TREASURER:
Well, thank you everyone for coming together today. I am very pleased to be joined here today by the Commissioner of Taxation, Chris Jordan, and very pleased to be working with him. Kelly O'Dwyer, the Assistant Treasurer is unable to be here with us today but she would ordinarily be at an event such as this talking about the administration of Australia's taxation laws.
The Government is absolutely committed to ensuring the companies that earn income in Australia and benefit from our economy pay their fair share of tax here. We are committed to ensuring that Australia remains firmly on track when it comes to ensuring that multinational companies are paying their fair share of tax here in Australia. I want to commend the Australian Taxation Office for the outstanding work they have been doing in implementing the Government's policies in this area and I will invite the Commissioner to say a few words on those matters in a few moments time.
In recent days we have seen the outlining and release of the new BEPS arrangements for the OECD and we obviously welcome those 15 recommendations. Australia has already been ahead of the curve on these recommendations. We have fully implemented many and are well advanced on most and for a number of remaining matters have them under active consideration and are moving forward in a very proactive way.
In particular, the multinational anti-avoidance law which was introduced in the Parliament in September, I think is very important legislation. I commend the former Treasurer, Mr Hockey, for really championing the development of that legislation, not just in this country but his work as part of the G20 to lead those efforts which were so substantively demonstrated in what was released by the OECD in the last couple of days. Those laws ensure that there are anti- avoidance provisions that go beyond the existing part 4A measures – 100 per cent plus penalties for those found not to be conforming with our laws. And of course the country by country reporting which is one of the features of the OECD recommendations that have been release and has already been introduced into our Parliament by law.
The $86 million which we've given to the ATO to drive the compliance efforts around all of these issues, the taxation of digital products and today an exposure draft for the legislation of implementing that policy decision, to extend the GST to digital products, will be released later today and of course there's the Government's policy decision on the low value threshold for GST removal that will impact on these matters as well.
The referral to the board of taxation of anti-hybrid rules has already been done and that will report back in March of next year. The tightening of thin capitalisation rules has been an important part of what we have already done and we've ensured that we have maintained the very tailored and customised way of operating those rules to ensure that it doesn't penalise against investors who are seeking, particularly, to invest in things like infrastructure, overseas pension funds and the like, to ensure at the end of the day that the nature of the investment, the nature of the legitimate business activity is the keen focus of our attention so as not to in any way discourage investment or jobs.
The controlled foreign companies rules and in addition to that the transfer pricing arrangements which I note were introduced by the previous Labor Government, I think demonstrates that Australia has been working on these issues for many years and particularly this Government has had a very strong focus to ensure that multinationals pay their fair share of tax in Australia. The tax office is working very closely with these companies to ensure the sort of positive cooperative relationship that is necessary to ensure that the right thing is done but equally that these businesses can get on, do the business in Australia, create the jobs, drive the investment that is so critical to the future of our economy. And with those introductory remarks I'm happy to pass it over to the Commissioner.
COMMISSIONER OF TAXATION, CHRIS JORDAN:
Thank you, Treasurer. I do welcome the release of the OECD's response to the BEPS action plan and the Government's commitment to continuing with this work. The implementation of the OECD's work will limit the ability of multinational companies to exploit loopholes and the differences between jurisdiction's domestic laws that shifts profits to no or low-tax jurisdictions and therefore allows them not to pay tax in the jurisdiction where the economic activity that generates their profit actually occurs.
The OECD work programme in addition to the Budget announcements will also result in the operations of multinationals being more transparent to tax authorities generally. The widespread and consistent implementation of these measures by countries around the world will be crucial to their success. With G20 backing there is every reason to believe that they can be successfully implemented and the ATO will continue to support the Government in any way it needs to get this global implementation right.
We are presently doing everything we can to ensure multinationals pay tax in Australia on the income that they earn here. We continue to focus on testing the current law and drawing evidence from these cases to provide policy advice to Government via the Treasury and to the OECD. I should acknowledge that the majority of corporates do pay the right amount of tax in Australia and are open and transparent in their dealings with us. However, there is a minority that try to avoid their obligations and we do act on behaviour that is questionable.
We have more specialists than ever before working in our internationals area and have strong leadership and capability to deal with these difficult global tax issues. Although it is a matter for parliament I do welcome the new initiatives on certain BEPS action items the Government announced as part of the 2015 Federal Budget. These include a stronger anti-avoidance rule targeted at large multinationals with turnover exceeding $1 billion, increased penalties for tax avoidance and implementing the OECD reforms including the country by country suite of documents which will enhance transparency and support us in our tax risk assessments.
Now, part of the success of this initiative has to be better coordination of revenue authorities around the world. We lead the establishment of the E6 project, which was a coalition of six revenue authorities, looking at the e-commerce industry. The success of that project has led to the expansion of the cooperation to now include 33 countries looking at several different types of tax risks. This collaboration occurs under the auspices of the OECD's forum of tax administrators and I am certainly quite proud to have championed this increasing cooperation on behalf of Australia.
So, the ATO will continue to closely examine the arrangements of multinational enterprises, under existing law, we will work with other countries to improve cooperation amongst revenue administers and to support the Government in its efforts to tackle multinational enterprise tax avoidance. To this end we will certainly be entering discussions with around 80 multinational enterprises who will be potentially affected by that multinational anti-avoidance law that the Treasurer mentioned, has been introduced into parliament and if passed will commence its operations from 1 January 2016.
TREASURER:
Thank you, Commissioner. I'm very pleased about that particular announcement. If that legislation passes the parliament, then the net, I suppose, is broadened from the 30 companies that we're currently speaking to through the Australian Taxation Office and from the beginning of next year that would extend to around 80. So, further demonstration of these measures going into effect. Questions?
QUESTION:
Are you going to be naming and shaming some of these companies? That was an issue when Joe Hockey was the Treasurer; he was reluctant to name the companies?
TREASURER:
I'll allow the Commissioner to respond to the operational, practical sides of those sorts of things but what we're doing here is working with companies, working with companies who are investing in Australia, who are employing people in Australia and we want to see do more investing and employing in Australia to give job security and create more jobs and the best way do that is to work through these issues and the legislation provides new opportunities for the Taxation Office to do that and I think we need to keep this on a very positive footing.
JORDAN:
I think it's really the outcomes that are important for us at the ATO and for the country and the economy. So, if companies choose to restructure their affairs and in the UK you did see some named companies, I think it was Amazon came out publicly and said they were restructuring to book the sales of products to UK customers in the UK. I would suspect that you would start to find some of that happening here. We have already been approached by some of the large companies that this will directly impact and are commencing discussions right now as to how some of these structures may be unwound without in itself triggering some sort of tax liability. So, we're very happy to work with companies, to get the outcome that sits behind this legislation and that outcome is to ensure that the profits generated from sales, where the economic activity that causes those sales to occur, the profit is left here in Australia if that economic activity given rise to that profit did occur here in Australia. So, we're not really under our secrecy laws, we are compelled to hold our discussions private, I don't see any particular advantage in us sort of trying to name and shame companies. I am focussed on outcomes and I think that's where we should direct our attention.
QUESTION:
On that question about outcomes is it possible to put a figure on how much you think you will be able to claw back from these 80 companies if the rough measures work as intended?
JORDAN:
It's not possible to be precise at all so I'm very reluctant to try to sort of throw a figure out there. What I have said in the past is we know there are billions of dollars of sales that are booked overseas from activities that directly occur here in Australia. So, the first stage is to have those sales booked here in Australia and then to work through with the companies the level of expenses under our transfer pricing laws that would be appropriate for them to pay for the intellectual property, for the services that are carried out overseas. So, it is a matter of the headline figure is billions in profit but that is the gross figure. We then have to fairly methodically work through with the companies what their relevant expenses that relate to that profit are and then come down to a net figure. So, that is the very difficult part right now.
TREASURER:
So, I think it is important to caution against those who might be making all sorts of claims about how much revenue will be generated here and I know the Opposition have made some claims along those lines. My simple invitation to the Opposition is, if the measures, which I know they have outlined, the advice I have on those measures is that they are fairly blunt measures that do particularly, potentially disadvantage pension fund investments in Australia, particularly on infrastructure because they don't have the same bespoke nature of the rules that we are applying - but if they wish to share the details of their assumptions and modelling with Treasury then we are in the business of ensuring that all multinationals pay their fair share of tax in Australia and if people have good ideas on that, that is fine, but the advice that I have, currently, based on what is in the public domain about those proposals is that they present very significant risks for investment and jobs but we can work that through with them if they choose to be part of that process.
QUESTION:
Can I ask a question a slightly different way, one of my more inspired [inaudible] informs me that in the OECD report the tax amount, the amount of tax lost is up to 10 per cent of the total, which may or may not be $7 billion in Australia. Discuss.
TREASURER:
Well, I think, from memory it says 4 – 10 per cent which is a pretty big spread in terms of what the potential revenue is and I think when you get spreads of that range what do those numbers really mean. I think the practical approach the Government is taking and certainly the practical approach the taxation office is taking is to just work the process, work the details, work with the companies and ensure that the principle, which is that income being earned in this country, generated within this economy is being captured in an appropriate way, in a fair way to ensure that tax take reflects what is happening here and that is what everyone is working towards. I think there is a positive attitude towards this. The fact that this has now come and has been supported by the work of the OECD some 60-odd countries that have been involved in that process gives it even greater weight and authority and I think that does help the broader global corporate community I think get involved in processes happening whether it is here on in the United States or wherever else and we would encourage that process.
JORDAN:
I think you also have to realise that Australia is well placed in this regard already. So, we would certainly see ourselves way down at the lower end of any of those estimates and even at the lower end we would think they were somewhat inflated if you took our particular situation into account. The reason I say that is we already have very strong transfer pricing laws, very strong and long-standing, robust, controlled foreign company regime that looks to deal with this. We have recently; the Government has tightened up the thin capitalisation rules as well. So, we are quite well placed and quite advanced in some of our existing laws that may not be the case in a number of these other countries, You might find that surprising but it's not. We are really well advanced and therefore some of those estimates would probably be very, very much on the high side in our context.
TREASURER:
So, you need to be wary, I suppose, when others are making claims about the revenue that can be raised here and suggesting you can pay for any number of things, I think there is a very big question mark over that and we will look at the reality of that and just work the process.
QUESTION:
Treasurer, can I ask you on a related matter, will you consider a system where some penalty rates may be lowered in exchange for a tax concession?
TREASURER:
Are we moving off BEPS now? If there are any other questions on BEPS and those reforms I am happy to take them now and then we can move to other issues if that is fine. The point I made this morning, I will make again now, that is, we are interested in ideas and changes that help people work, save and invest. We are interested in ways that the system can help people with disadvantages and vulnerabilities be able to be in the workforce. That is the sort of system we want to see happen. We want a system where businesses can grow, particularly small businesses, particularly in the hospitality industry or in other areas. Now, why would we want to not be involved in a discussion that considered the options that produced those outcomes? It's just like I have said in the tax system. I think one of the helpful things about how the debate has changed in recent weeks is we are getting a lot more focus on what we want to achieve and what the outcomes are and - not getting bogged down in old politics-style debates with winners and losers and combatants and all of that baggage and history that has weighed down our debate - to the benefit of the public interest. So, as a Government, the Prime Minister and I and all the Cabinet and Ministers, we are interested in a mature debate on these issues and we are interested in getting people into jobs and anyone who wants to be part of that debate is welcome.
QUESTION:
So, does that mean you would consider perhaps a tax concession in exchange for some flexibility in penalty rates?
TREASURER:
It means that I am interested in getting people into jobs and I am interested in ideas that help people do that and having a system that promotes it. I think that is the rule that you have got to put over all of this and as a Government we are just not going to get drawn down into the features debate when frankly what we have to do a lot more is I think explain what the benefits are of even considering matters like this. I make that appeal to the Leader of the Opposition as well. He can continue with and double down on the old style politics of industrial warfare, or, he can put down his sword, leave behind a generation of debate he has been involved in as a former union leader and engage in a mature debate about how we get more people into work.
QUESTION:
So, you are excited by measures that are outside the remit of the Fair Work Commission in terms of getting flexibility?
TREASURER:
I am excited by any measure that gets an Australian into a job. Anything else? No? Thanks for your time. Thank you very much Commissioner for being with us.