Speech - International Tax Agreements Amendment Bill



This is a very important bill. It includes treaty provisions which form part of the OECD BEPS process—that is the base erosion and profit-shifting project. No project could be more important to Australia's future prosperity than one that deals with eliminating multinational tax evasion. It was work I and G20 finance ministers started in 2013, and it shows the importance of international cooperation and how essential that is if we are to deal with the scourge of multinational tax evasion.

Over the last decade this evasion has been increasingly facilitated by tax havens and also by tax shields. As the European decision to slug Apple with a $13 billion bill shows, tax havens facilitate epic rent seeking. Now we’ve have all heard about trickle-down economics, but it has an older and uglier brother: the straight rip-off where companies refuse to play by the rules and their cronies simply look the other way. Last year, as a result of Labor's tax transparency legislation, tax office data revealed that one in three private companies in Australia paid no tax and one in four public corporate entities operating in Australia paid no tax. In addition, half of the foreign companies operating in Australia had no taxable income, while 56 millionaires paid no income tax.

In the Senate inquiry into tax evasion, some of Australia's largest global companies were exposed for using aggressive transfer-pricing activities, costing the public billions of dollars in revenue. When global and respected companies operate in this cavalier way, it compromises the integrity of the social contract and green lights others to follow in their tax-avoiding footsteps. Now in tax discussions there is a conventional distinction between legal tax avoidance and illegal tax evasion. The reality is there is a spectrum.

Today I want to discuss the behaviour of one company: BHP. Their behaviour leads me to believe they have operated at the evasion end of the spectrum for over a decade.

The evidence against BHP is damning. In this period they have ramped up their Singapore marketing hub to camouflage aggressive transfer pricing, costing Australian taxpayers well over $1 billion.

Earlier this year I spoke in the parliament about BHP's use of Singapore as a tax shield. In response on 17 February the Chief Financial Officer of BHP wrote to me claiming his company was a leader in the global business community tax transparency. He claimed BHP had met its tax obligations in full, notwithstanding its use of the Singapore tax shield, which at that stage had resulted in a bill from the Australian tax office of nearly $1 billion.

Seven months later, on 22 September, the full extent of BHP's deceptive and dishonest conduct was revealed in the Australian Financial Review. BHP finally admitted that the tax liability for their controversial Singapore marketing hub had hit close to $1.4 billion. The Australian Financial Review was reporting from their economic contribution report and their annual report. Without any hint of shame in the Financial Review that day, their chief financial officer, Mr Beaven, described this tax office bill as being a dispute over valuation rather than tax evasion.

Transfer pricing is exploited when a company sells a product between two arms of its operation in order to book its profits in the lower tax jurisdiction. This tax shield used by BHP in Singapore is used to smuggle profits out of Australia. Mr Beaven may choose to cutely describe aggressive transfer pricing as a valuation dispute, but in the world in which we all live this is evasion.

We now know, despite the veil of secrecy from BHP, that tax office audits into BHP's aggressive transfer pricing evasion have now been going on for over a decade. The tax office audits only came to the public's attention and mine through the Senate committee. They were not known to me as Treasurer in my 2010 discussions with miners surrounding the MRRT.

Some of us in this place remember the mining tax debate in 2010. I remember it pretty well. Two things really stand out in my mind. One is that BHP was frothing with outrage at the very suggestion they were paying too little tax during a period when Australia's mining and mineral resources were enjoying record-high prices. The second was their claim that the government's proposed resources rent tax would destroy their operations, close their projects and kill their jobs.

One of the central arguments BHP used at that time was that they paid very high rates of corporate tax and this somehow excused them paying an historically low share of tax on the supernormal profits they were earning. Well, now we know the truth. Between 2005 and 2014, BHP sold Australian minerals to its Singapore marketing hub to avoid paying taxes on profits of $5.7 billion. While BHP paid $1 billion in top-up taxes, these taxes only applied to 58 per cent of the profit generated through the Singapore marketing hub. A full 42 per cent of the profit was untaxed in Australia. Nor was it taxed by the government in the UK, where BHP is co-owned. The directors of BHP Australia and BHP UK are the same people. Overall the tax paid by BHP represents only 10 per cent to 12 per cent of their total profits, made almost exclusively by selling Australian resources. While BHP maintains that their Singapore operations are at arm's length from their Australian branch, I make the simple point again that the directors of both the UK and Australian entities that control the Singapore hub are the same people.

At the height of the mining tax debate, BHP were inflating the impact of the MRRT on their operations while funnelling their profits through foreign tax havens. As the government negotiated with the miners in good faith on critical issues, the miners were expanding their tax avoidance schemes at the same time. It was interesting to see that BHP has finally disclosed that an audit from the tax office has served them with an additional bill for the MRRT of $117 million.

There is now no question that BHP has been gaming the system and is in serious dispute with the tax office over its unpaid taxes. BHP cannot claim to be transparent given its failure to clearly outline numerous back payments as a result of tax office audits as well as failing until now to outline the amounts currently in dispute with the tax office and the Australian states. And of course the governments of Western Australia and Queensland have also been treated very badly by BHP, which has sought to evade critical royalty payments due to the peoples of those states.

Forensic investigation of BHP has revealed it began to pay withholding tax in 2011. These taxes are likely to have been levied by the ATO for profits made on Australian operations, exposing an additional loophole BHP was exploiting. This finding is damning for the management of BHP during 2010. There is a stark contrast between the esteem in which BHP, its executive and the board expect to be held and their actual behaviour. BHP does have an experienced board—Mr Nasser, Mr [Andrew] Mackenzie, Mr Brinded, Mr Broomhead, Mr Davies, Anita Frew, Caroline Hewson, Lindsay Maxsted, Wayne Murdy and Dr Schubert. The board owes the Australian people a full and frank explanation of [their] role in approving these aggressive transfer pricing schemes. The board of BHP has not been true to the values it espouses in its charter of corporate responsibility.

Corporations are not ends in themselves. The community cannot allow the corporate veil to hide the moral responsibilities of those that run those corporations. We live in a community, not in a corporation. When companies fail to pay their fair share of tax, revenue must be found elsewhere from businesses and individual taxpayers. The billions of dollars avoided are forever lost to education and to infrastructure, which are vital investments to the growth and ultimately of the country, and ultimately support the bottom line of all corporates operating in our community.

If we assume 10 per cent of corporate tax collections is lost through these practices, the cumulative cost to the budget is $26 billion over four years. Now at a time when this government hacks and slashes at the social safety net in the name of budget repair, it is simply obscene for corporates to walk away with money on this scale. There is a stark contrast, as I said before, between the respect that the boards and their executives demand and their actual behaviour. These actions of these businesses tear at the very fabric of our community and erode trust in business as well as in government.

In government, Labor acted on rampant tax evasion and minimisation. And every step of the way, we were opposed by the coalition. Now in government, the coalition has obstructed or watered-down legislation to expose the extent of tax evasion and minimisation. Tax avoidance saps a government's capacity to effectively govern. It erodes the community's faith in politicians that tolerate it and it sends a signal that there are two tax systems—one for the super wealthy and one for the rest of us.

The recent decision by the European Commissioner for Competition to raise $13 billion in evaded taxes by Apple will hopefully give momentum to taxation authorities around the world to deal more aggressively with the scourge of multinational taxation. It is a decision that ought to be welcomed by the Australian government and tax authorities because it sends a signal to arrogant multinationals that when they put in place artificial structures that do not correspond to economic reality, they should be dealt with forcefully and harshly.

Over a two-year period, the Senate Standing Committees on Economics inquiry into multinational tax evasion and high net worth individuals showed that multinational tax evasion has reached epidemic levels. As the tax commissioner himself said at the time 'enough is enough'. If a company operates in Australia, it has a moral and legal obligation to pay tax here and to support the economic system which nurtures our business sector. A progress tax system for corporates and individuals is central to a country's capacity to fund its own growth.

It’s one of a number of structural reforms required to lift living standards across the developed world and the developing world. Rampant tax evasion torpedoes this central platform of inclusive growth and will hinder the development of the Sustainable Development Goals. And of course rampant tax evasion is now a structural cause of growing inequality globally and in our country. The failure of the Business Council of Australia to speak out about these practices compromises their standing and credibility. Tax havens and their plundering of the revenue from developed and developing countries and the protection they provide for large corporations and wealthy individuals is now a dramatic handbrake on global growth. Just as importantly tax avoidance is a huge part of the trashing of public faith in democratic legitimacy right around the global. Everyday workers have the sense that the economy is an inside outside game in which the wealthy play by different rules and everyone else is denied opportunity. Well they’re wrong, what we need to do is put in place ethical systems. Everyone has a moral responsibility to pay their tax but there’s an economic responsibility to drive the growth and the reform and the living standards that’s required for consensus across the democratic world. The behaviour of BHP, one of the largest mining companies in the world, is one that proves we’ve got a long way to go till we get the standards that we need for a system of democratic government that is funded correctly by corporate and individual tax.