11 May 2015
Transcript - #2015094, 2015

Press conference, Canberra

TREASURER

Well today I'm announcing that the Government will be proceeding with two new major tax integrity measures in the Budget tomorrow night. The first measure, known as the multinational anti-avoidance law, deals with the activities of 30 identified multinational companies. These companies are diverting profits earned in Australia away from Australia to no-tax or low-tax jurisdictions. After months of the Australian Tax Office being embedded in these businesses, we now have a better understanding of how these companies have used contrived or artificial tax arrangements, such as the much-publicised double Irish Dutch sandwich, which I will explain in a minute. These contrived arrangements have been used to avoid paying tax in Australia and they are very complicated transactions. As you can see, the economic activity occurs in Australia. The billing occurs out of Singapore. The money is transferred to Ireland and then advantage is taken of a range of different EU tax procedures in relation to royalties, thus you can see the double Dutch, the money is transferred to the Netherlands. The intellectual property has been transferred out of Silicon Valley to Bermuda, more generally, and the profits are bent in Bermuda which, of course, is a no-tax jurisdiction. This is all designed to avoid paying tax in Australia on profits earned in Australia. Tomorrow night I will be releasing legislation that strengthens our anti-avoidance regime. I have been working on this for more than a year now, in particular had discussions with the Chancellor of the Exchequer in the United Kingdom, where the UK has introduced a 25 per cent diverted profits tax. This is not a new tax in Australia. We don't need to have a new tax in Australia. We need to strengthen our anti-avoidance measures. If we do strengthen our own anti-avoidance measures to ensure that the Tax Office has the powers to see through these contrived arrangements, then we will be able to recover the tax that should be paid in Australia on the profits that are made in Australia. Our penalties for diverted profits will go much further than the United Kingdom. The Tax Commissioner will have the power to recover unpaid taxes and issue a fine of an additional 100 per cent of those unpaid taxes plus interest. I just say to you we have taken a lead role globally in this regard and, of course, I have spoken to the OECD about this in Washington as well. Tomorrow night I will also be introducing draft legislation levelling the playing field for the GST. The second tax integrity measure will ensure that the suppliers of digital products and services into Australia charge the GST on those products. It is plainly unfair that a supplier of digital products into Australia is not charging the GST whilst someone locally has to charge the GST. When the GST legislation was originally drafted, it did not anticipate the massive growth in the supply of digital goods like movie downloads, games and eBooks from overseas. I have consulted with the States and Territories and following further discussions at an officials level, as I said, we are going to release the draft legislation in the Budget tomorrow. The revenue from this initiative is expected to be $350 million over the next four years and every dollar of that will be going to the States. The OECD has recognised this is a problem for some time and a number of companies are actually working constructively with governments to recover these taxes. A number of other countries actually have or will introduce similar legislation, including Japan, Norway, South Korea, Switzerland and member countries of the EU. Okay, your questions.

JOURNALIST

Can you tell us, Treasurer, the revenue that you will get from the multinational anti-avoidance law, and can you explain, because Labor has been attacking you fairly vigorously for watering down what they said they were going to have in place. Can you explain how the revenue from your anti-avoidance law will compare to what they claim they were going to do?

TREASURER

Well firstly, their proposal had no integrity about it, they were changing for example the thin capitalisation rules. The OECD is working towards a standard, a global standard in relation to thin capitalisation and we will adhere with that standard. We have been in discussions with the OECD about it. There are a number of companies that have a very significant and capital intensive investments in Australia, particularly in mining, where they have to borrow the money from a parent overseas in order to make that investment. So there were huge unintended consequences associated with Labor's proposal, which was what they had as a rehash of what they had in Government, but never actually bothered to implement. In relation to our revenue, we’re not putting a number on it because there are 30 companies that are engaged in this activity. Obviously they have not been paying their fair share of tax in Australia, in fact they have been paying no tax in Australia. Only by being embedded in their businesses have we been able to work out their business model. We have identified the sums that have been shifted, but now identifying the actual amount that is required to be remitted in tax is a different story, and I am not going to make the same mistake that Labor made and bank money that is not identifiable, and bank money that comes from, in their case, a fake integrity measure.

JOURNALIST

Just a bit of detail. You said tightening anti-avoidance provisions, are you talking about Part 4a of the tax act?

TREASURER

Yes, and Part 4a at the moment almost deals exclusively, arguably, only with Australian interests. What we’re doing is saying even if they comply with the laws of other jurisdictions, if there is an element that relates to behaviour in Australia, then that gives us the power to go in. So we are expanding Part 4a’s - and not going overboard about it, but expanding Part 4a to give us the ability to properly discern what the proper taxable profit should be in Australia.

JOURNALIST

Treasurer, without double Irish sandwiches or whatever they are, for shall we say, large mining companies that have been hooking profits through Singapore, would these measures also affect those sorts of operations?

TREASURER

Well that’s one of the reasons why we will be consulting on the draft legislation that I will table tomorrow night. We are mindful that there are some Australian mining companies with operations based in Singapore that sell into China. Have no doubt, the rest of the world is looking at this legislation. This is the first of its kind in the world and in my discussions with the Chancellor of the Exchequer, in Washington just a few weeks ago, when I laid it on the table at the G20, there was a lot of interest from other Finance Ministers who would like to participate in the work that has gone into this legislation and perhaps take it to their own jurisdictions as well, potentially including China.

JOURNALIST

Treasurer, can you just explain for the general reader and perhaps the general reporter, what the difference is between Labor's thin cap proposals and what you’re proposing?

TREASURER

Well, Labor's thin cap proposal relates to the amount of capital you have here and the amount of debt you have here. Sometimes companies have overloaded the amount of debt that they’re allowed to have and they have a loan from a parent overseas and they’re not paying what would be deemed to be a commercial rate of interest on that loan.

JOURNALIST

[inaudible]

TREASURER

That’s right. So, that is a different set up. Obviously, there has been a lot of discussion about it and I'm happy to give you a copy of the chart that will help in that regard. So it's known as the inflated interest deductions. So there were rigorous thin cap rules introduced in 2014 in the Parliament and we are currently in a position where we are working with the OECD to try and get global agreement on what the rules should be. They were going to be much stricter which would have hurt Australia, particularly Labor's proposal would have hurt Australian companies that want to borrow money here and expand offshore. Because a lot of Australian companies - not a lot, there are some Australian companies that are prevented under our competition laws from expanding in Australia. So they actually want to raise some money and they want to raise some debt here and then go and expand offshore. That's a good thing, we want to encourage that. Labor had huge unintended consequences and still do [inaudible].

JOURNALIST

Just on another subject if I may. Are you concerned of reports that the savings made for the childcare initiative won't get through the Senate and there are concerns that the National Party won't support the savings?

TREASURER

Well, no, we are prepared to work with the Senate. But if you want to spend the money, you have to save money. It's been one of the guiding principles of our Budget, and you will see it tomorrow night. Where we have new spending, we are going to offset it with appropriate savings. That means that our decisions, any new decisions are not going to have any significant negative impact on the bottom line. David.

JOURNALIST

Treasurer, as you announced today the GST on digital products, is there any threshold around that? I mean if I'm selling one computer game or a movie?

TREASURER

No.

JOURNALIST

Can you explain why that will attract the GST and not selling a pair of shoes or a T-shirt in Australia, won’t?

TREASURER

Well it is a good question. Firstly, obviously there has been some resistance out of Western Australia in lowering the tax threshold. We are working it through. But the fact is that the original proposal was that if you have goods come into Australia, the taxing point was when they came into the country. Now the logistics of actually looking at individual parcels, assessing what the GST liability would be and so on was proving to be unbelievably expensive. There was a dispute between the State Treasurers, particularly Mike Baird and others, about how much that would actually cost. The question was fundamentally whether the revenue that would be raised from such an initiative would actually be far less than the cost of enforcing it. What we are doing under this proposal, which is a global proposal, is going to digital providers overseas and saying to them, can you apply the GST to the products you provide into Australia or in the case of any other country that has a consumption tax. These companies are agreeable to it. They’re actually agreeable to it and why? Because they actually don't pay it, it’s not their profits, it's a tax that is collected and they remit it back to the country where that occurs. Now, there are really only a handful, a comparative handful of businesses that are engaged in digital technology transfers, even though the volume of activity is far greater than it was when the GST was introduced. There are a lot of companies involved in the provision of goods and if we all work together in the OECD, which we are, we are actually going to get to the point where the companies supplying goods, and you can name, I won't name any companies, I swore I wouldn't name any companies today - there are some providers of goods that are based overseas that are prepared to charge the appropriate taxes in that jurisdiction. There are other companies that won't, so we are trying to get a global approach.

JOURNALIST

Treasurer, two questions. Firstly, when would the tax on intangibles start? And secondly, you have said that there are 30 identified multi, you know, diverting profits companies and so on. Given that's the case, will the Government rethink its opposition to naming companies when it comes to their tax liabilities, given that the idea that it puts them subject to hostage taking sounds like complete bunkum?

TREASURER

Well, actually there are a number of companies that are starting to internationally disclose the tax they pay in various jurisdictions, for example, Rio is one. I noticed that an Australian bank, identified in I think it was today's paper actually, that said that they’re prepared to disclose their tax obligations. There is a voluntary code that is going to be applied and look, quite frankly, there will be other measures that I will be announcing in the next few weeks in relation to that. In relation to digital, we have a consultation process but obviously we want to begin that as soon as possible.

JOURNALIST

So, July 1 this year or July 1 next year?

TREASURER

No, it won't be July 1 this year. I think we’ve got to properly consult. One of the things I'm concerned about is any unintended consequences, particularly for Australian businesses.

JOURNALIST

Treasurer, is there - will there be a retrospective element to the double Dutch tax sandwich? Have you got a starting point as to when you identify companies and of the 30 companies, are almost all of them technologically-based companies, or are we as Laura's question suggests, a mining company, is that the gambit of fields that we are talking about?

TREASURER

Well, there aren't many mining companies based on the West Coast of the United States that are transferring technology and they’re not all American companies. But I think it's wise not to go down the path. I mean, it's pretty evident which companies are involved, and don't assume, don't assume that any of them are Australian.

JOURNALIST

And a starting point?

TREASURER

Oh sorry, the starting point, we are looking for diverted profits, what is known as the multinational, we are looking at that to start the 1st January next year. In relation to existing schemes, they’ve got these schemes the companies are set up for a particular purpose. We don't support retrospective legislation but if they’ve got a structure, given the size and scale of the fines, which are very significant, as soon as they start to restructure, then you would expect they would start to pay tax in Australia.

JOURNALIST

You said you wouldn't give any estimate of the revenue that could be gained but...

TREASURER

Just on the first one, on diverted profits.

JOURNALIST

Yeah yeah. But in the long run, can you give some sort of feel of how much you think is involved and I think you said that you knew something of what had been lost already? Do you have that figure?

TREASURER

Well, we are getting a very good feel of the amount of money that has been sent offshore. The question is what the taxable profit would be.

JOURNALIST

How much is that?

TREASURER

Well, it's a lot of money.

JOURNALIST

Is there some reason you can't give that to us?

TREASURER

Well, the reason is because we are still working through the structures. We have been embedded, a number of the companies have been very open with us...

JOURNALIST

Are we talking tens of billions here?

TREASURER

It is billions of dollars, obviously.

JOURNALIST

Treasurer, Andrew Forrest is urging Australians to write to MPs to complain about the two big mining companies driving down the iron ore price, a threat to sort of the way of life, as someone who knows what it’s like to have his revenue stripped away by a falling iron ore price, do you have sympathy for that?

TREASURER

Well, I obviously have been speaking to all of the miners. I have been speaking to their customers. Quite obviously, the sharp fall in the iron ore price has had a dramatic impact on our revenues, as it's had quite an impact on the mining industry more generally. Common sense must prevail. Common sense must prevail. I have some sympathy for Andrew Forrest and all the others. I have a lot of sympathy for the workers who are losing their jobs and I've got a lot of sympathy for a number of companies that have suspended activities as a result of the fall. Now markets go up, markets do go down. If there is untoward conduct, then it must be dealt with, and quite obviously we've been following this very closely.

JOURNALIST

Treasurer, you’ve been criticised for a low profile in the lead-up to this Budget. Is this your Budget and also what do you make of Scott Morrison's comments this morning saying you’re the Greg Bird of the Government?

TREASURER

Well I'm a rugby man so I'll leave it at that. Of course it is. It's the Government's Budget, of course it is. We all work together, as we should. Next question.

JOURNALIST

Also on that PPL, Mr Morrison this morning gave some figures saying that 45,000 people would be less well-off and 34,000 people wouldn't be able to access the taxpayer-funded PPL scheme. Can you just explain how that works between some who will be less well-off and some who won’t get it at all?

TREASURER

Well, the fundamental point with the Government's paid parental leave scheme, is that you are entitled to around $11,500 for the approximately 18 weeks that you are on parental leave. Look, that's taxpayer money that is provided, in particular to support parents that are having children when their own employer has no paid parental leave scheme. Now, where an employer has its own paid parental leave scheme, like the public service, I don't think it's fair and I think most Australians wouldn't think it's fair, that you can be paid by the Government to have paid parental leave as an employee and then you get an entitlement to be paid by the taxpayers, again, for what was meant to be a safety net. Frankly, you know, it's unfair in the circumstances, and what we are dealing with is that unfairness. Now, obviously I released the figures yesterday in relation to the paid parental leave scheme changes. In particular, I made the point and there was a chart that was actually released at the same time which indicated that higher income people, I hope it was released, if it wasn’t it just has been, that indicates that higher income people are double dipping and that’s just plainly unfair.

JOURNALIST

On the paid parental leave scheme, some of the employer groups have said this morning that businesses who want to continue for their employees to get benefits on top of the publicly provided paid parental leave might just pay those benefits in different ways and continue to rely on the Government to pay the $11,500. Did you take that into account when you calculated your savings and do you think that that is something that’s likely to happen?

TREASURER

Look, most employers, any employer that actually provides paid parental leave is doing the right thing by their employees. Now, you would think they are doing it in order to keep their employees and importantly take care of their employees. So, if they are going to create artificial constructs in order to avoid paying something that should be in my view the normal part of the course of business, then sooner or later it will catch up with them. Any others?

JOURNALIST

Treasurer, could I encourage you again to answer Michelle's question on just giving us the broad number. You have you’ve identified how much money is being shifted offshore, divided by 30 companies, so you’re not identifying any individual companies, and don't you have to book those estimates?

TREASURER

No we’re not, no we’re not booking those. You don't have to. It is an integrity measure, it’s not about raising revenue. I'm not going to put a number on it because not only would that give away how much we know about those 30 companies...

JOURNALIST

You’re embedded in their companies, I guess they know you know. We just don’t know.

TREASURER

Well, we can't quantify exactly how much the tax liability is but this is about the integrity of the Australian taxation system. You know what, if there is more integrity in the Australian taxation system, then Australians that do the right thing might just end up paying less. I mean when someone does not pay their fair share of tax, it means that the mums and dads of Australia, the businesses of Australia, the consumers of Australia end up paying more and that is plainly unfair. See you tomorrow night. Thank you very much.