HON. WAYNE SWAN MP
FEDERAL MEMBER FOR LILLEY
TAX AND SUPERANNUATION AMENDMENT (BETTER TARGETING THE INCOME TAX TRANSPARENCY LAWS) BILL 2015
HOUSE OF REPRESENTATIVES, CANBERRA
MONDAY, 14 SEPTEMBER 2015
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I also rise to speak on the Tax and Superannuation Laws Amendment (Better Targeting the Income Tax Transparency Laws) Bill 2015 and to follow the remarks of the shadow Assistant Treasurer. In 2013, Labor passed legislation that required the tax commissioner to publish the total income, taxable income and income tax payable of all entities with an annual turnover of $100 million or more. The current bill seeks to carve out Australian owned private companies from the disclosure of taxpayer information. This is an indicator of what lengths this government will go to to avoid ensuring that the integrity of our progressive tax system is maintained.
The Senate inquiry into corporate tax avoidance has exposed the extent to which a large number of multinationals have evaded or aggressively minimised their tax obligations in Australia. In conjunction with investigative reporting of the highest calibre by some of this country's top journalists, and the diligent and tenacious public service of Australian taxation officers, the inquiry has drawn attention to the legally questionable and ethically bankrupt tax practices of some of Australia's most senior corporate citizens.
Tax avoidance on such a grand scale impoverishes us all. When some companies fail to pay their fair share of tax, revenue must be found elsewhere, either from businesses, particularly SMEs, who already obey Australia's tax laws or from individual taxpayers who already pay direct and indirect tax, including the regressive goods and services tax. The billions of dollars of tax that multinationals avoid hold back billions of dollars in health, education and infrastructure investment and are being used to argue for a higher GST, which is thrust on an unwilling public. When multinationals avoid their tax obligations, one way or the other, the Australian people pay. Similarly, when some of our largest companies are so audacious in avoiding tax, it gives the green light for others to have a go as well. Surely this is not the type of corporate leadership they would want to be known for. In coming months the Senate inquiry will finalise its report. The reputations of those who have engaged in aggressive tax avoidance, of those who have provided advice and of the boards that have approved the practices are on the line. Corporations are not ends in themselves. The corporate veil should not hide the moral responsibility of those that run them and the decisions taken in their name.
Today I speak not to bury tax-avoiding corporations but to beseech them. It is not my intention to apportion blame to individuals, but to highlight the practices which ravage our revenues and breach the fundamental trust so essential to the working of a modern, inclusive and prosperous economy. To the tax avoiders I say: 'Your transgressions have damaged your standing in the community, but your exposure provides an opportunity for redemption. Be true to the values you espouse in your charters of corporate responsibility. Be transparent with your shareholders and with the Australian people about your tax liabilities, and then, perhaps, you can again be trusted by taxpayers and their governments that you too are fulfilling your social and legal obligations in Australia. Only then will your commentary on reform, particularly tax reform, be taken seriously.'
As many prominent business leaders have said to me, there is a stark contrast between the esteem in which the boards of many of these companies expect to be held and their actual behaviour. That is why this bill is such a backwards step. In seeking to roll back tax transparency it normalises tax avoidance and damages the good name of corporate citizens who do the right thing and who pay their fair share. Before considering how tax avoiding corporations can restore their reputations and join the many Australian companies who pay their fair share of tax, it is worth examining the scope of the tax avoidance problem.
Virtually every industry has its share of tax avoiders, from pharmaceuticals to media, technology and oil and gas companies, but I would like to focus on the practices of Australia's two big miners: BHP Billiton and Rio Tinto. Over the past decade these companies have treated the Australian tax system and the Australian people with contempt, whether by blatantly inflating the impact of the MRRT on their operations while funnelling their profits through foreign tax havens or by pleading for a reduction in company tax despite paying effectively half the rate faced by honest Australian businesses.
One recurring falsehood perpetuated by the miners and the Minerals Council during our time in government which has persisted to this day is that the industry is subject to a tax rate of around 50 per cent. This is false. The hearings of the Senate inquiry also demonstrate that as our government negotiated with the miners on critical tax issues mining companies were, behind our backs, expanding their tax avoidance regimes. At the same time, aided by the Minerals Council, the miners launched an advertising campaign to perpetuate the falsehood that their industry faced an effective tax rate of around 50 per cent. Mining companies never paid anything close to the tax rate claimed by the Minerals Council. While the corporate sector paid an average of 25 per cent tax as a share of profits between 2008-09 and 2013-14, the mining industry paid just 15c in every dollar. Courtesy of deductions flowing from the very royalties they were railing against, as well as accelerated depreciation rates, miners paid tax at effectively one-third the rate claimed by the Minerals Council, and this was only on the profits that they were not shifting offshore.
The duplicity and hypocrisy of multinationals, who cry poor while dodging their tax obligations in Australia, has been laid bare by the Senate inquiry. The committee's work has been supported by the diligent public service of Australian taxation officers and complemented by the tenacious investigative journalism of Neil Chenoweth for The AFR and Michael West for The Age and The Sydney Morning Herald. The tax practices of miners and other multinationals are varied and often very complex, but their cost to the tax system and the injustice they perpetrate upon the Australian people can no longer be ignored.
Today I would like to draw attention to some of the schemes which have tarred BHP and Rio as tax avoiders, but which their boards now have the opportunity to rectify. Transfer pricing occurs when a company sells a product between two arms of its operation in order to book its profits in a lower tax jurisdiction. One of these arms might be a controlled foreign company, partly or fully owned by a domestic operation and therefore obliged to pay some domestic tax. Between 2006 and 2014, the Australian arm of BHP Billiton sold minerals to its Singapore marketing hub, which then onsold them to China, imposing a mark-up in the process. After costs, including shipping costs it paid to its own freight company, BHP's Singapore hub has booked at least $5.7 billion in profits through Singapore since 2006. While BHP Billiton was obliged to pay top up taxes of $945 million to the ATO, this tax only applied to the 58 per cent share of the Singapore arm owned by BHP Billiton Australia. Overall, the tax paid by BHP represents only 10 to 12 per cent of its total profits, made almost exclusively by selling Australian resources. While BHP maintains that its Singapore operations are at arms-length from its Australian branch, I make the simple point that the directors of both the UK and the Australian entities that control the Singapore hub are the same people. This situation is clearly an artifice.
Like BHP, Rio Tinto has established a string of controlled foreign companies in Singapore. Between 2008 and 2014, Rio's companies earned $4.5 billion in profits by onselling minerals from its Australian operation at an inflated mark-up. This profit, taxed at five per cent in Singapore, was wholly submitted to Rio's holding company in the UK and not once cent of tax was paid on the $4.5 billion in Australia—not one cent.
BHP and Rio have yet to explain to their shareholders and the Australian people the true extent of their tax liabilities. After its taciturn performance at the Senate inquiry, BHP was forced to concede that the ATO had billed it for another $522 million in top-up taxes. Rio also admitted that it was obliged to pay $107 million to resolve outstanding ATO claims. In addition, for years these companies have sat on material disputes with the ATO and progressively taken up provisions through time so that they could pay the eventual bill without having to disclose it in any single year. This attitude thumbs its nose at the continuous disclosure laws demanded of every Australian listed company.
Forensic investigation of the BHP and Rio accounts has revealed that both companies began to pay withholding tax from 2011. These taxes are likely to have been levied by the ATO for profits made on Australian operations, exposing an additional loophole that the miners were exploiting. This finding is damning for the management of BHP and Rio during 2010. If these withholding taxes were levied by the ATO, it is likely that BHP and Rio were being audited and tax evasion disputes were being settled out of public view. This was at the same time as the miners had the audacity to complain about the high rate of taxes that they were not even paying during the debate around the MRRT.
Part of the motivation for BHP and Rio's questionable tax practices lies in their dual-listed structure. Both companies are partly owned by Australian and UK parents and under the dual-listing rules must pay equal dividends to shareholders in each jurisdiction. Thanks to the mining boom, the Australian parent of each company has performed exceptionally well, but, due to poor investments overseas, the performance of the UK arms has been dismal. In order to equalise dividend payments across jurisdictions, BHP and Rio have to remit an appropriate share of the profits from the Australian operations to the UK. With the intervention of their Singapore marketing hubs, both companies have avoided paying their fair share of tax in Australia, where the economic activities generating these profits takes place.
BHP and Rio have obvious incentives to aggressively minimise their tax obligations in Australia. When company executives are remunerated according to the outperformance of their shares relative to the market, any practices which maximise market share, dividends and boost share prices would appear to satisfy executives and shareholders alike. That BHP and Rio have stretched Australia's tax laws is undeniable. The impact of their aggressive minimisation is yet to be fully realised, but they are part of a scourge which has seen tens of billions of dollars in tax revenue funnelled out of Australia over the past decade. Despite this, the findings of the Senate inquiry give these companies a chance to come clean, reform their practices and re-join the majority of Australian businesses who pay their fair share of tax in Australia.
It is legislation like this that shows the Liberals are all about shifting the tax burden away from corporations and onto working families. And fighting legislation like this is one of my driving motivations for remaining in this place. The fight for a more prosperous and inclusive Australia depends so much on the decisions we take in reforming our tax system. We must have a tax system that rewards the hard work of millions through a progressive personal tax and transfer payment system, one that drives investment and encourages enterprise through a competitive and enforceable company tax regime and ensures that we make the most of the opportunities that arise in the Asian Century. I know as a consequence of these remarks today I will be targeted by those who have profited enormously from these loopholes and shady practices. I say to them this will not deter me from arguing for a tax system which is in the national interest.
We must have a tax system which nurtures a modern market economy, where the light is shone on the power of vested interest and their power to influence public policy is kept in check. The challenge of cleaning up the corporate tax minimisation is being constantly camouflaged by those who will go to any lengths to impose a higher and broader GST on the Australian population. That is not reform or wealth creation; it is a recipe for lower growth and higher wealth concentration, and that is why ordinary Australians will never accept it.
The GST hits everybody, but its incidence is particularly acute for households on low and fixed incomes. After compensation is paid to these households, historical experience shows that governments collect a lot less taxation revenue than they anticipate. In fact, the original GST package introduced by Treasurer Costello ended up costing the government $21 billion after compensation was paid.
I say to the coalition, stop thinking about campaign donations and give ordinary taxpayers the respect they deserve by ensuring everyone pays their fair share of tax.