Dissenting Report by Coalition Senators


Dissenting Report by Coalition Senators

Introductory Comments

1.1        The Tax Laws Amendment (2011 Measures No. 8) Bill 2011 is an omnibus tax bill with four unrelated schedules.

1.2        The Coalition members of the committee strongly support Schedule 1 of this Bill giving the Commissioner of Taxation discretion in relation to the taxation of income from primary production trusts.

1.3        In fact this is an amendment to the tax laws which the Opposition has recommended to the government.

1.4        We commend the government for taking up our suggestion and for acting in good faith in progressing it.

1.5        The Coalition also supports Schedule 4, which clarifies the tax treatment of gaseous fuels following the passage of the Taxation of Alternative Fuel legislation earlier this year.

1.6        The Coalition members of the committee welcome the government's decision to remove the badly drafted Schedule 3 which relates to directors' personal liability and to defer consideration of the Pay As You Go Withholding Non-Compliance Tax Bill 2011.

1.7        In our assessment and the assessment of experts in this field, the Schedule as drafted went beyond what the Minister has claimed the effect of the changes in this legislation will be.

1.8        The flaws in this Schedule were made clear in the House of Representatives Economics Standing Committee report and need no further consideration given that the government has agreed to remove the Schedule.

1.9        The Coalition members of the Committee are strongly opposed to the changes in Schedule 2 concerning the taxing point of the Petroleum Resource Rent Tax (PRRT).

1.10      Schedule 2 seeks to make retrospective changes to tax laws and to undercut court proceedings which are currently underway.

1.11      Coalition members of the Committee recommend that an amendment be made to the Bill to also remove the proposed Schedule 2.

Schedule 2 – Taxing point for the Petroleum Resource Rent Tax

1.12      The PRRT is a profit based tax which is levied on a petroleum project in Commonwealth waters – currently with the exception of the North West Shelf Gas project which comes under different taxation arrangements.

1.13      In relation to the one major offshore project coming under the PRRT, the taxing point issue has been disputed for more than 20 years, with the government in litigation for a significant period of that time. The government is now legislating to 'clarify' the definition of the taxing point retrospectively.

1.14      In effect the proposed change in this Bill will have application only to the Bass Strait ExxonMobil project.

1.15      The taxation point and other matters have been challenged in the courts by ExxonMobil since the Bass Strait project was brought into the PRRT regime in
1990–91.

1.16      This part of the Bill seeks to undercut the court proceedings currently underway.

1.17      One of two things can happen if this Bill is enacted, either:

  • the government’s view prevails – in which case this amendment is unnecessary; or
  • the government loses its argument in court – in which case this is retrospective tax legislation going back more than 20 years on the currently prevailing tax laws.

1.18      This schedule should be removed because:

(a) it seeks to retrospectively alter tax law to 1990 (over 20 years);

(b) it targets one single petroleum project which is currently engaged in legitimate argument with the ATO about the correct interpretation of the tax law as it stood at the time that investment decisions were made.

1.19      Tax laws which retrospectively disadvantage taxpayers – in this case going back to 1990 – are highly unfair.

1.20      This key point was emphasised in a number of submissions to the inquiry. The Business Council of Australia (BCA) stated, in its submission to the inquiry:

... the BCA has been unable to identify a precedent for the introduction of retrospective tax law where there is an ongoing dispute between government and an individual taxpayer involving a debate as to the meaning of the law ...

The committee and parliament must consider the implications of passage of this Bill. It appears that the parliament is being asked to intervene in what is a long standing legal case as it comes to the stage of a final appeal. This intervention by the parliament will in effect prevent such an appeal. This would appear to be creating a grave precedent and should be resisted.

Both the matters raised ... have the potential to create substantial uncertainty in the business environment, with repercussions for investor perceptions of the investment climate in Australia.

For this reason the BCA is asking the committee to recommend to parliament that it reject the retrospective elements of the bill.[1]

1.21      The Australian Petroleum Production and Exploration Association stated, in its submission to the Inquiry:

Until such time as the Australian Taxation Office (ATO) issues guidance or advice that their existing interpretation of the law has not changed as a result of the law change, all taxpayers with projects operating under the regime will have a heightened degree of uncertainty as to whether the application of the new provision will be different to the definition under the current law. In particular, taxpayers will seek assurance that the retrospective aspect of the amendment (see comment below) will not result in the Commissioner of Taxation amending past assessments which have been made earlier than 4 years from the date of Royal Assent.[2]

1.22      The Tax Institute of Australia stated, in its submission to the House of Representatives Standing Committee on Economics:

In our view, the following comments in the 2011-12 Budget Paper No.2 (page 40) which assert that the amendments in the Schedule seek to confirm the law as it is being currently applied:

The Government will amend the tax law to provide greater certainty around how the taxing point is calculated for the purposes of the Petroleum Resource Rent Tax (PRRT), with effect from 1 July 1990. This measure will confirm existing application of the PRRT in relation to the taxing point and will provide greater certainty for PRRT taxpayers.

The location of the taxing point within a PRRT project is used in determining PRRT liabilities, and was the central issue recently considered by the Federal Court in Esso Australia Resources Pty Ltd v The Commissioner of Taxation.

The amendments will provide further statutory support for the Court's judgment, and will be consistent with the established application of the PRRT law.

as well as following comments in the Explanatory Memorandum to the Bill:

2.45 The amendments apply retrospectively to remove any uncertainty regarding the long established operation of the PRRT. This is particularly important in light of the extension of the PRRT to all Australian oil and gas projects, including onshore projects, from 1 July 2012.

2.46 The amendments do not impose any new tax burden, as they merely clarify and confirm the current application of the PRRT, consistent with the policy intent.

do not constitute clearly enunciated reasons for the retrospectively of the amendments.[3]

1.23      In addition to the above, the timing of the introduction of these amendments has not in our view been explained or consulted upon sufficiently. In this regard we note that Esso Australia Resources Pty Ltd ("Esso") has been in dispute with the Commissioner of Taxation (the "Commissioner") for almost 20 years in relation to this issue. As such, it is difficult to understand why these amendments are being made at this time. If the Commissioner's interpretation of the provisions is correct, the Full Federal Court will dismiss Esso's appeal. If his interpretation is incorrect it is inappropriate to amend the Petroleum Resource Rent Tax Assessment Act 1987 to the disadvantage of Esso.

1.24      If retrospective amendments are required to provide certainty to other taxpayers, they should not apply retrospectively to the Bass Strait Project, given that Esso and BHP Billiton Ltd commenced litigating the dispute in good faith long before the amendments were foreshadowed.

1.25      Furthermore, when these reasons are considered in light of the lack of public consultation undertaken in relation to either the retrospective application date or whether the amendments are 'consistent with the established application of the PRRT law', it is clear that these amendments should be subject to greater scrutiny prior to enactment.

Recommendation 1

1.26      That the Tax Laws Amendment (2011 Measures No. 8) Bill 2011 be amended to remove Schedule 2.

 

Senator David Bushby
Deputy Chair

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