and unfairness apparent in the current system.

That encapsulates the problem in a few sentences.

In signs of progress, the communique from the meeting of G20 finance ministers and central bank governors in Sydney on 22 and 23 February 2014 said:

We are committed to a global response to Base Erosion and Profit Shifting (BEPS) based on sound tax policy principles. Profits should be taxed where economic activities deriving the profits are performed and where value is created. We continue our full support for the G20/OECD BEPS Action Plan, and look forward to progress as set out in the agreed timetable.

By the Brisbane summit, we will start to deliver effective, practical and sustainable measures to counter BEPS across all industries, including traditional, digital and digitalised firms, in an increasingly globalised economy. We endorse the Common Reporting Standard for automatic exchange of tax information on a reciprocal basis and will work with all relevant parties, including our financial institutions, to detail our implementation plan at our September meeting.

In parallel, we expect to begin to exchange information automatically on tax matters among G20 members by the end of 2015. We call for the early adoption of the standard by those jurisdictions that are able to do so.

We call on all financial centres to match our commitments.

We urge all jurisdictions that have not yet complied with the existing standard for exchange of information on request to do so and sign the Multilateral Convention on Mutual Administrative Assistance in Tax Matters without further delay.

We stand ready to give tougher incentives to those 14 jurisdictions that have not qualified for Phase 2 of the evaluations.

We will engage with, and support low-income and developing countries so that they benefit from our work on tax.

This is all very important work because of the billions of dollars that have been siphoned off around the world into the black market.

Australia wants to work in collaboration with other nations in this endeavour. If we were to go it alone on this issue, it would disproportionately impact on investment and jobs in Australia. We therefore want to work with others. We really need a global solution. I wish the Prime Minister and the Treasurer all the best in the negotiations they undertake over the course of this year. The government's international tax agenda has the potential to help not only Australians but many millions of people across the world. In the meantime, we are focusing our attention on helping Australians with our schedule of bilateral tax agreements. This bill represents the latest instalment. In conclusion, I commend the bill to the House and reject the proposed second reading amendment of the member for Fraser.

Terri Butler (Griffith, Australian Labor Party) Share this | Link to this | Hansard source

Labor welcomes the government's implementation of legislation to give effect to the revised Australia-Switzerland tax treaty, which was signed on 30 July 2013. The revised treaty was a result of hard work by the previous Labor government. From the perspective of a Labor member, it is important to take opportunities to speak about moves and measures aimed at, among other things, stamping out tax evasion. Labor cares about tax evasion, because tax evasion is fundamentally a question of fairness. It is a question of people making the appropriate contribution to the community in which they live and to the community in which they do business. One reason that we are fundamentally concerned with stamping out tax evasion is that taxation is an important concern when considering issues of inequality in society.

We know that here at home Australian society has become more unequal. Callum Pickering, in an article entitled 'Australia's inequality shame can no longer be ignored', wrote on 22 January this year:

There is a balance to be had between inequality and opportunity and we have failed to get that balance right.

… the share of national income accruing to the top 1 per cent of income earners has increased significantly over the past three decades … Australia had the second highest increase in inequality.

…   …   …

The top 1 per cent of income earners account for almost 10 per cent of Australia’s annual income. In addition, the biggest gains in income share have been concentrated in the top 1 and top 0.1 per cent of income earners. Remember that for the income share of any of these groups to go up another group has to go down …

…   …   …

The actual level of income growth over the past thirty years is quite extraordinary and really reinforces how well the ‘elite’ have done compared with the working class. Real income for the bottom 90 per cent of the income distribution rose by just 34 per cent between 1980 and 2010. By comparison, the top 1 per cent has enjoyed income growth of around 178 per cent.

You can see that inequality is a concern for the Labor Party, because we care about equity and fairness. There are some really important reasons why modern societies should be concerned about extreme inequality. In their briefing paper Working for the few: political capture and economic inequality, Oxfam wrote in January this year:

Extreme economic inequality is damaging and worrying for many reasons: it is morally questionable; it can have negative impacts on economic growth and poverty reduction; and it can multiply social problems. It compounds other inequalities, such as those between women and men. In many countries, extreme economic inequality is worrying because of the pernicious impact that wealth concentrations can have on equal political representation. When wealth captures government policymaking, the rules bend to favor the rich, often to the detriment of everyone else.

The paper goes on to quote US Supreme Court Justice Louis Brandeis as famously having said, ‘We may have democracy, or we may have wealth concentrated in the hands of the few, but we cannot have both.’

The question of combating inequality goes to the fundamental fabric of a society. Of course, we know that there is also a correlation between inequality and peacefulness in the world, so it is a serious issue to try to combat inequality and it is a task that Labor takes very seriously. In the briefing paper, Oxfam further said:

The particular combination of policies required to reverse rising economic inequalities should be tailored to each national context. But developing and developed countries that have successfully reduced economic inequality provide some suggested starting points, notably:

• Cracking down on financial secrecy and tax dodging;

and a number of other things, including, interestingly in the present Australian context, investment in universal access to health care and education as a means of improving inequality.

I note that in the House today we heard the Minister for Education claim that the idea of deregulating higher education fees and imposing real interest as well as cutting funds to universities might somehow help more students get to university. That is a nonsense, and I think the minister is aware of that. As I say, the usefulness of combating inequality is something that is really evident if you consider the effects of inequality. Oxfam has spoken about the importance of financial transparency and cracking down on tax evasion to deal with some of the causes of inequality in society.

Like the previous speaker, I was visited earlier this year by young people representing Micah Challenge in their Shine the Light campaign on international tax evasion, particularly in the context of the G20 agenda this year. The Micah Challenge representatives who visited me told me that tax avoidance and tax evasion drains developing countries of vital revenue that they need for development and for reducing poverty. Their advice is that multinational companies cheat developing countries out of at least $160 billion a year in tax revenue, according to research undertaken on just two types of tax avoidance by UK aid and development agency Christian Aid. Aid and development agencies have a strong concern around tax evasion as well, because foreign aid, as important as it is, is not enough. We also need to have international tax justice so that developing countries have the money to which they are lawfully entitled so that lives can be saved, so that countries can develop, so that appropriate moves can be made and can be funded for development of developing countries.

That is why Labor will always take the opportunity to speak on laws that aim to assist in cracking down on tax evasion. This bill is, as I said, the government's implementation of legislation that will give effect to the revised Australia-Switzerland tax treaty that was signed in July 2013 as a result of hard work by the previous, Labor government. The revised tax treaty between Australia and Switzerland will enhance the already-strong economic relationship between the two countries by aligning the bilateral tax arrangements more closely with current Australian and international treaty policy settings. It will also strengthen administrative assistance between Australian and Swiss revenue authorities, in particular by permitting them to exchange taxpayer information, including information held by banks and other financial institutions, in order to address tax evasion. We know that part of the issue with tax evasion is the transparency of information provided by companies and by taxpayers, because what you cannot measure you cannot manage, to use a management truism. You have to be able to see what is being paid, and how, in order to better understand and manage tax obligations and tax policy settings.

So, the bill reflects both countries' commitments to a fair tax system and is consistent with ongoing international efforts, including, within the G20, the base erosion profit-shifting agenda that has been spoken about, to improve tax system integrity globally. The revised treaty will enter into force after both countries have completed their respective domestic requirements. We welcome the government's move to give effect to the treaty through this legislation. However, we are still greatly concerned with the government's inaction on multinational tax avoidance through profit shifting and transfer pricing. Since coming to government, the coalition has provided over $1 billion in tax breaks to multinational firms. And, as I said, we know there is an international move through the G20 process, through the OECD, to counteract base erosion and profit shifting, to counteract tax evasion. The OECD actually has an action plan on base erosion and profit shifting, which has stated as follows:

Globalisation has resulted in a shift from country-specific operating models to global models based on matrix management organisations and integrated supply chains that centralise several functions at a regional or global level. Moreover, the growing importance of the service component of the economy, and of digital products that often can be delivered over the Internet, has made it much easier for businesses to locate many productive activities in geographic locations that are distant from the physical location of their customers. These developments have been exacerbated by the increasing sophistication of tax planners in identifying and exploiting the legal arbitrage opportunities and the boundaries of acceptable tax planning, thus providing MNEs with more confidence in taking aggressive tax positions.

The result of that is that multinational enterprises have increased opportunities to minimise their tax burden by shifting profits across borders, and this has significant flow-on effects not just for our economy but for all economies in the world and for developing countries as well. Those ramifications of course place constraints on government's abilities to invest in important areas, like health and education. That is why we say, and that is why it is recognised internationally, that base erosion and profit shifting undermine the integrity of the tax system. I think the Australian community is aware through the media that large multinational corporations are sometimes not paying their fair share of tax despite the often very healthy profits companies can enjoy. It is worth noting that part of the national interest when it comes to tax collection is in ensuring that we are collecting an appropriate amount of tax to fund our services.

The way that we can manage our tax evasion directly affects the budget, as we have been talking about to date. This government has tried to manufacture a budget emergency. They have now downgraded that to a so-called budget mess, but the fact is that when you come to office and you take about a year to start to address tax evasion people are going to raise their eyebrows when you claim that there are expenditure problems in the Australian budget. I think Australians are alive to that issue.

We strongly support any moves to increase the integrity of the tax system, and we do not want to see large and powerful taxpayers avoiding taxation in a way that then puts more pressure on smaller taxpayers and causes taxation collection to be conducted in a way that is unfair, particularly given the rising inequality I mentioned earlier.

Unfair tax arrangements also have a distortive effect on investment decisions. They create a perverse incentive to invest overseas, limiting local firms' access to capital and constraining their ability to grow, which of course affects their ability to create jobs and to further contribute to tax revenues here in Australia. As I have already said, tax avoidance is a grave problem internationally because of the direct relationship between poverty in developing countries and international tax evasion and profit shifting.

I, and I believe everyone in this place, would like to see real advocacy and real change when it comes to cracking down on tax evasion internationally. This year there is an opportunity to take a leadership role in the issue, in the context of the G20. My colleague the shadow Assistant Treasurer, Dr Leigh, has said:

Multinational companies can take advantage of slow-moving tax laws by shifting profits to low-tax countries.

…   …   …

This has obvious implications for tax revenue: companies avoiding their fair share of tax mean higher taxes or reduced services for you and me. Equally important, however, is the disadvantage incurred by local businesses which lack either the savvy or the scale to implement these complex taxation avoidance schemes.

In other words, the more power you have, the more sophistication you have and the more you are able to avoid paying your tax, then the less you pay your fair share. That is not a fair thing in a country of the sophistication and modernity of ours.

I mentioned to you that Micah Challenge had come to see me earlier this year. They have identified three critical measures to tackle tax dodging. I will mention those to you, because these are important issues for cracking down on international tax evasion. The first is the automatic exchange of information between tax authorities, which is about sharing information between revenue collection authorities. They have told me that when Denmark sent out 1,100 letters informing Danish taxpayers about information that had been shared automatically, 40 per cent reported foreign income that year that they had not previously reported. So clearly just the act of making information transparent encourages willing compliance, or more-willing compliance, with taxation obligations.

Second, beneficial ownership disclosure through a public register. In other words, some public means of ascertaining the beneficial owners of assets, not just the legal owners of assets. Of course, when complex trust structures are set up, it is very difficult to really have a clear picture of the wealth of a particular taxpayer.

Finally, they have raised with us country by country reporting for multinational corporations. So instead of aggregating all of the tax paid internationally in a global report, country by country reporting increases the transparency for multinational corporations, again, to better shine the light that Micah have spoken to me about on taxation collection.

While welcoming this bill, the government stands condemned for inaction on multinational tax avoidance that has seen tax breaks being given to multinationals— (Time expired)

Kevin Hogan (Page, National Party) Share this | Link to this | Hansard source

I rise to support the International Tax Agreements Amendment Bill 2014. I am also against the amendment moved by the shadow Assistant Treasurer. Let us get the essence of what this bill is about. This bill, like any international tax agreement, is about improving trade and investment opportunities between two countries. This bill is certainly doing that, and I will go through it in greater detail to say specifically why this bill is going to increase trade and investment between the two countries, which obviously is a good thing for both.

The amendment that was moved by the shadow Assistant Treasurer is quite bizarre. They were in office for six years and suddenly, after being in office for not even a year, we are getting called on inaction over something they had six years to do. When you talk about inaction, we have a G20 summit coming up. I know the Treasurer, the Assistant Treasurer, the finance minister and the Parliamentary Secretary to the Minister for Finance have been doing a lot of work on making sure tax evasion, in the way that it was mentioned in the amendment, is very much a priority of this government. As I am sure the learned people on the other side know, any action on global tax evasion needs a global solution. A global solution means the G20 summit is going to be a wonderful opportunity for us to get to the nitty-gritty of those types of things and to come up with global solutions so we can stop and limit tax evasion as best we can. I agree with some of the things the member for Griffith just said. What she is saying is right—governments do want multinationals to pay the tax that they should pay. When they are shifting money around because of different tax scales, and doing that with transfer of pricing or whatever means they use, that is not okay.

But let us come back to this tax agreement bill. Not only will it increase the trade investment between the two countries; it will also help to limit tax evasion, so this tax agreement is at least acting on that in this bilateral agreement. As previously said, this bill amends the International Tax Agreements Act 1953. A revised treaty was signed in Sydney last July and, once enforced, it will replace the existing Swiss treaty which was signed in 1980. The revised treaty will update the existing bilateral tax arrangements between Australia and Switzerland to align them with current Australian and international tax policy settings. As I have said, one of the main reasons we have these agreements is to encourage trade and investment, which will further enhance economic relations between Australia and Switzerland.

The revised treaty is expected to reduce taxation barriers to bilateral trade and investment, primarily by reducing source country taxes on cross-border payments of dividends, interest and royalties. In this regard, the revised treaty will fulfil Australia's most favoured nation obligation contained in its existing tax treaty with Switzerland to reduce its withholding tax limits on such income paid to Swiss residents. The revised treaty will also benefit the bilateral economic relationship in other areas, and there are many examples—I will just go through some of them.

The revised tax treaty will strengthen both countries' ability to tax profits from things like construction activities, immovable property and business profit derived through trusts—which is another area where people can evade tax. So this is going to strengthen our ability to get taxes from those types of sources. It will help remove double taxation of transactions between associated entities, again while maintaining the ability of both countries to enforce their transfer pricing laws. Again, it is going to the issue of tax evasion. It prevents a double taxation of fringe benefits, prevents tax discriminations against Australian and Swiss nationals, provides taxpayers with the option of referring unresolved tax disputes to independent arbitration and clarifies the Swiss tax treatment of income earned by temporary residents of Australia. Again, what this type of agreement does is to create certainty. When people are operating on an international level, the one thing they want is to be very clear about the rules and regulations they are operating under. This is going to make the rules and regulations clearer, and everyone will be very clear about what they are supposed to do and how they will be treated.

It will also enhance the tax system by authorising for the first time—given the amendment, this is interesting—the exchange of taxpayer information to help address tax evasion. We are trying not only to increase trade and investment but also to address tax evasion. In this regard the Swiss treaty is consistent with ongoing international efforts, supported by the G20, to improve tax transparency—and we will hopefully see a lot more of that later this year in Brisbane. The revised treaty will establish a legal framework under which the Commissioner of Taxation will be able to seek taxpayer information from the Swiss revenue authorities for tax compliance purposes, including information held by Swiss banks. This will help to enhance the integrity of Australia's tax system, which is good news for us all.

The revised treaty will enter into force following the last notification that both countries have completed the domestic requirements, which, in the case of Australia, includes enactment of this bill. Once in force, the Swiss treaty will take effect in Australia in four stages, as per the dates set out in article 27 of the treaty.

Finally, this bill will also amend the International Tax Agreements Act 1953 to clarify the meaning of the term 'immovable property' for the purposes of both the revised treaty and any further Australian treaties that also use that term. This will align the term 'immovable property' with Australian domestic law and provide for consistent treatment of incoming gains derived from such property across Australia's tax treaty network.

Once in force, the Swiss treaty takes effect in Australia in four stages: with respect to fringe benefits tax, on fringe benefits provided on or after 1 April next following entry into force; with respect to withholding tax and income derived by residents of Switzerland, on income derived on or after 1 January next following entry into force; with respect to other Australian tax on income, profits or gains of any income derived in the income year beginning 1 July next following entry into force; and with respect to the exchange of information that relates to taxation or business years in course on, or beginning on or after, 1 January next following entry into force.

This bill is going to be a good thing between Australia and Switzerland. This is going to increase trade and investment between the two countries. It is going to provide greater certainty. The rules are going to be much clearer. Importantly, given the amendment that was moved by the shadow Assistant Treasurer, it is clamping down and making it easier for both countries to come down on those entities that are trying to evade tax. I commend this bill.

Jim Chalmers (Rankin, Australian Labor Party, Shadow Parliamentary Secretary to the Leader of the Opposition) Share this | Link to this | Hansard source

I also rise today to speak on the International Tax Agreements Amendment Bill 2014 and the amendment moved by my colleague the member for Fraser. I commend my colleague the member for Griffith for her characteristically high-quality contribution to the debate a few moments ago.

Mr Deputy Speaker Goodenough, as you know from our work on the Standing Committee on Tax and Revenue, how we set up our international tax arrangements is very topical at the moment and is very important for us to consider. This bill brings into force the revised Australia-Switzerland tax treaty, which was worked on under the last Labor government and signed on 30 July 2013, before the change of government last year. As the member for Page was saying, the laws will align the bilateral tax arrangements more closely with international tax treaty policy settings and will strengthen the administrative assistance between the ATO and its Swiss equivalent. Labor will certainly support any legislation that makes international tax arrangements easier and fairer.

It is certainly true that some of the complexities of international tax are not everyone's cup of tea. They are hard to grasp. They do not set the front pages on fire with their newsworthiness, but they are very important, because they boil down to a crucial issue, which is that the more companies and others pay their fair share of tax, the less tax that ordinary punters in our community have to pay. Our interest as a parliament and as Australians should be making sure that we are closing down, where we can, the various loopholes in the corporate tax system, because if those loopholes are not closed down, either there is a cost to services that are provided in our community or people with less capacity to pay have to pay higher rates to fill in the holes. So it is a really crucial principle at stake here, and this is why it is important that the amendment moved by the member for Fraser broadens this issue out beyond the Australia-Switzerland agreement to more fundamental issues of international tax, including profit shifting and base erosion.

When we speak about international tax arrangements, we cannot ignore the government's inaction in other areas. I have a lot of time for the member for Page, who spoke to this chamber a moment ago, but he is wrong to say that the government is blameless when it comes to some of the loopholes in our tax system—and I will go into a bit more detail on that shortly. It is a fact—it is not an opinion—that Labor had taken measures which have been subsequently wound back by the current government. So, while the G20 is rightly considering all of these issues and while the OECD and other sorts of credible economic institutions are also working on these issues and heading in one direction, the government in that respect of the section 25-90 change is unfortunately heading in the other direction, and that does have costs for our country, which I will come back to those in a minute.

It is again fact, not opinion, that the last Labor government, particularly the former Assistant Treasurer, David Bradbury, who was the former member for Lindsay, did a lot of good work in this area to tighten up loopholes in multinational profit shifting. I think you can take as evidence of the good work that David Bradbury did, that upon leaving this place, involuntarily I should say, he was picked up, snapped up, by the OECD and he is now a tax specialist in Paris at the OECD. It is a very technical, specialised role for which he is ideally qualified, and I think that shows just how skilled he is in this area. He did a lot of good work during the last Labor government, working with others in the economic portfolios, whether that be Chris Bowen, Wayne Swan or any of the others who did economic jobs in that government.

We believe that action on multinational profit shifting is important for two really crucial reasons: firstly, because the scale of profit shifting currently undertaken is a threat to our corporate tax base; and, secondly, because it is simply not fair for big multinational companies to profit from business undertaken here but not pay their fair share of tax here. They benefit from our infrastructure, from our services and from our education system. It is important that we tighten up these loopholes where we can so that the companies who benefit from a first-class, first world economy and all that that entails are also kicking in to maintain that first-class, first world economy. We are all familiar with the example of Google. Google, of course, is a really impressive and important company. It is bringing a lot to change our economy. Ordinarily, I would be a big supporter of Google but it has been well publicised that their tax bill is probably out of whack with community expectations. I think they paid about $75,000 in tax in 2011, when they earned about $1 billion in revenues. It means that Australia is missing out on millions of dollars of tax revenue as a result of the complicated tax arrangements that companies like Google can put in place. This is money that Australia could be using to finance better schools, better hospitals, better roads or an improvement to the budget bottom line. There are lots of examples. I do not mean to single out just Google. There was another one in the paper today involving a big furniture manufacturer. There are a number of companies who are doing this legally, but this is because of an arrangement in our tax system that I believe is inadequate, and this is what the member for Fraser's amendment is all about.

This is also the point made by the Micah Challenge people. My colleague the member for Griffith also mentioned it. We have all met with the Micah Challenge people. They do fantastic work in our community and they are worried about this. They came and saw us. I think I see the member for Makin nodding. He probably had a meeting with them as well in June, when we all did. They have done some really important work to show the consequences and the costs that happen when multinational companies shift their profits. It has a particularly adverse impact, unfortunately, on developing countries who do not have the means to chase down these corporate tax dollars. So what we see in the developing world, particularly around Asia, and in Australia as well is that a lot of countries are being sold short by this practice. I think it was a point well made by our friends at the Micah Challenge.

No government wins out of this race to the bottom in the era of profit shifting. For this reason Labor did seek to close multinational profit-shifting tax loopholes to make it easier for profit made in Australia to be taxed in Australia. This was not easy to do. David Bradbury and others took risks to implement a scheme of this nature and there was a rigorous debate, as there always is when it comes to tax policy in Australia; but it was the right thing to do, even if it was not the easy thing to do. And Labor introduced a suite of transfer pricing, offshore banking and thin capitalisation reforms that would have made international tax arrangements fairer and would have netted the budget something like $1.8 billion. In December last year, unfortunately, this government wound back most of those reforms to thin capitalisation and the offshore banking unit at a cost of $700 million to the budget bottom line, and in the May budget a further $443 million worth of tax loopholes were reopened. The result of this is $1.1 billion less towards the budget bottom line and $1.1 billion back into the pockets of multinational companies overseas.

And it is worth mentioning—and you were probably there, Mr Deputy Speaker Goodenough—that we asked the tax commissioner, the guy who runs the Australian Taxation Office, about this at a committee hearing. He said that some of these arrangements are the only place in the tax system where you can get an exemption for exempt income. That was one of the things that we were trying to close down, and unfortunately the current government has reopened that situation, that unusual situation, which only benefits some of these big multinational companies. It is a shame. The member for Page was unhappy that we had accused them of being inactive. Unfortunately, it is worse than inaction; they have wound back some of the very sensible measures that we had put in place.

People who know their stuff in the fiscal world and the economic world have pointed to the fact that Australia has had a shortfall in revenue over the past few years. The Labor years were the lowest-taxing years, and that is because there are holes in our corporate tax base. There is a whole range of other reasons—the global financial crisis is one, of course. But corporate taxation did not recover as much as most people had hoped. Whether it is the Treasury Secretary or others, they have all said that Australia does have to look at its revenue base if it is to fund the sorts of services that people have a right to expect in a good country like ours. It is good to see that the government have said that they will make this a priority at the G20 meeting. Unfortunately, the G20 is heading in one direction while so far the government has been heading in the other direction. But we hope, for the sake of the country, that they change course. We hope that they reinstate some of the sensible measures that Labor had so that they can show the international community that they are actually serious about some of the things they have been saying about profit shifting and base erosion.

Unfortunately, it does go to the priorities of the government that they will cut money from higher ed, they will cut money from schools and hospitals and they will cut money from pensions at the same time that they are willing to forgo $1.1 billion from some of the biggest companies in the corporate tax system. One example, just to give people a sense of the scale of this $1.1 billion, is that if they held on to that $1.1 billion they would not need to cut the $1.1 billion they are taking from the childcare system. That is just one example of the sorts of things the government is doing and what their priorities are. I could go through a whole range of these sorts of opportunity costs, but I think my colleagues get the point.

So, in conclusion, Labor will of course be supporting the International Tax Agreements Amendment Bill 2014, but we cannot do that without recognising the government's substantial backward steps in the area of multinational profit shifting, and that is what the very sensible amendment of the member for Fraser goes to. Australia, as the host of the G20 meeting this year, must take a leadership role in improving the fairness of the international tax system. It is disappointing to see this government unwinding some good reforms to profit shifting here at home.

Nola Marino (Forrest, Liberal Party) Share this | Link to this | Hansard source

On the issue of the International Tax Agreements Amendment Bill 2014, I do not think anybody could doubt the Treasurer's commitment to international tax issues. He has put it fairly and squarely on the table for the G20 meeting. He has made it a priority and has certainly shown a great deal of leadership in relation to international tax avoidance. Even in the Sydney Morning Herald he was quoted as asking how he could talk to a small business person in Sydney, competing against a multinational that does not have to pay tax, while they have to pay tax. He was quoted as saying so. And the Treasurer is determined to get real action on this issue. I support this bill that amends the International Tax Agreements Act 1953 to give effect to the convention between Australia and the Swiss Confederation for the avoidance of double taxation with respect to taxes on income and its protocol. As we said, this is about trade, investment and opportunities.

The convention, also known as the Swiss Convention, was signed in Sydney in July 2013. It applies to taxes on income, and the coverage is explicit in that existing taxes imposed by each country are specifically listed. Australian taxes covered are income tax, fringe benefits tax and resource rent taxes. Swiss taxes covered are federal, cantonal and communal taxes on income. The new convention, when in force, will replace the agreement between Australia and Switzerland for the avoidance of double-taxation with respect to taxes on income and protocol. This is the existing Swiss agreement, which came into force in 1981.

According to the Department of Foreign Affairs and Trade—and this is why this is significant—Switzerland was Australia's fifth largest source of foreign direct investment, at AUD $23 billion, and sixth largest investor overall, at AUD $49 billion in 2012. These are not insignificant amounts. This is so important. Australia's total foreign investment in Switzerland amounted to $27.5 billion in 2012. There is a real two-way issue here. Notable Swiss companies with a base in Australia—and not everybody thinks of them—are mining giants like Glencore and Xstrata. There are pharmaceuticals and financial services companies like Credit Suisse. As well as being our fifth largest investor, Switzerland is also a significant trade partner. DFAT tells us that the merchandise trade between the two countries was worth $3.6 billion in 2012. Total merchandise exports from Australia were $681 million and imports were $2.89 billion. The major Australian export to Switzerland, interestingly, was jewellery, followed by gold, meat, excluding beef, and pharmaceutical products. Major Australian imports were pharmaceuticals, gold, watches and clocks—that would not surprise anyone! DFAT also identifies that two-way services trade amounted to around $1.8 billion in 2012. Switzerland is a significant investor in Australia.

This new treaty, when enforced by this legislation, will fulfil Australia's most favoured nation obligation contained in the existing tax treaty with Switzerland. This will reduce withholding tax rates on dividends, interest and royalties paid by Australian residents to Swiss residents. There will no doubt be a cost to this, but it is expected that this will not be significant and will be covered by changes introduced in this bill. This includes provisions in the new treaty that will modernise the bilateral taxpayer information sharing arrangements, and for the first time permit the exchange of taxpayer information for the explicit purpose—as we have heard so much about—of preventing tax evasion. That is what this bill is doing. This greater transparency includes access to Swiss bank information that could help Australia better enforce its tax laws and reduce tax evasion. We heard a lot about that, too, and that is in this bill.

It is this aspect in particular that will assist in raising revenue and providing balance in the financial impacts of this legislation. In addition, the new treaty will help remove double taxation of transactions between associated entities; prevent the double taxation of fringe benefits provided to employees; prevent tax discrimination against Australian and Swiss nationals; and provide taxpayers with the option of referring unresolved tax disputes to independent arbitration. So we are talking about increased trade and investment and we are talking about the issue of limiting tax evasion.

Another part of the legislation before the House today identifies that so-called dual-resident individuals—for example, individuals who are residents of both Australia and Switzerland, according to the domestic taxation laws of each country—are to be treated for the purposes of the Swiss Convention as being resident of only one country. The convention deems that the person or other legal entity like a corporation to be a resident of the country in which its place of effective management is situated. Business profits are generally taxed only in the country of residence of the recipient unless they are derived by a resident of one country through a permanent establishment located in the other country, in which case the other country may also tax the profits. Importantly, these rules will also apply to business profits derived through a trust. As we know, the use of trusts as a legal entity is common in Australia, but is used to hide or rearrange fund distributions for taxation purposes. The inclusion of trusts in this legislation is really an important step.

This bill will also prescribe time periods for the purpose of deeming whether certain business activities constitute the business to be a permanent establishment. We are starting to see how this is going to work in practical terms. The rules will also prescribe the range of circumstances in which Australia can tax business profits derived by Swiss residents from construction and mining activities—I mentioned those companies earlier—and the operation of substantial equipment in Australia. This bill will also clarify the tax arrangements of agricultural business profits.

According to figures from PRDnationwide Research, Swiss investment included 74,448 hectares of crop and livestock properties scattered throughout NSW and the total Swiss investment in agriculture in 2010-11 was $150 million. Income from immovable property—including income from agriculture and agroforestry, both of which are common in the electorate of Forrest—may be taxed by the country in which the property is situated. Subject to that rule and some other property rules, all other capital gains will be taxable only in the country of residence.

In relation to transport companies, profits derived by an enterprise of one country from the operation of ships and aircraft in international traffic are only taxable in that country. This brings us to a key component of the bill, which is that is the treatment of so-called related entities and associated enterprises. These terms can have an extremely broad meanings and it can be difficult to identify corporate linkages, let alone categorise them. Under the proposals in this bill, profits of associated enterprises may be adjusted by the Australian and Swiss revenue authorities for tax purposes where transactions have been entered into on terms other than at arm's length. No source country tax is payable on intercorporate dividends where the beneficial owner of those dividends is a company that holds, directly or indirectly, at least 80 per cent of the voting power in the case of Australia or the capital in the case of Switzerland of the company, subject to certain conditions.

A 15 per cent limitation applies to most other dividends with some exceptions, such as a five per cent limitation on intercorporate dividends where the owner of those dividends is a company that holds directly at least 10 per cent of the voting power or the capital of the company paying the dividends. Dividends, interest and royalties may generally be taxed in both countries, but there are limits on the tax that the country in which they are sourced may charge on such income flowing to residents of the other country who are the beneficial owners of the income. In relation to the mining industry, which is the source of considerable Swiss investment throughout Australia, the rate limit set on source country taxation of royalty income is five per cent.

There are some smaller impacts that I would like to mention. Payments made from abroad to visiting students or business apprentices for the purposes of their maintenance, education or training will be exempt from tax in the country visited. Directors' remuneration may be taxed in the country in which the company of which the person is a director is a resident for tax purposes. Pensions, social security payments and annuities will be taxable only in the country of residence of the recipient, unless the recipient is not liable to tax in that country in respect of that income. In those cases, such income arising in the other country may be taxed in that other country. Subject to certain conditions, pensions paid from government funds of a country in respect of services rendered to that government will be taxable only in that country.

As I said, the Treasurer and the Minister for Finance are very focused on the issue of tax evasion not only in G20 but also in general. What is contained in this bill will certainly address the issues of tax evasion and assist in that process of addressing the issues. It will increase transparency, which we are looking to increase. Australia, as we know, is open for business to improve the trade and investment in both countries and to certainty for both Australia and Switzerland in that process. The issue of strengthening that relationship cannot be underestimated. I really do support this particular bill but the tax evasion issues, which we have heard so much about, are certainly a focus of the Treasurer and the Finance Minister. This bill is one example of that.

Tony Zappia (Makin, Australian Labor Party, Shadow Parliamentary Secretary for Manufacturing) Share this | Link to this | Hansard source

I speak in support of the amendment moved by the opposition in respect of the International Tax Agreements Amendment Bill 2014. This bill gives effect to a revised tax treaty between Australia and Switzerland, as other speakers have pointed out—a treaty that was signed in July 2013 and that effectively replaces the existing agreement which came into force in 1981. I particularly note that the revised treaty will strengthen administrative assistance between Australia and Swiss authorities by allowing the exchange of information, including information held by banks and other financial institutions in order to address tax evasion. I expect that the exchange of information will also be of assistance in pursuing criminal and terrorist activities, where large sums of money are required and transferred around the world. I suspect that, indirectly, the benefits of this agreement will cover more than just tax evasion. However, I will focus my remarks on the issue of tax evasion and how the exchange of information, in conjunction with other measures, can make an important difference in preventing tax avoidance and tax evasion in a globalised economy.

Tax payments can be a major financial outlay by business and so it is not surprising that, just as any business would seek to reduce their overheads and the business costs, they will also seek to reduce their tax obligations. It is not uncommon that taxpayers, both individuals and entities, use clever accounting methods to minimise or even avoid paying their fair share of taxes. Closing tax loopholes is difficult to do when it occurs within Australia or within any single jurisdiction, but it is much more difficult to do when dealing with entities that operate across more than one jurisdiction. It is difficult to follow the money trail but even more so where different tax regimes and tax rates apply between different countries. It makes perfect sense for a taxpayer operating across more than one jurisdiction to organise their affairs so that profits are made and declared in the lowest taxing jurisdiction—it may not always be ethical but, if it is legal, it makes sense. That is what has been happening. Over the years several high profile cases of tax avoidance have been the subject of media reports here in Australia. It is a problem that is faced by all countries around the world and one that is regrettably growing. Indeed, it is now the subject of international attention and of attention by human rights groups and justice advocates around the world.

The member for Rankin referred to the Micah Challenge earlier on in his remarks on this bill. Earlier this year I also met with representatives from Micah Challenge who were in Canberra to raise awareness about their Shine the Light campaign. Micah Challenge is a non-government Christian organisation that draws attention to global poverty, injustice and human suffering around the world whilst simultaneously campaigning strongly in support of the Millennium Development Goals. In recent years their advocacy has been invaluable in securing additional aid funding. Not surprisingly the young people I met with were disappointed that aid funding had been cut by the Abbott government by $7.6 billion over the next five years in the 2014-15 federal budget. The decision by the Abbott government to cut aid funding not only breaks previous promises and expectations created by the Prime Minister, but is another example of the Abbott government's callous policies where the most disadvantaged are hit even harder. The government's claim that aid funding has been poorly administered, even if true, should be not an excuse for cutting funding but rather a reason for better management of it. Just as lame is the Abbott government's rhetoric that it has a budget crisis to manage. There is indeed a budget deficit, but there is no budget crisis. And unlike Conservative UK Prime Minister David Cameron, who said the government will not 'balance the books on the backs of the poorest people in the world', Prime Minister Abbott shows no such empathy.

I refer to these cuts because they relate directly to this bill. In anticipation of the funding cuts, Micah Challenge has offered an alternative funding source for global aid. Indeed, the funding source would not only enable Australia to meet the millennium development goals but also go a long way towards cutting Australia's budget deficit. Micah Challenge are referring to the additional tax revenue that could be generated by closing down tax dodging and even corruption in global tax evasion. This is what Micah Challenge wants to shine the light on. Tax Justice Network, a UK-based global non-government social justice organisation, estimates that between $21 trillion and $32 trillion is hidden by the world's wealthiest people in around 70 global tax havens. The tax that would be paid on the earning of that money is estimated at between US$190 billion and US$280 billion annually. Unethical multinationals and wealthy individuals use transfer pricing to rort the tax system, and then stash away funds in secretive bank accounts within low-tax regimes. Indeed, I note that one of those low-tax regimes is Switzerland, so I am pleased we are entering this revised agreement with them.

There are no uniform tax obligations around the world in the same way as we have trade obligations through the World Trade Organization, and taxation competitiveness between countries further encourages transfer pricing and other tax avoidance practices. The tax evaded is estimated to be in excess of the amount expended annually on global aid. I repeat that: the tax evaded is in excess of the amount expended annually on global aid. If we were able, throughout the world, to simply collect the tax that is evaded—this is not increasing taxes but collecting the taxes that should rightfully be paid—there would be no need for global aid, because it would be funded from that source. These tax rorts also occur in very impoverished countries, and this is one side of this issue I find hard to deal with. The very countries to whom the aid is given are also affected by tax losses that they incur because of tax evasion by multinationals or individuals. The amount of tax losses those very countries incur quite often exceeds the amount they in turn receive annually through global aid budgets from other countries around the world. Again, if we were able to close down the tax evasion that occurs within many of the developing countries, there would be no need for additional global aid from Australia or other countries, because the money would be there from their own sources. I think it highlights the callous attitude of some multinationals that are prepared to avoid paying their fair share of tax to those very developing countries where the need is so great.

Australia is not immune from those very tax losses. Much, if not all, of the tax evasion and rorting of tax systems can, over time, be stopped if there exists an international will to do so. And it does require an international will, because we operate in a global economy. As Micah Challenge rightly point out, Australia is now in a unique position to show some leadership on this issue. As chair of the G20 summit in Brisbane in November, Australia should place the issue on the agenda and initiate international action. I note that other speakers have said that we will be doing that, and I commend the government for doing so. I hope that it is not simply a talkfest of some kind but rather that G20 leaders make a genuine attempt to do something about this, because quite frankly it affects all of their countries as well. It is in the interest of their national economies. At a time when so many other countries are also struggling to pay for the needs of their own people, it seems to me that this is one matter that should be dealt with, because it will resolve the problems of so many countries. Hopefully, the pressure on governments as a result of the global economic recession that we have had will be such that they will now want to do something and act in a very constructive way at the G20 meeting.

I accept, and I think we all accept, that not all jurisdictions will cooperate. Some jurisdictions will do whatever they can to remain part of the tax havens and the tax avoidance industry. Some countries, it seems to me, almost survive from this very immoral industry. But there are also some countries that are showing leadership, and we should applaud and support them.

Amongst the many actions that could be taken, Micah Challenge is calling for Australia not only to seek agreement to raise the matter at the G20 meeting but also to seek agreement on three critical matters. I will refer to those very briefly. Firstly, they want the G20 to reach agreement on the automatic exchange of information between all tax authorities. While some intergovernmental agreements already exist, including with Australia, they do not exist with all countries. Secondly, there needs to be beneficial ownership disclosure through a public register that lists the true owners and beneficiaries of companies, trusts and foundations. This would make it much easier for authorities to follow the money trail. Currently, no such register exists in Australia. Thirdly, there must be country-by-country reporting for multinational corporations. This is what Micah Challenge are asking Australia to take a lead on. I understand that the US and the European Union have already taken the lead in country-by-country reporting requirements, but Australia is still lagging behind.

These measures may be seen as moderate steps against a tax avoidance industry that is rife throughout the world, because regardless of what laws are in place tax accountants and lawyers will always find ways around them. It is the super-rich and the multinationals that control huge sums of money who benefit from international tax avoidance schemes and secretive tax havens. They are also the people who can afford the best lawyers and best accountants in the world, yet they are also the people who can most afford to pay more tax. By not paying their fair share of tax, they add to the tax burden of low-income people, small businesses and others who have no opportunity to avoid or evade tax.

Micah Challenge's aim is to shine a light on and expose those engaging in tax-dodging and corruption. I applaud them for doing so. If we can do so, we will in turn reduce the opportunities for tax avoidance. As I said, it is not about making profit makers pay more tax; it is not a tax-increasing measure. Rather, it is about making them pay their fair share of tax. The G20 meeting is a terrific opportunity for Australia to show some genuine leadership on this.

Lastly, I make the comment that this is a problem for Australia regardless of what happens at the G20 meeting. I note that in another report the Australian Taxation Office has identified some 86 companies that it considers may be engaged in substantial transfer pricing. I would be very surprised if transfer pricing or profit shifting is limited only to those 86 companies, but I understand the difficulties in trying to trace and follow the money trail. I applaud the ATO for at least making an effort to do so.

As the Tax Justice Network has reported, collectively, we are talking about billions if not trillions of dollars around the world. So I will applaud any measures that we can take, whether small or large, here in Australia to close down the opportunities for those people that want to avoid paying their fair share of tax.

I am disappointed that the government has decided not to proceed with some of the measures that we were hoping to introduce in the last parliament under Labor, measures that would have perhaps raised $1.1 billion of additional measures. Nevertheless, this is a step in the right direction. I support the general thrust and I support the amendment moved by our side of parliament.

Steven Ciobo (Moncrieff, Liberal Party, Parliamentary Secretary to the Treasurer) Share this | Link to this | Hansard source

I thank those members who have contributed to this debate on the International Tax Agreements Amendment Bill 2014. This bill, by amending the International Tax Agreements Act 1953, gives effect to the revised tax treaty between Australia and Switzerland. It also clarifies the meaning of the term 'immovable property' for the purposes of the revised Swiss treaty and for any future Australian tax treaties that also use that term.

In modernising the existing tax treaty with Switzerland, which was signed in 1980, Australia has negotiated improvements to the bilateral tax arrangements which will enhance tax system integrity and transparency. The revised treaty provides a legal basis for the exchange of taxpayer information, including Swiss bank information, between the tax administrations of Switzerland and Australia for the purpose of preventing tax evasion. This is not possible under the existing treaty with Switzerland.

The revised treaty and this bill also ensure that Australia's tax treaty network continues to support Australia's economic relationships with its major trade and investment partners. In updating the rules concerning the allocation of taxing rights between the two countries, the revised treaty with Switzerland will remove a number of taxation obstacles that might otherwise impede bilateral economic activity.

The amendment moved by the opposition is as stunning in its hypocrisy as it is wrong. The amendment is not supported by the government. This government is committed to ensuring the integrity of our taxation system is maintained and is taking action to ensure that multinationals are paying the appropriate amount of tax in Australia. We have legislation before the parliament to tighten the thin capitalisation safe harbour limits and ensure the foreign non-portfolio dividend exemption for Australian companies only applies to returns on equity. These measures address profit-shifting by preventing the excessive allocation of debt to the Australian operations of multinationals and I commend the bill to the House.

Question negatived.

Original question agreed to.

Bill read a second time.

Ordered that this bill be reported to the House without amendment.