House of Representatives

Treasury Laws Amendment (Income Tax Consolidation Integrity) Bill 2018

Second Reading Speech

Ms O'DWYER (Higgins-Minister for Revenue and Financial Services, Minister for Women and Minister Assisting the Prime Minister for the Public Service)

I move:

That this bill be now read a second time.

The Treasury Laws Amendment (Income Tax Consolidation Integrity) Bill 2018 implements a package of measures to improve the efficiency and equity of Australia's business tax system by strengthening the integrity and operation of the consolidation regime and removing unintended outcomes.

The consolidation regime was introduced in 2002 and is a fundamental component of Australia's business tax system. There are approximately 12,000 consolidated taxpayers in Australia, including the majority of our largest businesses.

Consolidation allows a wholly-owned corporate group to be treated as a single entity for income tax purposes. A consolidated group generally consists of an Australian resident head company and its wholly owned subsidiaries. This reduces compliance costs for business, removes impediments to the most efficient business structures, and improves the integrity of the tax system. Benefits of tax consolidation for businesses include:

allowing intragroup transactions to be ignored;
the pooling of losses, franking credits and foreign tax credits; and
the removal of impediments to group restructuring.

The government's changes, outlined in schedule 1 of this bill, follow recommendations made by the Board of Taxation in its post-implementation reviews of the consolidation regime.

In these reviews, the Board of Taxation identified a number of loopholes that create unintended tax outcomes, often arising when an entity joins or leaves a consolidated group. The government is taking action to address these integrity issues in order to improve the fairness of the business tax system, simplify compliance and ensure the ongoing effectiveness of the consolidation rules.

In particular, the bill improves the integrity and operation of the consolidation regime by:

removing a double tax benefit that can arise when an entity with a deductible liability joins a consolidated group, with effect from 1 July 2016;
simplifying the operation of the entry and exit tax cost-setting rules by ensuring that deferred tax liabilities are disregarded, with effect from today;
preventing a double benefit from arising when an entity joins or leaves a consolidated group where the entity has securitised an asset, with effect from 13 May 2014 for authorised deposit-taking institutions and 3 May 2016 for other entities;
preventing nonresidents churning assets between different consolidated groups to access double deductions, with effect from 14 May 2013;
clarifying the interaction between the consolidation regime and the taxation of financial arrangements regime by ensuring that the tax treatment of certain intragroup liabilities and assets between a continuing member of a consolidated group and an existing member of the consolidated group is consistent with the economic substance of the relevant transaction, with effect from 14 May 2013; and
closing a loophole that allows consolidated groups to access double deductions by shifting value across entities in the group, with effect from 14 May 2013.

These measures were announced in the 2013-14, 2014-15 and 2016-17 budgets.

In recognising the complex nature of the consolidation rules, we have consulted extensively on these measures over a number of years, including through the Board of Taxation's post-implementation review. The government has listened carefully to stakeholders to ensure that these changes are well designed and fairly balance the need for additional integrity without unduly burdening business with compliance costs.

These measures, together, will protect the corporate tax base by strengthening the integrity of the consolidation regime. These measures will also provide greater clarity for businesses and provide a level playing field for businesses outside the consolidation regime.

Full details of these measures are contained in the explanatory memorandum.

Debate adjourned.

Dr LEIGH (Fenner) (12:28): I move :

That all words after 'That' be omitted with a view to substituting the following words:

'whilst not declining to give the bill a second reading, the House notes the Coalition's failure to close multinational loopholes and its failure to improve tax haven transparency'.

Labor supports the Treasury Laws Amendment (Income Tax Consolidation Integrity) Bill 2018, which implements a number of sensible amendments to improve the integrity and operation of the consolidation regime. The measures, with the exception of the deferred tax liabilities measure and the securitised assets measure, were originally announced by the former Labor government in 2013-14. The bill implements recommendations made by the Board of Taxation in 2012 and 2013 and reflects consultation carried out by Treasury and the Board of Taxation.

As the second reading amendment makes clear, Labor believes that we need to go further in cracking down on multinational tax avoidance. One in five of Australia's biggest companies paid no tax for at least the past three years. We heard in Senate estimates last night that despite the besmirching of the careful work on the issue of corporate taxpaying carried out by Emma Alberici, the ABC's economics correspondent, ABC executives were unable to identify any specific errors in that work.

It is of deep concern to many Australians that the government's biggest economic priority is a budget-busting corporate tax cut that will increase household income, on their own numbers, by 0.1 per cent in the 2030s. 0.1 per cent in the 2030s reflects another month's growth in household income. That is, according to the government's best estimates, the one-off benefit of their budget-busting big business tax cut.

Why does it deliver such small gains? It reflects in part the fact that Australia's corporate tax rate places us in the middle of the G20 pack, according to Congressional Budget Office analysis published in March last year. Our statutory rate places us 10th in the G20. Following the United States' recent tax cut we would be the ninth highest in the G20. But our effective rate places us in the bottom half of the G20 for corporate tax. We, unlike other countries, don't have state corporate income taxes. Unlike most other countries in the G20 or the OECD, we have dividend imputation, a system which gives back about a third of the corporate tax revenue. So from a fiscal perspective, the perspective that the government used to say that they cared about, a corporate tax rate of 30 per cent with dividend imputation raises about as much for the budget as a corporate tax rate of 20 per cent without imputation. Anyone who talks about corporate rate cuts and fails to mention imputation is being deeply disingenuous.

The Liberals said that they cared about the deficit when they were in opposition. Not only did they say it, but the now Prime Minister was photographed in front of debt trucks with terrifyingly large numbers-terrifying for him back them, but about half of what he's produced right now. The fact is that the Prime Minister and the Treasurer really don't care about deficits any longer. The attacks on the deficit were all a smokescreen for the cuts to social services in the 2014 budget. They care deeply about the deficit if it's an excuse to take money away from the poorest Australians, but they don't care at all about the deficit when it comes to the debate over corporate tax. When it comes to a big business tax giveaway of $65 billion, they're not at all worried about the deficit. At least they're not worried now, but of course we know what will happen, because we've seen this playbook before. We know that as the deficit and debt continues to blow out as a result of these corporate income tax cuts, were they to get them through, they would be back in this parliament saying that the real problem with the Australian budget is that social services are 'unaffordable'. 'That's why we have to cut the pension, cut supports to people with disabilities and take money away from sole parents and students.' That's what they would be coming back and saying.

It is the 'starve the beast' strategy that we've seen under the US Republicans for so long. The Republicans in the United States have spoken so often about caring about debt and deficits. But if you look under Ronald Reagan or George W Bush you see an increase in the deficit. The US Republicans care about debt and deficits as an excuse, a fig leaf, to take money out of the social safety net, but when they're talking about their own tax cuts suddenly they're not worried about debt and deficits at all. We've seen it with President Trump at the moment putting in place a corporate income tax cut which is going to massively add to that country's deficit. And we see it back here in Australia: a Prime Minister getting off the plane from the United States and saying that we need a corporate tax giveaway, we need to bust the budget-

The DEPUTY SPEAKER ( Mr Vasta ): The member for Gilmore, on a point of order?

Mrs Sudmalis: Does American politics and finances have something to do with this? I don't think so. If he could stick to the point, that would be great.

Dr LEIGH: I think that might have been a sledge rather than a point of order, Mr Deputy Speaker. I am speaking directly to the second reading amendment that I moved.

The DEPUTY SPEAKER: The member for Fenner is in order.

Dr LEIGH: Thank you, Deputy Speaker. The corporate tax debate we're having in Australia does echo the United States' debate and does go directly to the question of the sustainability of the Australian budget. Labor believes that we need to crack down on multinational tax avoidance. We have announced a series of measures that would add directly to the bottom line of the budget. For the benefit of the House-indeed, for the benefit of the member for Gilmore-I will go through some of those measures. Labor would tighten debt deduction loopholes used by multinational companies, improving the budget by more than $4 billion over the medium term. We would introduce public reporting of country-by-country reports, which are high-level information about where and how much tax is paid by large corporations. We would provide protection for whistleblowers who report on entities evading tax to the Australian Taxation Office and, where whistleblower information results in more tax being paid, we would allow them to collect a share of the tax penalty-being a reward of up to $250,000-as occurs in the United States and the United Kingdom.

We would introduce a publicly accessible register of beneficial ownership of Australian listed companies and trusts, allowing everyone to find out who really owns our firms and ensuring that shareholders can't use complex structures and sham ownership to avoid complying with corporate tax rules. We would introduce mandatory shareholding reporting of tax haven exposure. If a company is doing business in a tax haven, we believe that shareholders should know about it. There is a mood across the OECD to crack down on tax havens. Shareholders need to know if their corporate boards are making a decision to do business in a tax haven. The member for Gilmore might think it's all right to do business in a tax haven, but my guess is that the people of Gilmore would be deeply concerned about firms that were doing business in a tax haven and not informing their shareholders of that.

We would appoint a community sector representative to the Board of Taxation to ensure community sector voices are heard in tax design and review processes. We would introduce public reporting of AUSTRAC data and require the annual public release of international cashflow data. We would require government tenderers to disclose their country-of-tax domicile. If they are tendering for contracts worth more than $200,000, the Australian public have a right to know where their country of tax domicile is. We would develop guidelines on tax haven investment by superannuation funds, working with the Australian Taxation Office, the Australian Securities and Investments Commission and the Australian Prudential Regulation Authority. We would require that the Australian Taxation Office in its annual report provide information on the number and size of tax settlements. We would deliver more tax transparency by restoring Labor's $100 million threshold for public reporting of tax data for private firms-a threshold raised from $100 million to $200 million by the Liberals and the Greens, effectively taking two-thirds of private firms out of the tax transparency net.

We need to make sure that we have a multinational tax system with integrity, a multinational tax system which ensures that firms pay their fair share of tax. This is a worthy bill in itself, but it doesn't go far enough. We can add to the budget bottom line in a fair and responsible way. Labor urges the government to do the right thing on closing multinational tax loopholes.

The DEPUTY SPEAKER: Is the amendment seconded?

Mr Thistlethwaite: I second the amendment.

The DEPUTY SPEAKER: I thank the honourable member for Kingsford Smith. The original question was this bill be now read a second time. To this, the honourable member for Fenner moved as an amendment that words after 'that' be omitted with a view to substituting other words. If it suits the House, I will state the question in the form that the amendment be agreed to. The question now is that the amendment be agreed to, and I call the honourable member for Kingsford Smith.