House of Representatives

Treasury Laws Amendment (Tax Integrity and Other Measures No. 2) Bill 2018

Second Reading Speech

Mr SUKKAR (Deakin-Assistant Minister to the Treasurer)

I move:

That this bill be now read a second time.

This bill implements a range of measures including the OECD hybrid mismatch rules, which are designed to strengthen the integrity of the tax system, continuing the Turnbull government's work on combating multinational tax avoidance. It also includes an amendment to strengthen the Producer Offset and encourage filmmakers to employ Australian cast and crew, as well as measures to provide tax exemptions to support the International Cricket Council to hold the World Twenty20 in Australia and an update to the registered list of Deductible Gift Recipients.

Schedules 1 and 2 to this bill further reinforce the government's commitment to tackling multinational tax avoidance, by implementing the OECD's hybrid mismatch rules, as first announced in the 2016-17 budget.

The OECD's hybrid mismatch rules are one of 15 actions resulting from the OECD/G20 Base Erosion and Profit Shifting Project.

Under this government Australia continues to be a strong supporter of the Base Erosion and Profit Shifting Project and remains at the forefront of global efforts to address multinational tax avoidance.

The hybrid mismatch rules build upon previous actions by this government on tax avoidance including the introduction of stronger transfer pricing rules, the multinational anti-avoidance law and the diverted profits tax. The government has also increased penalties for companies who fail to take reasonable care when making statements to the ATO and has expanded the ATO's capacity through the Tax Avoidance Taskforce.

These rules are designed to prevent multinational companies from exploiting differences in the tax treatment of instruments or entities between jurisdictions, which enable those companies to defer or reduce tax. The rules will also address situations where a company operates in multiple countries, each of which has a differing view about whether or not the company has a taxable presence in that particular jurisdiction.

The hybrid mismatch rules neutralise these mismatches by modifying the outcomes that arise under our income tax law. This includes disallowing an income tax deduction or including an amount in a taxpayer's assessable income.

The government has also extended the scope of the hybrid mismatch rules to include a targeted integrity rule. This rule will apply to taxpayers who attempt to circumvent the hybrid mismatch rules by routing funds through foreign interposed entities, with the aim of gaining an Australian income tax deduction and avoiding the hybrid mismatch rules.

As a result of these rules, multinational companies will no longer gain an unfair tax advantage compared to their solely Australian based counterparts. Furthermore, the hybrid rules will help to strengthen the integrity of the tax system both in Australia and overseas and prevent erosion of the global tax base by ensuring that multinational companies pay tax on their global operations and cannot exploit differences in the tax systems of different jurisdictions.

Schedule 3 to this bill clarifies the expenditure that can be claimed under the Producer Offset for films undertaking principal photography overseas.

The government is committed to supporting the Australian screen industry.

One of those mechanisms, the Producer Offset, allows production companies to claim a tax rebate on qualifying Australian production expenditure for films with significant Australian content. In situations where the subject matter of the Australian film reasonably requires shooting in a foreign location, some overseas expenditure may be claimed within this offset. For example, a documentary about Gallipoli would naturally require some filming to take place in Turkey.

The 'Gallipoli clause' outlines what expenditure can be claimed under the Producer Offset for films undertaking principal photography overseas. This amendment clarifies that only expenditure relating to services provided for the film by Australian residents in such 'Gallipoli' cases is eligible to be claimed under the Producer Offset. It will further encourage the employment and use of Australian cast and crew at all stages of production.

Schedule 4 to this bill will deliver on the government's 2018-19 budget commitment to provide a five-year income tax exemption to a subsidiary of the International Cricket Council for the ICC World Twenty20 in 2020.

The exemption will assist the International Cricket Council stage the ICC World Twenty20 in Australia.

The bill provides in particular an income tax exemption to the ICC Business Corporation FZ-LLC (referred to as the IBC) for the period of 1 July 2018 to 30 June 2023.

The bill will also provide the IBC an exemption from withholding tax liability for interest, dividend and royalty payments it receives for the same period.

The World Twenty20 is a great opportunity to showcase women's and men's cricket to all Australians and indeed the entire world. Therefore this is an important step in encouraging that.

Schedule 5 to this bill will include the Melbourne Korean War Memorial Committee Inc. as a specifically listed deductible gift recipient between 1 January 2018 and 31 December 2019. Deductible gift recipient status allows members of the public to receive income tax deductions for the donations they make to the Melbourne Korean War Memorial Committee between those dates.

The Melbourne Korean War Memorial Committee is a registered charity created to establish a war memorial in Melbourne to honour the service and sacrifices of the Australians who served in the Korean War between 1950 and 1953. Granting deductible gift recipient status to Melbourne Korean War Memorial Committee will assist the organisation with fundraising for a very worthy and important cause.

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

Debate adjourned.