Chapter 2Views on the bill
Introduction
2.1This chapter outlines the views of inquiry participants on the provisions of the Treasury Laws Amendment (Responsible Buy Now Pay Later and Other Measures) Bill 2024 (the bill).
2.2This chapter is informed by the explanatory materials for the bill, submissions received by the committee during the inquiry, evidence provided to the committee at a public hearing in Canberra on 24 July 2024, and additional material received by the committee.
2.3The discussion below is separated into key, high-level reforms outlined in the schedules to the bill. This chapter focuses on specific aspects of these measures raised by inquiry participants in their evidence to the committee.
Key issues
2.4Submissions and other evidence received by the committee in this inquiry commented on the following schedules to the bill:
Schedule 2 – Buy Now, Pay Later;
Schedule 4 – Multinational tax transparency, country-by-country reporting; and
Schedule 7 – $20 000 instant asset write-off for small business entities.
2.5The committee did not receive any submissions providing views on Schedules 3, 5 or 6. Accordingly, the measures in these schedules are not discussed in this chapter of the report.
2.6This chapter concludes with the views and recommendations of the committee.
Schedule 2 – Buy now, pay later
2.7The committee received evidence from several inquiry participants providing views on the Buy Now, Pay Later (BNPL) reforms outlined in Schedule 2. At a general level, these submitters expressed support for the reforms, stating that regulating BNPL products under the National Consumer Credit Protection Act 2009 (Credit Act) and National Credit Code would provide strong protections for BNPL consumers, particularly for those under financial pressure.
2.8However, inquiry participants also emphasised the importance of ensuring that the regulation of BNPL products as credit does not stifle innovation and competition in the BNPL sector. These submitters expressed concerns with several aspects of the reforms and argued that Australia’s regulation of BNPL products should be more closely aligned with New Zealand’s approach.
Enhanced rights and protections for BNPL consumers
2.9Several inquiry participants expressed strong support for the reforms on the grounds that they would provide users of BNPL products with enhanced consumer rights and protections. These submitters emphasised the risks posed by BNPL products, particularly to vulnerable consumers, and noted that under the current law, consumers do not enjoy the same protections as they would for other forms of credit regulated under the Credit Act.
2.10In a joint submission, several consumer groups including CHOICE, the Financial Rights Legal Centre, Redfern Legal Centre, the Consumer Action Law Centre and others, expressed strong support for the reforms on the basis that they would protect consumers from the financial harms of BNPL products. These groups claimed that as the BNPL industry has expanded outside of the Credit Act and the National Credit Code, it has left a significant portion of consumers worse-off. These groups cited reports indicating that approximately 20 per cent of BNPL users in Australia struggle with repayments and have experienced, or are at added risk of, financial hardship. These groups also referenced reports of financial counsellors indicating that a majority of their clients had at least one BNPL debt, with some clients maintaining as many as three separate BNPL debts.
2.11These groups argued that the reforms in Schedule 2 would provide consumers with strong protections which guarantee safe access to credit. These groups also claimed that the reforms would bring the treatment of BNPL products closer to the regulation of other credit products under the Credit Act and National Credit Code. These groups expressed support for the provisions of the bill which would require BNPL providers to hold an Australian Credit License (ACL), become members of the Australian Financial Complaints Authority (AFCA), introduce caps on default fees and undertake a suitability assessment prior to commencing a low-cost-credit-contract (LCCC) with a potential consumer. These groups submitted that these protections would constitute a strong improvement in rights and protections for consumers and reduce the risk of financial harm posed by BNPL products.
2.12These views were echoed by Legal Aid Queensland (LAQ). LAQ claimed that the proposed reforms would provide enhanced protections for consumers and would decrease the risk of financial hardship posed by BNPL products. LAQ noted that it has experienced a significant increase in the number of claims for financial assistance and advice relating to BNPL debts. LAQ observed that individuals with these BNPL debts are particularly vulnerable to the risks posed by BNPL products. Further, LAQ observed that these individuals are generally on low incomes, are already experiencing financial hardship, have limited access to mainstream credit, and are using BNPL products to pay for basic expenses such as food.
2.13Noting that BNPL products are treated and used in the same way by consumers as other credit products, LAQ expressed strong support for regulating BNPL products under the Credit Act and the National Credit Code. However, LAQ recommended that the protections in the bill be enhanced to protect particularly vulnerable consumers. To this end, LAQ argued that the reforms should prohibit BNPL credit from being secured over assets such as cars and from BNPL products being advertised for essentials such as food.
2.14In their evidence to the committee, the Department of the Treasury (Treasury) stated that the reforms in Schedule 2 would provide substantial consumer protections for users of BNPL products. Treasury explained that the reforms would require that the provision of BNPL credit be affordable for consumers by bringing BNPL providers under the Credit Act as LCCCs. Under LCCCs, Treasury explained that the provision of BNPL credit would be subject to an affordability assessment. Treasury also stated that the reforms would require BNPL providers to maintain internal and external dispute resolution arrangements, have hardship provisions and obtain an ACL.
2.15Other inquiry participants expressed in-principle support for regulating BNPL products. For example, Afterpay submitted that the reforms represented a good and sustainable approach to regulation and acknowledged that they would provide stronger consumer protections to users of BNPL products. Further, the Tech Council of Australia (TCA), despite suggesting several changes to the bill, argued that the measures would provide important and appropriate consumer protections and expressed support for the reforms.
Protecting innovation and competition in the BNPL sector
2.16Inquiry participants emphasised the importance of a proportionate and sustainable approach to regulating BNPL products. These submitters argued that any regulatory framework must support innovation and competition in the BNPL industry while at the same time providing protections for consumers.
2.17For example, Afterpay expressed support for the reforms on the grounds that the principles of ‘good and sustainable regulation’ were present in the bill and the reforms acknowledged that BNPL is a fundamentally distinct form of credit. Afterpay submitted that the regulatory approach was scalable and proportionate to the financial risks posed by BNPL products. At the same time, Afterpay submitted that the proposed regulatory approach promoted competition and innovation in Australia’s banking sector while providing strong consumer protections for BNPL users. However, Afterpay argued that several aspects of the reforms could better achieve this balance and recommended closer alignment with New Zealand’s approach to BNPL regulation.
2.18These views were echoed by the TCA. The TCA highlighted the strong performance of Australia’s technology sector, characterising it as a ‘key pillar’ of the Australian economy. The TCA observed that Australia is home to a number of globally successful fintech companies and has a comparative advantage in payment technology, which is driving improved competition, innovation and economic growth. Accordingly, the TCA emphasised the importance of ensuring that BNPL regulation struck the right balance between protecting consumers and continuing to support innovation in the technology sector. While taking issue with select aspects of the bill, the TCA expressed support for the BNPL reforms on the grounds that, as a whole, they achieved this balance.
2.19The Australian Financial Industry Association (AFIA) expressed support for BNPL regulation which maintains competition and innovation, while also ensuring high standards of conduct from the industry and appropriate consumer protections. The AFIA claimed that very few active BNPL accounts were subject to financial hardships and complaints. The AFIA also referred to research indicating that the BNPL industry supported 149 600 jobs in 2022–23 and contributed $22.9 billion to Australia’s Gross Domestic Product (GDP) in the same period. Accordingly, the AFIA recommended that the Australian Government take a cautious approach to BNPL regulation to prevent negative consequences for economic growth and activity.
2.20FinTech Australia submitted that regulation of BNPL products must guarantee continued innovation in the fintech industry and ensure that it remains globally competitive. FinTech Australia claimed that the New Zealand model for BNPL regulation best achieved this balance by designing a proportionate and scalable regulatory regime for BNPL providers. FinTech Australia concluded by arguing for closer alignment between the Australian and New Zealand approaches. Similarly, the Emerging Payments Association Asia (EPAA) urged the Government to align its BNPL regulation with that of the Asia-Pacific region, including New Zealand. The EPAA claimed that this would provide further transparency and consistency for consumers and providers.
2.21Similarly, Treasury emphasised the importance of regulating BNPL products in a way which provided strong consumer protections while maintaining the viability of the BNPL sector. Treasury explained that the bill seeks:
…to strike a balance between consumer protection and recognising the benefits that can and do flow from buy-now pay-later. The approach, which is referenced in some of the statements that the minister has made, recognises the competitive benefit that access to low-cost casual credit can provide within the marketplace. It represents a competitive alternative to higher interest products such as credit cards, SACCs or consumer leases and so on.
Modified responsible lending obligations framework
2.22Several inquiry participants provided views on the modified responsible lending obligations (RLO) framework for BNPL providers entering LCCCs. These inquiry participants expressed concerns that the modified RLO framework unnecessarily differentiates BNPL from other types of credit products under the Credit Act and would weaken the regulation of BNPL products.
2.23In their joint submission, the Consumer Groups argued that the modified RLO framework for BNPL providers created more risks for consumers than the full RLO framework under the Credit Act. These groups noted that the full RLOs imposed stronger requirements on credit providers to assess the financial situation of a consumer prior to providing a credit product. These groups observed that the modified RLO framework contained weaker verification obligations and exempted financial suitability assessments for LCCCs worth less than $2000. These groups noted that a credit check, as provided for in the modified RLO framework, would not mitigate the risks created by the lack of full suitability assessments.
2.24Further, the Consumer Groups submitted that it would be easier for perpetrators of financial abuse to take out loans in their victim’s name under the modified framework than it would be under the full RLO framework. These groups noted that whereas under full RLOs credit providers need some form of documentary evidence that the applicant is receiving an income that would enable them to repay a credit product, the modified RLO does not require the same suitability assessment. Accordingly, these groups recommended that the modified RLO framework be strengthened to protect against financial abuse using BNPL products.
2.25These concerns were echoed by Anglicare Australia. Anglicare Australia submitted that the modified RLO framework actively prioritised the interests of BNPL providers ahead of consumer protections. Anglicare Australia claimed that the modified RLO framework would allow providers to opt-out of conducting suitability assessments prior to entering an LCCC. Generally, Anglicare Australia argued that the reforms provided too many concessions to the BNPL industry in addition to the modified RLO framework. Anglicare Australia claimed that these concessions would compromise the reforms and fail to adequately protect consumers from the financial risks of BNPL products.
2.26However, other inquiry participants argued that the modified RLO framework did not go far enough in distinguishing BNPL from other credit products. These inquiry participants claimed that the modified RLO framework would impose a significant regulatory burden on BNPL providers and may become more burdensome than the full RLO framework.
2.27For example, FinTech Australia submitted that the modified RLO framework would not provide BNPL providers with sufficient relief from the regulatory burden of full RLOs. FinTech Australia stated that there were arguably no meaningful differences between the two frameworks and that the extent of the modified RLOs lacked certainty. FinTech Australia claimed that due to this lack of clarity, most BNPL providers would adopt the full RLOs to safeguard against accidentally committing a breach under the modified RLOs. FinTech Australia also expressed concerns that the modified RLOs may in time become more onerous than the full RLOs. As a result, FinTech Australia claimed that BNPL providers will incur an equally greater compliance burden under either the full or modified RLOs.
2.28Similarly, Hamilton Locke submitted that there was little fundamental difference between the modified RLOs created under the reforms and the full RLOs. Hamilton Locke claimed that the only meaningful difference between the two frameworks is that the modified RLOs are scalable by reference to a list of matters prescribed by legislation. By contrast, the full RLO is scalable by reference to guidance provided by the Australian Securities and Investments Commission (ASIC). Noting that ASIC guidance is neither law nor comprehensive, Hamilton Locke argued that the modified RLOs and the full RLOs would likely produce similar regulatory outcomes. Therefore, Hamilton Locke argued that the modified RLO framework is not a meaningfully reduced RLO obligation for providers entering LCCCs and would in fact impose an enhanced regulatory burden on BNPL providers, rendering many LCCCs unprofitable.
2.29However, some inquiry participants expressed support for the modified RLO framework, arguing that it was proportionate to the risk posed by BNPL products and would provide BNPL providers with the flexibility they required. Afterpay submitted that, at a high-level, it supported the modified RLO framework. Afterpay argued that the modified RLOs provided BNPL firms with the flexibility and certainty which they required to operate and were proportionate to the risks of BNPL products.
Suitability assessments and enquiries into consumer finances
2.30Inquiry participants provided views on the suitability assessment requirements for BNPL providers under the modified RLO framework. Several BNPL providers and fintech firms expressed concerns with the requirements, stating that they would impose a disproportionate and inappropriate regulatory burden on providers.
2.31For example, Afterpay submitted that the product suitability requirements for BNPL arrangements were disproportionate to the nature of BNPL products and should be removed from the bill. Afterpay characterised the suitability requirements for LCCCs as lacking utility and contributing little to meaningful improvements in outcomes for consumers. Afterpay expressed support for aligning the reforms with the more scalable and proportionate suitability requirements in the New Zealand model. Afterpay submitted that the New Zealand Government considered suitability requirements for BNPL providers but concluded that the requirements would ‘have little impact on financial hardship as suitability requirements would likely be of little benefit to BNPL applicants.’ According to Afterpay, the New Zealand Government concluded that these requirements were broadly unsuitable for BNPL given the ‘simplicity’ of the product and the fact that they are marketed on their key features.
2.32FinTech Australia also submitted that the product suitability requirements for BNPL providers were disproportionate to the nature of BNPL products. FinTech Australia cited the approach of the New Zealand Government which exempted BNPL providers from the affordability and suitability provisions of its consumer credit law, balanced with requirements around comprehensive credit checks. The New Zealand model also compels BNPL providers to assist the consumer to reach an ‘informed decision’ as to whether or not to purchase a BNPL product. FinTech Australia argued that this approach was proportionate to the risk posed by BNPL products and recommended that Australia work to align its BNPL regulation with New Zealand.
2.33Afterpay also expressed concerns about requiring BNPL providers to conduct enquiries into the state of a consumer’s finances prior to the commencement of an LCCC. Afterpay argued that the requirement for BNPL providers to make enquiries into consumer income and expenses is unlikely to generate consistent or effective consumer outcomes or aid responsible lending decisions. Accordingly, Afterpay recommended that instead of these enquiries, BNPL providers should perform a partial credit check on all customers for credit limits under $5001. Afterpay claimed that credit checks would provide more useful data than the enquiries mandated by the bill and would better protect consumers.
2.34Similarly, FinTech Australia questioned the value of mandating enquiries into the finances of a potential consumer. FinTech Australia claimed that for the purposes of low-value LCCCs, this information is unlikely to provide meaningful inputs into the decision-making framework of BNPL providers.
2.35However, other inquiry participants expressed support for these requirements. For example, in their joint submission, the Consumer Groups argued that the verification of income ensures that assessments of the financial health of the borrower are based on correct and full information. These groups argued that full enquiries would pick up nuances in an individual’s finances which would not be revealed by a partial credit check. These groups claimed that not requiring verification of finances creates more risk that consumers will be sold unaffordable credit.
Presumption of suitability for low-cost credit contracts below $2000
2.36Several inquiry participants commented on the presumption that LCCCs with a credit limit of $2000 or less will be assumed to meet the consumer’s requirements and objectives for the purposes of section 133 of the Credit Act. Some inquiry participants expressed support for this measure on the grounds that it would reduce the regulatory burden for BNPL providers. For example, Hamilton Locke and Zip Co both expressed support for the $2000 threshold, characterising it as one of the key benefits of the proposed regulatory regime.
2.37However, other inquiry participants argued that the threshold was too low and should be increased to provide BNPL providers with greater flexibility when entering LCCC contracts. For example, FinTech Australia argued that the $2000 threshold was disproportionate to the risks of BNPL products and should be increased to $5000.
2.38Afterpay submitted that the current $2000 threshold was too low and would create unnecessary friction for customers and BNPL providers. Afterpay noted that while its average transaction size is approximately $150, customers are increasingly making individual purchases of up to $2000 and spending limits can dynamically increase to up to $3000. Afterpay also noted that it had recently allowed long-standing customers to apply for a $4000 spending limit, subject to a credit check. Afterpay argued that placing the presumption out of reach for LCCCs with credit limits of more than $2000 would require BNPL providers to conduct suitability assessments for pre-existing customers, creating an additional administrative burden without any real benefits for consumers. Accordingly, Afterpay recommended that the threshold be raised to $5000.
2.39The Consumer Groups emphasised the importance of having strong verification requirements for BNPL providers and recommended that the provisions providing the presumption be removed from the bill. In their joint submission, the Consumer Groups argued that the requirements and objectives limb of RLOs can help identify applications for credit where the potential borrower is unlikely to receive any benefit from the LCCC. These groups noted that this information can be used to assess wrongdoing by BNPL providers in instances where an LCCC was entered into contrary to the needs of the customer. Accordingly, these groups recommended that the presumption should be deleted from the proposed regulatory regime. If this recommendation is not adopted, these groups stated that more examples of situations that would rebut the presumption should be included in the Explanatory Memorandum.
2.40In their evidence to the committee, Treasury emphasised that the $2000 threshold for LCCCs reflected the need to regulate BNPL products in a way which provided strong consumer protections while recognising the unique nature of the product. Treasury argued that BNPL products must not be regulated in a way which undermined the business model of the product itself and stated that the $2000 threshold reflected the desire of consumers for ‘smooth consumption’. Treasury expanded on this point:
A threshold of $2,000 was established as saying, 'Underneath that threshold, we can presume that it's meeting that underlying objective of consumption smoothing.' But there comes a point for larger purchases where it is no longer appropriate to presume that. As you've noted, it's a matter of debate as to exactly where that line is drawn.
Caps on late and ongoing fees charged by BNPL providers
2.41Several inquiry participants expressed concerns about the proposed cap on late and ongoing fees charged by BNPL providers implemented by section 69E of the draft regulations. These submitters argued that these fee caps lack a clear policy rationale, duplicate existing regulation and would limit the market flexibility of BNPL providers.
2.42For example, Afterpay submitted that the cap on late fees proposed by the regulations would overlap with existing consumer protection laws which already prevent lenders from charging unfair late fees. Afterpay also noted that late fees are already regulated by the Unfair Contract Terms (UCT) regime in the Australian Securities and Investments Commission Act 2001 (ASIC Act) and other frameworks. Afterpay submitted that these regimes already ensure that late fees are transparent to the consumer and avoid causing severe financial harm.
2.43Afterpay argued that the cap on late fees is also rendered unnecessary by the proposed cap on ongoing fees which would by itself ensure that LCCCs remain affordable for consumers. Afterpay expressed concerns that imposing a cap on late fees and ongoing fees would create unnecessary complexity for BNPL providers. Afterpay expressed support for the cap on ongoing fees, noting that these charges are not subject to the UCT regime. However, Afterpay recommended that these caps should be indexed to inflation.
2.44Further, Afterpay submitted that placing a cap on late fees fails to account for the way in which consumers use BNPL products on a repeated basis for different types of purchases. In addition, Afterpay noted that under the proposed regulations, a $10 late fee on a $20 purchase would be permissible, but a $20 late fee on a $1500 purchase would not.
2.45Afterpay noted that BNPL firms are already required to cap their late fees under the voluntary code, noting that its fees were capped at the lower of $68 or 25 per cent of the purchase price. Afterpay also observed that the Credit Act does not impose a cap on the late fees of other mainstream credit products. Accordingly, Afterpay recommended that the cap on late fees be removed from the draft regulations.
2.46These views were echoed by the TCA, which submitted that the cap on late fees would duplicate existing regulation and may led to worse outcomes for consumers. The TCA argued that introducing caps on late fees may lead to situations where the fees were disproportionate to the value of the original purchase. Similar to Afterpay, the TCA concluded that caps on ongoing fees would be sufficient to ensure that BNPL products remain low-cost and affordable for consumers.
2.47Further, the TCA submitted that fee caps should be applied on a customer-level rather than a product-level. The TCA noted that the draft regulations prevent a BNPL provider from imposing fees and charges on a customer who is already a party to an LCCC with the provider, or if the customer closes and reopens an LCCC account with the same provider within a 12-month period. The TCA argued that this should be amended, noting that many customers have multiple BNPL accounts and often close and reopen these accounts within 12 months. The TCA claimed that imposing fee caps on a product-level ignores the way BNPL products are used by consumers and limits consumer choice. Accordingly, the TCA argued that fee caps should be imposed at a customer-level rather than a product-level.
2.48Zip Co submitted that the proposed fee caps should be revisited and standardised across all BNPL products, noting that the cost of providing BNPL products to consumers had increased substantially in the last decade. Zip Co claimed that the modified RLO framework would create additional compliance costs for BNPL providers and that late fees should be capped in a way which reflected these increased costs. Zip Co also argued that it was being unintentionally and unfairly caught by the draft regulations, noting that it does not allow customers to hold more than one Zip account at a time, and in circumstances where a customer closed and reopened an account within 12 months, Zip’s late fees would not exceed the $10 cap in the regulations.
2.49However, in their joint submission, the Consumer Groups emphasised the importance of implementing a cap on late fees to reduce the financial risk of BNPL products to consumers. These groups noted that many consumers have multiple BNPL accounts and that as a result, the financial hardship caused by any increase in late fees would be compounded. Therefore, the Consumer Groups argued that the fee caps for LCCCs should not be increased in any way. These groups also argued that late fee caps should be further reduced on accounts where no RLO assessment has been made by the BNPL provider.
Definition of BNPL products
2.50Several inquiry participants provided views on the definition of BNPL products included in the legislation. Several BNPL providers and fintech organisations expressed concerns with the definition on the grounds that it did not cover the full scope of BNPL arrangements.
2.51For example, FinTech Australia submitted that the definitions of ‘buy now pay later arrangement’ and ‘low-cost credit contracts’ in the bill should be clarified to ensure that merchants offering a BNPL service may still be classified as an LCCC provider. FinTech Australia noted that the legislation defines a BNPL provider as a ‘third person’ that indirectly or directly pays the merchant an amount that is some or all of the price for the supply of goods and services. FinTech Australia argued that this definition may inadvertently exclude merchants providing a BNPL service directly to consumers, leaving some BNPL arrangements unregulated. Further, FinTech Australia warned that the definition may inadvertently catch non-BNPL providers and urged the Australian Government to monitor ‘edge cases’ where some providers may wrongly fall within the scope of the regulatory regime.
2.52Afterpay expressed similar concerns about the definition of ‘buy now pay later arrangement’ in the bill and called for these terms to be clarified. While Afterpay expressed broad support for the definitions, it argued that the terms should be amended to provide added clarity for providers. Afterpay argued that under the current definition of a BNPL arrangement, merchants that provide a BNPL service directly to their customers appear to be exempt and could continue to provide an unregulated BNPL product. Afterpay warned that this could create an opening for global e-commerce and technology firms to enter the Australian consumer finance industry. Accordingly, Afterpay recommended that the definition be amended to include merchants that provide a BNPL service directly to their customers to ensure that there is a level-playing field for all BNPL providers.
Schedule 4 – Multinational tax transparency, country-by-country reporting
2.53The committee received a broad range of views on the proposed country-by-country (CbC) reporting regime for multinationals outlined in Schedule 4. Some submitters expressed strong support for the changes, arguing that the new regime would increase the transparency of multinational tax arrangements and ensure that these corporations pay their fair share of tax.
2.54However, other inquiry participants expressed concerns about the compliance burden the regime would place on multinational enterprises seeking to invest in Australia. These organisations submitted that the scope of the information required by the proposed regime, inconsistencies with international norms and the lack of exemptions for sensitive information would impose an excessive burden on multinational enterprises, ultimately reducing investment in Australia. Inquiry participants also expressed concerns with technical aspects of the changes, including the powers of the Commissioner of Taxation and the clarity of the CbC reporting regime.
Importance of multinational tax compliance
2.55Some inquiry participants expressed strong support for the changes on the grounds that the new regime would improve multinational tax compliance and support the equity and integrity of the tax system more broadly. In their joint submission, the Centre for International Corporate Tax Accountability and Research, the Tax Justice Network of Australia, Oxfam Australia, and the Commonwealth Public Sector Union among others, argued that the changes would set a new global standard for multinational corporate tax transparency and would enhance multinational tax compliance.
2.56In their joint submission, these groups claimed that multinational corporations need to pay appropriate levels of taxation to support funding for essential public services such as health and aged care. These groups argued that it was crucial that domestic enterprises with high levels of compliance are competing on a level playing field with foreign multinational corporations. These groups also cited research indicating that large multinational corporations receiving government contracts have shifted large profits out of Australia, and that $11 billion in tax revenue was lost in 2020 alone due to multinational corporate profit shifting. Further, these groups submitted that multinational tax avoidance is a global problem but is particularly harmful in the ‘Global South’, where more governments rely on corporate income to finance public spending.
2.57These groups asserted that the transparency regime outlined in Schedule 4 would create a level playing-field between businesses and would ensure that multinationals pay their fair share of tax. These groups submitted that this reporting regime would encourage changes in corporate behaviour and prevent aggressive tax avoidance by multinational corporations, increasing tax revenue. Further, these groups submitted that the regime would restore integrity to the tax system and provide tax data which could inform further changes to multinational tax transparency laws. These groups concluded by characterising the proposed regime as world-leading and stated that it would create a fairer global tax system.
2.58These views were echoed by the Financial Accountability and Corporate Transparency Coalition (FACT) which submitted that the proposed reporting regime represented a substantial improvement on the existing rules. FACT submitted that the Parliament should pass the reforms as soon as possible, and characterised the proposed regime as ‘world-leading’. FACT concluded that the changes would shed light on the tax practices of multinational corporations and would provide government, business and the community with ‘much-needed new information,’ establishing a new global standard for tax transparency.
2.59Inquiry participants who were critical of the changes nonetheless expressed in-principle support for increased transparency of multinational tax compliance. Despite expressing concerns with aspects of the changes, the Business Council of Australia (BCA) and the Corporate Tax Association (CTA) stated that they fully supported public tax transparency measures that are ‘meaningful, purposeful, and proportionate’. Further, while disagreeing with the approach taken by the bill, the Australian Chamber of Commerce and Industry (ACCI) expressed support for the intent of the changes to ‘provide a meaningful improvement in the tax transparency’ of multinationals operating in Australia.
2.60In their evidence to the committee, the Australian Taxation Office (ATO) stated that the proposed regime would complement pre-existing reporting regimes in Australia. The ATO noted that many of these regimes are voluntary and provide very limited data sets to the public. The ATO explained that these reforms would ‘close the gaps’ in Australian tax transparency reporting and provide enhanced data sets about the tax affairs of reporting entities.
Compliance burden for multinationals and effect on investment
2.61However, several inquiry participants expressed concerns that the proposed reporting regime outlined in Schedule 4 would impose an excessive compliance burden on multinational corporations. These organisations submitted that the proposed regime may incentivise multinationals to suspend their economic activities in Australia, decreasing foreign investment.
2.62In its submission, the National Foreign Trade Council (NFTC) argued that the data and reporting required by the proposed regime would place an excessive compliance burden on multinational corporations. The NFTC characterised the proposed regime as a deterrent to increased investment and expansion by multinational firms in Australia, particularly privately held firms. The NFTC claimed that the proposed regime is excessively broad and would impose a disproportionate administrative burden on taxpayers. The NFTC also noted that the information requested by the regime is not ordinarily prepared or retained by multinationals, further increasing the compliance burden.
2.63The NFTC argued that the regime would make investing in Australia less attractive for multinational corporations due to additional requirements not included in comparable international regimes. The NFTC stated that the regime would ‘punish’ investors, hurt consumers and fail to create any additional revenue for the government.
2.64These concerns were echoed by the United States Securities Industry and Financial Markets Association (SIFMA). SIFMA submitted that, as currently drafted, the bill would fail to improve multinational tax transparency and would diminish the attractiveness of investing in Australia for multinationals.
2.65By contrast, some inquiry participants claimed that the compliance burden on reporting entities would be minimal and have little to no effect on investment. In their submission, the Tax Justice Network and others argued that multinational corporations and other entities, including the ‘Big 4’ accounting firms, have made ‘weak arguments’ against the proposed regime. These groups submitted that the information required to be reported by the new regime is already reported under the regime used by the Organisation for Economic Cooperation and Development (OECD), and that any additional compliance burden would be minimal. These groups also noted that 140 multinationals already voluntarily report some form of CbC reporting, including large European Union (EU) financial services firms which have complied for a decade without incurring any apparent disadvantage.
2.66Further, these groups submitted that the proposed regime would enhance investments by multinationals, submitting that multinational investors and shareholders have expressed interest in knowing more about their corporation’s tax arrangements. These groups claimed that increased multinational tax transparency would allow investors and shareholders to better evaluate the risk of investment and the economic viability of the reporting entity itself.Dr Mark Zirnsak, Spokesperson for the Tax Justice Network, expanded on this point in his evidence to the committee:
It helps with investment decisions that might be made. An investor might want to know whether a corporation is engaged in unsustainable profit-shifting. It might be vulnerable to being targeted for that. It also helps other regulators—in particular, as I mentioned, if we're thinking about competition. That would be an example where knowing whether a corporation is misusing market power would allow a government and legislators to make some decisions about that. Having that reporting also helps legislators understand where there might still be loopholes that need to be addressed.
2.67Treasury noted that a number of companies were already voluntarily complying with the Global Reporting Initiative (GRI) 207 standard and reporting tax information on a CbC basis. Accordingly, Treasury countered claims that the proposed regime would have a negative impact on investment in Australia or impose a significant compliance burden on reporting entities.
Consistency with international norms and global reporting regimes
2.68At a general level, some inquiry participants expressed concerns that the proposed regime was inconsistent with comparable CbC reporting regimes adopted by the EU and the OECD.
Scope of information required
2.69Several submitters claimed that the scope of information required by the proposed regime is substantially broader than global reporting regimes and is inconsistent with international norms.
2.70For example, the NFTC submitted that the scope of information required under the legislation is beyond what is required by equivalent reporting regimes adopted by the OECD and the EU. The NFTC noted that neither the statement on approach to tax, the disclosure of tangible assets, nor other information required under the proposed regime are required under the EU reporting regime as outlined by EU Directive 2021/2101. In accordance with the EU reporting regime, the NFTC recommended that information which an entity does not possess or does not have reason to possess in the normal course of business should be exempt from reporting.
2.71These concerns were echoed by SIFMA, which submitted that despite the stated purpose of better aligning Australia with the EU regime, the proposed regime is fundamentally inconsistent with international norms. SIFMA claimed that, unlike the EU regime, the proposed Australian regime has extensive cross-jurisdictional reach and would require reporting the information of non-Australian multinationals because the company has established an Australian subsidiary. SIFMA also noted that the proposed regime would require multinationals to source information from its consolidated financial statements, rather than the financial statements of its entities, inconsistent with international norms. SIFMA emphasised the importance of ensuring that Australia’s multinational CbC reporting regime adhered to international norms, especially in the case of the EU regime, which was designed to ‘safeguard the competitiveness of EU businesses’.
2.72Further, the Tax Institute noted that the proposed regime imposes additional requirements for public disclosure which go beyond the reporting regimes for the OECD and the EU. The Tax Institute stated that the Australian regime would compel multinationals to disclose revenue from unrelated parties, revenue from some related parties, the reporting parent’s approach to tax or tax strategy, and explanations for differences between income tax accrued and the amount of income tax due in certain circumstances.
2.73The Tax Institute argued that these requirements constitute clear departures from international norms and go beyond accepted best practice models. Similarly, Deloitte submitted that all required data should be consistent with that being prepared to meet requirements for the OECD and EU regimes to reduce confusion and compliance costs, and enhance transparency.
2.74In their evidence to the committee, Treasury acknowledged that the proposed Australian reporting regime would impose an additional requirement on reporting entities to disclose their ‘approach to taxation’. Treasury described this requirement as compelling reporting entities to provide a broad statement about how it approaches its arrangements for taxation affairs globally. Treasury acknowledged that this requirement is not in the EU reporting regime.
2.75Treasury also noted that the Australian regime would disaggregate revenue from third parties and revenue from related parties. Treasury acknowledged that this was a departure from the EU regime and explained that this difference would make it easier for individuals to assess whether reporting entities are using base erosion and profit-shifting to minimise taxation. Treasury explained that this information cannot easily be obtained through ordinary documents such as a statement of cash flows, income statement or balance sheet.
Consistency of definitions
2.76Submitters emphasised the importance of having consistent definitions for key terms across global multinational CbC reporting regimes. Several inquiry participants expressed concerns that the definitions in the proposed regime are inconsistent with those used in global regimes. For example, Deloitte submitted that the data definitions for the Australian regime should be ‘precisely aligned’ with the OECD and EU reporting guidance, particularly for the terms ‘business activities’, ‘employees’, ‘revenue from related parties’, ‘income taxes accrued’ and ‘income taxes paid’.
2.77The BCA and the CTA noted that the definition of ‘the number of employees’ in the Australian regime is substantially different from the definition employed by comparative regimes. These organisations claimed that the proposed regime would require multinationals to report the number of full-time employees at the end of the reporting period, distinct from other regimes which provide added flexibility.
2.78The NFTC submitted that the definition of revenue under the proposed regime is inconsistent with definitions used in other CbC reporting regimes. The NFTC noted that the disclosure of revenue is required by the EU regime, but the proposed Australian regime would divide this information into two distinct categories, revenue from unrelated parties and revenue from related parties. The NFTC also noted that revenue from intra-country transactions is excluded by the proposed regime but not by the OECD and EU regimes. The NFTC claimed that this would potentially create five different definitions of revenue across different reporting regimes, creating confusion and undermining transparency.
Low revenue threshold for CbC reporting parents
2.79Other submitters highlighted inconsistencies between the low revenue thresholds for CbC reporting parents under the proposed Australian regime and international reporting regimes. For example, the Tax Institute noted that the Australian revenue threshold is $1 billion (AUD), lower than the EU threshold of €750 million. The Tax Institute claimed that this disparity between the two thresholds could result in a multinational being subject to the reporting requirements of the Australian regime but avoiding the requirements of the EU regime. To avoid this, the Tax Institute recommended that the ATO should consider granting exemptions which take into account currency fluctuations and provide a transitional period for multinationals which are reporting under the proposed regime for the first time.
General consistency with European Union reporting regime
2.80As outlined above, inquiry participants expressed concerns with the proposed CbC reporting regime on the grounds that it was broadly inconsistent with the equivalent regime used by the EU. However, some inquiry participants criticised the EU regime, characterising it as an ineffective reporting framework.
2.81For example, in their evidence to the committee, the Tax Justice Network and Oxfam Australia claimed that the EU regime was relatively weak compared to other reporting standards such as GRI 207. The Tax Justice Network also claimed that the EU regime contained multiple loopholes and set a very high turnover threshold for reporting.
2.82In their evidence to the committee, Treasury acknowledged that there are some differences between the proposed regime and the EU regime. However, Treasury noted that the reforms had been designed to achieve the greatest improvement in tax transparency in the Australian context and that any differences between the proposed regime and international regimes were explained by this objective.
2.83For example, Treasury explained that it reviewed a range of corporate reporting requirements including those of the OECD and the GRI 207 standard. Treasury noted that the OECD and GRI 207 standards are closely aligned and observed that the EU regime was largely drawn from the OECD standards. When reviewing international reporting standards, Treasury concluded that aligning the proposed regime on the GRI 207 standard would best promote improved reporting outcomes.
2.84Treasury also noted that the GRI 207 standard is intended to complement existing corporate governance reporting and therefore, would likely be less burdensome for reporting entities than the EU regime, which requires more granular reporting. Treasury described its overall approach to developing the proposed regime as follows:
… this is around trying to strike a balance between going with a new global standard, which is really the only global standard out there, under the GRI 207, and implementing it in a way that is more consistent with the way the EU is implementing the reporting regime.
2.85In response to a question on notice from the Deputy Chair, Senator Andrew Bragg, Treasury noted that Australia’s model is more comprehensive than the EU’s CbC reporting regime and that care has been taken to ensure that the data fields align with the EU regime where possible. On the specific differences between the two regimes, Treasury explained that the proposed Australian regime contains four additional data fields compared to the EU regime.
organisational statements on tax compliance (approach to tax);
reconciliation statement on tax paid compared to the statutory rate;
tangible assets (total book value); and
revenue label (i.e. separates related party revenue and unrelated/third party revenues).
2.86Treasury noted that the quantified data fields are already required by the OECD CbC reporting model and therefore, are not new data requests. Further, Treasury explained that, consistent with the GRI 207 standard, the proposed regime requires tax data to be sourced from audited consolidated financial statements, or alternatively, amounts that would be shown in a consolidated financial statement. Treasury acknowledged that this was distinct from the EU regime which allows a reporting entity to choose its data source from their own consolidation reporting packages, separate entity statutory financial statements, regulatory financial statements, or internal management account. Treasury noted that the GRI 207 standard better supports higher quality disclosures and data analysis.
Exemptions to prevent the disclosure of sensitive information
2.87Several submitters expressed concerns that the proposed regime did not provide multinational enterprises with adequate safeguards to prevent the disclosure of sensitive information. These submitters claimed that the lack of clear safeguards preventing the publication of sensitive information would place reporting entities at a distinct disadvantage and limit their investment in Australia.
Commercially sensitive information
2.88In its submission, the NFTC expressed strong concerns about the lack of safeguards to protect against the disclosure of commercially sensitive information. The NFTC noted that the bill refers to exemptions in select circumstances but stated that the legislation provided no clarity about what information might qualify for such an exemption. The NFTC noted that the lack of safeguards for commercially sensitive information would make multinationals with operations in Australia less competitive than smaller domestic firms and other multinationals without operations in Australia. As a result, the NFTC claimed that the proposed regime would discourage multinationals from establishing operations in Australia.
2.89These views were echoed by SC Johnson, a multinational corporation based in the United States. SC Johnson expressed concerns that the proposed regime would compel multinationals to disclose commercially sensitive information such as sales, profitability, level of investment and other information.SC Johnson noted that this information is already available to the tax authorities and expressed concerns that publication would make it available to interested competitors. SC Johnson claimed that compelling multinationals to make this information available to competitors would encourage these corporations to suspend their activities in Australia and move to other jurisdictions.
2.90Similarly, SIFMA submitted that multinationals can be fully compliant taxpayers while also keeping commercially sensitive information private. SIFMA argued that the desire of multinationals to keep sensitive information private is not a reflection of their willingness to pay tax, but to shield commercially sensitive information from competitors. SIFMA recommended that to avoid negative impacts on competition, the proposed regime should contain explicit protections for confidential data. To this end, SIFMA suggested that multinationals should be able to disclose commercially sensitive information to the government but withhold it from the public, creating a dialogue between the multinational and the tax authorities.
2.91The Australian Chamber of Commerce and Industry (ACCI) expressed concerns about the clarity of the Commissioner of Taxation’s ability to provide exemptions from publication for sensitive or confidential information. The ACCI noted that the decision to grant an exemption appears to be entirely at the discretion of the Commissioner and highlighted the lack of guidelines governing the exercise of this power in the bill. The ACCI expressed doubts that the exemption power as described in the Explanatory Memorandum would be sufficient to protect commercially sensitive information. The ACCI stated that more clarity is needed on how commercially sensitive information is to be treated under the proposed regime.
National security information
2.92The NFTC also expressed concerns that the proposed regime did not provide adequate safeguards to prevent the disclosure of sensitive information relating to national security. The NFTC noted the sensitivity of information held by multinationals in the defence industry and the importance of this information to their clients, such as government ministers and departments. The NFTC acknowledged that the Explanatory Memorandum provided that the Commissioner of Taxation have regard to national security information when deciding to grant an exemption from the proposed regime. However, the NFTC expressed concerns that this consideration was not present in the bill and doubted that the exemption was strong enough to prevent the publication of sensitive national security information.
2.93Therefore, noting the sensitivity of this information, the NFTC recommended that reporting entities which conduct most or a significant proportion of their business with the Department of Defence (US), government intelligence or security agencies be able to claim an automatic exemption from reporting any data other than identifying information. The NFTC also suggested that the bill provide clear exemptions to prevent the disclosure of sensitive information relating to national security. The NFTC urged the Australian Government to consult with the defence establishments of its allies regarding the need to prevent the disclosure of information relating to national security.
2.94Similarly, the Australian Industry Group (AI Group) submitted that the disclosure of national security or defence information by multinationals subject to the proposed regime is unlikely to be permitted under confidentiality arrangements attaching to defence contracts. The AI Group stated that the Australian Government could enhance multinational tax transparency without requiring multinationals to disclose sensitive information. The AI Group referred to the exemptions for national security contractors built into the equivalent reporting regime of the United States, which provides a broad exemption from disclosure for this class of multinational enterprises.
Duration of exemptions granted by the Commissioner of Taxation
2.95Several inquiry participants argued that the duration of any exemption from reporting granted by the Commissioner is too brief and should be extended to reflect the business needs of reporting entities.
2.96For example, SC Johnson argued that granting multinationals only a one-year exemption from reporting would create uncertainty for businesses, lower investment in Australia and place unreasonable demands on the tax authorities. SC Johnson submitted that businesses typically make investment decisions over an extended period, and that business planning is not confined to a single year. Accordingly, SC Johnson recommended that the deferral period be extended to five years in line with comparable reporting regimes in other jurisdictions.
2.97Treasury explained that in designing the proposed regime, it was conscious of the need to set a standard around transparency and reporting that would be adhered to, but also to provide for some exceptions in limited circumstances. Treasury stated that the proposed regime was designed to capture all necessary exemptions but provide these exemptions in a way which maintained the scrutiny of the reporting regime. Treasury expanded on this point in their evidence to the committee:
Our concern was that trying to come up with a prescriptive set of rules with which taxpayers could then self-assess was likely to leave too much scope for taxpayers to be able to draw a loose link, for example, or argument around fitting into a broad exemption category and use that as the basis for exempting themselves from the reporting requirement.
The approach that's being proposed raises the bar, in seeking to ensure that taxpayer nonreporting is really going to be on an exceptions basis, where there is a valid reason to be exempted from the reporting requirement. We think that some kind of application to the commissioner and scrutiny by the commissioner is the best way of achieving that.
2.98In response to a question on notice from the Deputy Chair, Treasury noted that the approach to granting exemptions under the proposed regime is consistent with standard practice. Treasury explained that under the EU regime, entities can temporarily omit information in circumstances where disclosure would be ‘seriously prejudicial’ to the commercial position of the reporting entity. Treasury noted that this is self-assessed by the entity reporting under the EU CbC reporting regime.
‘De minimis’ exclusion and exemptions for domestic groups
2.99Several inquiry participants expressed strong support for the ‘de minimis’ exclusion from the proposed reporting regime. The ‘de minimis’ exclusion provides that the proposed regime only applies to multinationals if $10 million or more of their aggregated turnover for the income year is Australian-sourced. However, some submitters expressed concerns about the scope and clarity of the exclusion.
2.100For example, the Tax Institute submitted that the de minimis exclusion was welcome for entities with turnovers of less than $10 million and would reduce their compliance burden. However, the Tax Institute expressed concerns that the exclusion as currently drafted may inadvertently not apply to multinationals with Australian-sourced income from related party transactions involving associated entities or affiliates. The Tax Institute submitted that, as currently drafted, the de minimis exclusion would not be available to a multinational entity which uses Australia as a conduit hub for global operations where products are sold from Australia to an offshore entity which then distributes the products globally. Under this scenario, the income generated by the Australian-based multinational would be considered Australian-sourced ordinary income but would not be included in the aggregated turnover because it is sourced from a connected foreign entity.
2.101The NFTC submitted that the proposed regime should provide more de minimis exclusions for multinational corporations in line with comparable international reporting regimes. The NFTC argued that jurisdictions listed on the ‘Black and Grey list’ of the equivalent EU reporting regime should be granted a de minimis exclusion under the proposed reforms. The NFTC claimed that this change would remove an additional reporting burden on these entities and ensure that the proposed regime is focused on ‘high risk’ countries. Further, the NFTC recommended that the proposed regime provide an additional de minimis exclusion for revenue less than $50 million in other jurisdictions and allow that income to be aggregated into the parent jurisdiction.
2.102Further, some submitters argued that the proposed regime should provide exemptions for multinationals based entirely in Australia. In their joint submission, the BCA and the CTA noted that under the proposed regime multinationals that are Australian residents without foreign operations are still required to publish selected tax information. The BCA and the CTA claimed that this is inconsistent with the policy intent of the proposed regime to enhance the tax transparency of multinationals with activities in foreign jurisdictions. The BCA and the CTA noted that these entities already disclose most of the data required under the proposed regime and comply with the voluntary tax transparency code. Accordingly, these groups recommended that multinationals operating wholly in Australia be granted a ‘fast track’ exemption under the proposed regime which would exempt these reporting entities from completing filing requirements.
Process for the publication of information
2.103Inquiry participants also provided views on the process for publishing reported information to the public. These submitters expressed concerns that the process for publication did not provide reporting multinationals with the opportunity to review information before it was published nor an indication of how long the information would remain available.
2.104The NFTC noted that the proposed regime would require reporting multinationals to provide the required information to the Commissioner who would then publish it on an Australian Government website. The NFTC expressed concerns that the information would be published without the reporting entity being allowed to review what the Commissioner intends to publish. The NFTC claimed that this would prevent the reporting multinational from confirming that the data is correct or providing any further context for the information.
2.105The NFTC submitted that the Australian Taxation Office should also make clear how long the information will remain published and noted that information published under the EU regime can be removed after a five-year visibility period. To avoid this problem, the NFTC argued that reporting multinationals should be able to publish the information themselves using their own forums.
Specified jurisdictions list for disaggregated public CbC reporting
2.106Some inquiry participants expressed concerns about the specified jurisdictions list for disaggregated public CbC reporting. These submitters disagreed with the make-up of the list and argued that the jurisdictions listed should be consistent with the equivalent list used by the EU and be determined by reference to a set of objective criteria.
2.107The Australian Financial Markets Association (AFMA) noted that the Explanatory Memorandum stated that the specified jurisdictions list should mirror the EU list prescribed by EU Directive 2021/2101. However, the AFMA claimed that the list of specified jurisdictions under the proposed regime differs substantially from EU Directive 2021/2101. The AFMA stated that EU Directive 2021/2101 is made-up of jurisdictions which the EU has designated as uncooperative and noted that these determinations are subject to change. The AFMA recommended that the specified jurisdictions list for disaggregated reporting be aligned with EU Directive 2021/2101. The AFMA submitted that this would ensure that the list is more contemporaneous and consistent with international norms for CbC reporting regimes.
2.108These concerns were echoed by the ACCI which also argued that the list should be made more consistent with EU Directive 2021/2101. The ACCI noted that the specified jurisdictions list for the proposed regime contained 41 jurisdictions compared to just 22 under EU Directive 2021/2101. The ACCI also raised concerns about the inclusion of Switzerland, Singapore and Hong Kong on the list, noting that each is a member of the OECD’s Global Forum on transparency and the exchange of tax information. The ACCI concluded by recommending that Australia align its list with EU Directive 2021/2101.
2.109Similarly, the BCA and the CTA submitted that the specified jurisdictions list should be consistent with EU Directive 2021/2101 and expressed support for determining the specified jurisdictions list by reference to a set of objective criteria. These organisations claimed that there should be a clear, consistent and coherent set of criteria and a defined process for determining specified reporting jurisdictions. The BCA and the CTA noted that the EU has a deliberative process for determining specific reporting jurisdictions including reviewing the list twice a year and undertaking regular assessments. These organisations recommended that the Minister should consider the following factors when making a determination and that the list be reviewed every six months:
the underlying tax rate in the relevant jurisdiction;
Australia’s double tax treaty network;
automatic exchange of information protocols;
non-public CbC reporting measures;
anti-hybrid rules; and
commitment to implementing pillar two domestic minimum tax requirements.
2.110Inquiry participants that expressed strong support for the proposed regime also suggested changes to the list of specified reporting jurisdictions. For example, in their joint submission, Tax Justice Network, the Centre for International Corporate Tax Accountability and Research, and others argued that Puerto Rico should be added to the list. These groups argued that Puerto Rico is one of the most widely used tax havens for multinational corporate profit shifting. These groups also noted that Puerto Rico, like the US Virgin Islands which are already listed, is a territory of the United States but is considered foreign for federal tax purposes in the United States. Further, these groups argued that calls to align the specified jurisdictions list with that of the EU should be ignored. These groups characterised the EU list as extremely limited and much weaker than the GRI 207 list.
2.111In their evidence to the committee, Treasury stated that the jurisdictions list was informed by extensive consultation with stakeholders and reflected the feedback received during this process. Treasury explained that the jurisdictions list reflected the need to balance the compliance and reporting burden on businesses with developments in international tax policy settings. Treasury stated that the government was initially proposing full CbC reporting for all countries but revised its approach after the consultation process. Accordingly, Treasury explained that the jurisdictions list will now require reporting for a specific list of countries determined by the relevant minister under the regulations.
2.112Treasury explained that the composition of the list will be determined by specific country settings as well as the experience and observed behaviour of taxpayers across these jurisdictions. Treasury noted that the initial list was largely informed by the ATO’s international dealings schedule which takes into account large international dealings, cross-border financing arrangements, significant related-party payments or revenues and other factors. Treasury stated that these are the kinds of factors that will be taken into account when determining which jurisdictions will be added to the list.
Penalties for non-compliance
2.113Several inquiry participants expressed concerns about the penalties to be imposed on multinational enterprises which fail to comply with the proposed regime. These organisations claimed that these penalties were too severe and would further discourage multinationals from investing in Australia.
2.114For example, the ACCI expressed strong concerns with the inclusion of criminal liability for non-compliance with the proposed regime. The ACCI claimed that this feature of the regime would have a significant negative impact on investment and may encourage multinationals to suspend their activities in Australia. The ACCI also submitted that holding multinationals criminally liable for a failure to comply with the regime is a novel feature of public reporting regimes.
2.115Similarly, the Tax Institute noted that the proposed regime would impose an administrative penalty of between 500 and 2500 penalty units for failure to publish required information on time. The Tax Institute claimed that the ATO has adopted a stricter approach to enforcing penalty measures for existing CbC reporting regimes. The Tax Institute argued that this approach would make it more difficult for multinationals to obtain extensions or manage late reporting, even in instances where the local Australian entity has no control over the delays. Therefore, the Tax Institute recommended that the ATO take a more flexible approach to these taxpayers and ease the penalties for non-compliance.
2.116However, these claims were disputed by the Tax Justice Network, the Centre for International Corporate Tax Accountability and Research, and others. In their joint submission, these groups characterised the suggested penalties for non-compliance as modest considering the scale of operations conducted by multinational corporations. These groups argued that the financial penalties alone were not sufficient and argued that multinationals which have failed to comply with the proposed regime should be barred from qualifying for federal procurement opportunities.
Schedule 7 – $20 000 instant asset write-off for small business entities
2.117The committee received several submissions providing views on the extension of the instant asset write-off for small business entities outlined in Schedule 7. Overall, inquiry participants expressed strong support for this measure. These submitters recommended that the scope and scale of the concession be expanded to provide the maximum benefit to small businesses and the wider Australian economy.
Making the $20 000 instant asset write-off permanent
2.118All submitters providing views on Schedule 7 expressed strong support for making the $20 000 instant asset write-off for small businesses permanent instead of extending the concession until 30 June 2025. These inquiry participants argued that making the concession a permanent feature of the tax system would guarantee the economic benefits of the measure and provide much needed certainty for small businesses.
2.119For example, CPA Australia submitted that the instant asset write-off extension should be made permanent to provide small businesses with certainty and encourage investment. CPA Australia argued that the temporary nature and uncertain duration of the measure limited the ability of small businesses to invest, given their relative size and structure.
2.120Similarly, the Tax Institute characterised the proposed temporary increase in the instant asset write-off as an ‘ongoing issue’ in the tax system. The Tax Institute argued that the temporary nature of the measure has created significant uncertainty for taxpayers, their advisers and the tax administrator. Therefore, the Tax Institute concluded that the increase in the instant asset write-off should be made permanent.
2.121These views were echoed by the Mortgage and Finance Association of Australia (MFAA) which submitted that the Australian Government should establish a long-term instant asset write-off policy. The MFAA argued that this would provide small businesses with the certainty required to plan effective and productive investments.
Increasing the scope and scale of the instant asset write-off
2.122Several submitters expressed support for increasing the scope and scale of the measure, including by increasing the threshold and expanding the eligibility criteria. The ACCI submitted that limiting the threshold to $20 000 and restricting the measure to small businesses with turnovers of less than $10 million would curtail the economic benefits of the concession. ACCI submitted that the current threshold was not large enough to support investment in large-scale equipment with greater productivity gains.
2.123Further, ACCI argued that increasing the accessibility of the measure by expanding the eligibility criteria would incentivise more investment in medium-sized businesses as well as small businesses. ACCI stated that increasing the scale of the incentive would compound the productivity and investment gains of the measure. Accordingly, the ACCI recommended that the threshold be increased to $30 000 and that the measure be made available to small businesses with an annual turnover of $50 million. CPA Australia went further, arguing that the threshold should be increased to $100 000 from 2025 onwards to maximise the economic benefits.
Committee view
2.124The committee welcomes the measures in this bill which would introduce appropriate regulation of the BNPL industry, establish a word-leading CbC tax reporting regime and support Australian small businesses.
Schedule 2 – Buy now, pay later
2.125The committee strongly supports the reforms outlined in Schedule 2 which would regulate BNPL products as a form of credit under the Credit Act and the National Credit Code, introducing important consumer protections.
2.126The committee welcomes that BNPL providers would be required to conduct suitability assessments when providing products over a certain value, obtain an Australian Credit License, cap ongoing and late fees, and provide consumers with processes for hardship and dispute resolution.
2.127The committee acknowledges the real and substantial harms which BNPL products can impose on consumers, particularly vulnerable individuals under severe financial pressures.
2.128The committee also acknowledges evidence outlining the economic benefits of BNPL products. The committee recognises the contribution that the BNPL sector has made to the Australian economy overall and notes that these reforms will continue to support the growth of BNPL providers.
2.129The committee is of the view that these reforms strike the right balance between reducing potential consumer harm posed by BNPL products while recognising the convenient nature of these products and supporting innovation and competition in the BNPL sector.
2.130The committee notes the views put forward by inquiry participants as to what detail should be set in the regulations. The committee thanks participants for those views, and notes that the final regulations will set appropriate standards in place, and allow for flexibility as BNPL products and the industry develop over time.
2.131The committee welcomes the wide level of support that has been received for these reforms and the protection and certainty this will provide for consumers and the BNPL industry.
2.132The committee repeats calls from inquiry participants to pass this bill as ‘a vital step towards making buy now, pay later a better deal for consumers’.
Schedule 4 – Multinational tax transparency, country by country reporting
2.133The committee strongly supports the proposed Australian CbC reporting tax transparency regime and notes the overall support from inquiry participants for increased transparency and the intent of the bill.
2.134The committee is of the view that these reforms are world-leading and a major step forward to enhance multinational tax transparency to the benefit of all taxpayers.
2.135The committee recognises that the proposed Australian CbC reporting regime has been designed to set a strong transparency and reporting standard for multinationals, while limiting the compliance burden on reporting entities where possible.
2.136The committee is encouraged that the proposed regime is based on the GRI 207 reporting standard, which is designed to complement existing reporting regimes and is already being used by many multinationals with operations in Australia.
2.137The committee notes evidence that an exemption framework is welcomed and appropriate. The committee is of the view that the bill appropriately prioritises transparency while allowing reporting exemptions without creating loopholes or opportunities for avoidance.
2.138The committee notes that the specified jurisdictions list for full CbC reporting would be determined by the minister, and notes evidence that the minister would have reference to several internationally used factors including large international dealings, cross-border financing arrangements, significant related-party payments or revenues, among other factors.
2.139While there were a variety of views about aligning the Australian regime more closely with the EU’s regime, the committee highlights evidence indicating that further aligning the required data and specified jurisdictions list with the EU’s regime would have the effect of limiting improvements to the transparency of multinational tax arrangements.
2.140The committee notes the significant level of consultation that has gone into this bill, and other important reforms to multinational tax arrangements that the government has progressed. The committee is encouraged by evidence that improvements have been made to the introduced bill through this collaborative consultation process, and commitments from the ATO on producing further guidance material.
Schedule 7 – $20 000 instant asset write-off for small business entities
2.141The committee acknowledges the widespread support for extending the $20000 instant asset write-off for Australian small businesses through to 30 June 2025. The committee recognises that this measure provides much needed financial support to small businesses and has contributed to the strength of the Australian economy overall.
2.142The committee recommends that the bill be passed.
Senator Jess Walsh
Chair
Labor Senator for Victoria