Additional Comments from the Australian Greens
1.1
These additional comments wish to acknowledge the hard work and
contribution of former Senator, Christine Milne, who referred the inquiry to
this committee. With her Committee colleagues, the former Senator drove much of
the work and direction of the committee. She has also contributed to these
additional comments. Her informed and thorough questioning made many of the
witnesses uncomfortably shift in their seats and extracted important
information from them. Her contribution to this inquiry, like her contribution
to public debate generally, has been invaluable.
1.2
The Australian Greens fully support the Chair's report. These additional
comments offer a strong basis for further recommendations to be included and considered
by the parliament and government.
1.3
These interim report recommendations are limited to measures focussing
on public disclosure, transparency and financial reporting of multinational
groups operating in Australia. The more substantive recommendations that focus
on the mechanisms of base erosion and profit shifting will be dealt with in the
final report.
1.4
Opening up financial details to public scrutiny is a strategic priority.
Within international agreements to develop a uniform approach to tax avoidance,
strong transparency changes are unilateral measures Australia can make straight
away without disrupting the multilateral discussions, while also showing
Australia is serious about confronting this global blight on national
governments.
1.5
A strong suite of financial disclosure measures will be far more
effective and less costly to the government than their proposed general anti
avoidance measures which are notoriously difficult to prosecute in litigation.
1.6
Public dissemination of a company's financial accounts carries with it a
severe reputational risk to globally significant firms. Public exposure of tax
arrangements in the UK has seen companies like Starbucks and Amazon announce
that they will commence paying tax on UK sales after sustained public outcry.[1]
Similarly, during this inquiry, Glencore announced it will close its marketing
hubs so that transactions occur and are taxed in Australia – however this was
also influenced by prevailing commercial arrangements.[2]
1.7
Just as efficient markets require the removal of information asymmetry
for good investment decisions, efficient protection of the public interest and
public revenue requires the removal of information asymmetry between corporate
actors and the public, represented through our public institutions and
agencies.
1.8
As noted in the main report, prior to this inquiry, the public service,
the Senate and the public generally, have largely been kept ignorant about the
depth and breadth of aggressive tax minimisation by globally linked companies
operating in Australia. The significant public interest in this inquiry can be
largely attributed to the paucity of publicly available information about the
tax arrangements of high-profile companies operating in Australia.
1.9
This inquiry has to date, helped unravel some of the activities and
structures of aggressive tax minimisation, however there is still much more
uncovering to be done. Opening up the books of companies is an indispensable
structural change that needs to occur in order to facilitate public awareness
and create new commercial practices.
1.10
Investigative financial journalism has an important role to play as the
medium to translate this information to the public. To date, this has been very
successfully done by the hard work of journalists such as Michael West, Neil
Chenoweth and Nassim Khadem. This important public function of media is however
compromised through the revelation during the inquiry that the ATO's most 'at
risk' company for tax evasion is News Corporation.[3]
1.11
When a company with a significant market share of media reach is
implicated in tax minimisation practices, it raises the legitimate question of
whether the resources to investigate and expose such practices will be made
available by the media company. Tax avoidance not only affects our revenue
base, but has the potential - if left unguarded - to threaten the way our
polity operates.
1.12
The secrecy of financial transactions and accounts is permitted through
the minimal to non-existent requirements of filing detailed financial
statements with ASIC. The Greens are strongly of the view that companies
operating in Australia which are connected to a larger group of international
companies should not be eligible for 'grandfathered treatment', exemption from
reporting or special purpose accounting. The risk these companies pose to the
government's consolidated fund require full compliance with general purpose
financial reporting. The Australian Taxation Office (ATO) and accountants
acting in the public interest are then able to scrutinise those statements.
1.13
Financial statements should be completed in accordance with prevailing
accounting standards. Special purpose accounting should not be available as a
rule to globally structured companies.
1.14
While the Committee has agreed to investigate this further in the final
report, the Australian Greens wish to note in this interim report, the crucial
importance of such a measure to allow greater forensic examination of a
company's activities.
1.15
While disclosure of financial material can assist Australians to be informed
about the activities of globally-linked firms, it must be assisted with public
disclosure of past and concurrent practices. 10 Australian companies shifted
$31.4 billion out of Australia to Singapore in the 2011-12 financial year
alone. At the top of the list was a single energy company that shifted $11
billion.[4]
Under current law and practices, these companies have a right to be kept
confidential. Confidentiality of these significant transactions erodes the
public interest.
1.16
Such a significant transfer of Australian-created wealth requires the
shifting of proof to those who have all the information about their commercial
activities. These companies should be required to explain to the Australian
public – and not just the Australian Taxation Office – why these transactions
are legitimate.
1.17
To ensure the integrity of our political discourse and strengthen our
revenue base, in addition to those recommendations in the Chairs report, the
following reporting measures should be immediately implemented.
Recommendation 1
1.18
The Australian Taxation Office should be required to publish the details
of the top 10 Australian companies that transfer wealth off shore in each
financial year. A right of reply will be afforded to each named company to
justify its transactions.
Recommendation 2
1.19
Australian companies that are part of a larger group of international
companies should not be eligible for special purpose accounting treatment and
must provide ASIC with detailed financial reports to prevailing accounting
standards.
Recommendation 3
1.20
Australian companies that are part of a larger group of international
companies should include in their financial statements the value and purposes
of all transactions between related companies.
Recommendation 4
1.21
ASIC should publish all details of exemptions from general purpose
accounting by firm and association to global related parties, with a
justification from ASIC as to why the exemption is necessary. ASIC should also
publish any exemption from reporting timelines and clearly outline any changes
to class orders that are implemented.
1.22
In seeking these gains in transparency of tax payments, it is also
important to build on the gains already enshrined in law. Recommendation 4
informs the Senate to maintain existing transparency laws which apply to both
public and private companies.
1.23
The current law requires a private or public company with income over
$100 million a year to provide to the ATO for publication, the name and
Australian Business Number, the total income, the taxable income or net income
(if any), and income tax payable.
1.24
The government has stated its intention to remove the requirement for
private companies to comply with this public disclosure on the basis that
individuals would be subject to kidnap fears.
1.25
The Committee sought information from Treasury and the Australian
Taxation office as to whether they had provided advice on this risk by their
own volition or whether the AFP had requested their advice. No evidence was
provided that the threats of kidnap were based on information provided by any
government agency. In the absence of such evidence, the government's sole
justification for this exemption is simply not supported by facts.
1.26
While there was no evidence in support of carving out new exemptions,
there was information provided to the committee that such an exemption may in
fact assist further tax minimisation. The Uniting Church of Australia, Synod of
Victoria and Tasmania supplementary submission states:
...a document obtained from the Australian Taxation Office
(ATO) under freedom of information has revealed that the private companies
linked to Australian high wealth individuals have average profit margins lower
than the other categories of companies (foreign owned and Australian publicly
listed) in the group that the legislation applies to. Almost half of these
companies are foreign-headquartered and two-thirds have some form of
international related party dealings.
They account for most of all international related party
dealings reported to the ATO, despite being only 21% of the businesses caught
under the tax transparency measures of the Tax Laws Amendment (2013 Measures
No. 2) Act. It is possible that the lower average profit is simply due to this
category of companies performing worse on average than other categories of
businesses. However, there is the possibility that the lower average reported
profitability is due to aggressive tax practices.
1.27
Their analysis shows a pattern of globally connected private companies
with lower-than average profits. These are hallmarks of tax-avoidance
structures and if the government persists with this exemption, they may be
responsible for exacerbating rather than restricting aggressive tax
minimisation practices.
Recommendation 5
1.28
In the absence of a compelling public policy purpose, the government
should abandon legislative changes exempting private companies from providing
minimal details about their profitability and taxes.
1.29
The prolific creation of trusts and subsidiary companies to facilitate
the transfer of goods, services and income flows makes the comprehensive
tracking of commercial activity and ultimate beneficial ownership impossible.
1.30
Not only does such secrecy enable tax avoidance, but it also has the
potential to facilitate illicit flows of money that could be utilised by international
organisations to finance criminal activities.
Recommendation 6
1.31
That the Parliament establish a public register of beneficial ownership
of companies and trusts so that identification of financial beneficiaries can
be traced and publicly identified. The Australian government should also work
closely with other countries to establish a global standard for such registers.
1.32
While the Australian Greens support recommendation 7 in the Chair's
report, we believe there is too much scope for the government to not act on the
need for country-by-country reporting.
1.33
Before the Senate is the Corporations Amendment (Publish What You Pay)
Bill 2014 to establish mandatory reporting requirements of payments made by
Australian based extractive companies to foreign governments. The bill requires
that companies must disclose these payments on a country-by-country and
project-by-project basis.
1.34
It would apply to all Australian companies involved in extractive
industries, including oil, gas, mining and native forest logging. It will apply
to both Australian public and large proprietary companies. The overall aim of
the Bill is to improve transparency and accountability of Australian extractive
companies. The Bill aims to deter corruption by requiring payments to be made
public.
1.35
Under the legislation, these companies and their subsidiaries would be
required to submit a financial report detailing all payments made to government
entities overseas over $100,000. This threshold would bring Australia in line
with the standards set by the US, EU and UK in their legislation and
directives.
1.36
The legislation sets out that these reports must be in an open and
machine-readable format, and would be published by ASIC, to ensure public
accessibility and accountability. Misleading reporting will be dealt with under
the rules that currently exist relating to financial statements.
1.37
This legislation intends to align Australia's legislative response to
extractive industry transparency with that that is being pursued around the
world, including in the United States, the United Kingdom and Canada.
Recommendation 7
1.38
That the Senate pass the Corporations Amendment (Publish What You Pay)
Bill 2014.
Senator
Richard Di Natale
Leader
of the Australian Greens
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