Senate rejects Turnbull’s multinational tax shield

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By Leith van Onselen

Last night, the Senate overturned the Turnbull Government’s controversial Better Targeting the Income Tax Transparency Laws Act, which was passed just one month earlier and attempted to shield multinational companies from disclosing how much tax they pay, after it was revealed by Fairfax Media that the Senate had been “astroturfed” by a fake organisation supporting the Bill. From The Canberra Times:

In a stunning change of heart, crossbenchers Nick Xenophon and Ricky Muir reversed their previous position in support of an exemption for privately owned companies with revenues of more than $100 million a year.

The Greens, supported by Labor, led the push to reverse the exemption in response to a Fairfax Media investigation, published Monday, which revealed one of the key stakeholder organisations used to justify exempting the largest private companies was actually a front group without any members.

The Family Office Institute Australia, which was quoted at length in a Senate committee report, was established in August by two lawyers and a Canberra lobbyist who represent Australia’s ultra-rich in disputes with the Australian Tax Office.

Greens Senator Peter Whish-Wilson said… the Senate had been “astroturfed” and “conned” by the Family Office Institute.

With the legislation now returning back to the lower house, the Turnbull Government must now decide whether to accept the Senate’s amendments requiring public disclosure of tax paid, or reject the amendments and in the process overturn its 2015 Budget measure giving the ATO greater powers to prevent global companies from using “artificial or contrived arrangements” to avoid their tax obligations.

The Greens senator that moved the new amendments, Peter Whish-Wilson, hailed the successful Senate vote as a “great win for tax transparency”. From The Guardian:

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“Companies and wealthy individuals shouldn’t be able to get away with hiding their tax affairs from the public for made up reasons like kidnapping risk”…

“The Greens, ALP and crossbench have worked constructively together in the public interest today, while the Liberals were busy trying to protect their big business mates.”

Labor’s Shadow Assistant Treasurer, Andrew Leigh, followed suit:

“The government’s attempts to gut Australia’s tax transparency laws were always wrong-headed and out of step with the kind of transparency Australians expect”…

“In reversing the decision to carve out private firms while adding in valuable safeguards, the Senate has greatly improved the government’s multinational tax bill.”

Meanwhile, Assistant Treasurer, Kelly O’Dwyer, is standing firm for the Government:

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“The Australian taxation office has the power to look at all of the financial and tax arrangements of Australian-owned private companies. These amendments will do nothing to increase the ATO’s powers”…

“The delay of the multinational tax bill will stop increased penalties for multinationals who flout the law and don’t pay their fair share of tax.”

Democracy works best when there is transparency. And shielding large companies from publicly disclosing their tax payments breaches this fundamental requirement.

Some of the excuses used against public exposure are also utterly ridiculous and included:

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  • Risk of kidnapping.
  • Breaching the human right of privacy.
  • Information could be used to exert commercial pricing or other leverage or advantages over companies.
  • Reputational damage or additional costs to protect reputation.
  • Eroding public confidence in the integrity of the tax system.
  • A family company’s children and adults will be burdened by people seeking money and undue harassment.

In reality, the only valid reason why the ATO should not be forced to disclose the tax affairs of private companies is because they are already doing so in the annual financial reports filed with the Australian Securities and Investments Commission (ASIC). In these cases, there is perhaps no point adding another layer of disclosure regulation into the mix.

The logical solution in this case is to reform the existing ASIC disclosure regime so that all companies beyond a threshold size must place an annual financial report on the public record.

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Whatever the approach, the solution is not more secrecy as advocated by the Coalition.

It is only fair that Australian taxpayers know whether large companies are also paying their fair share of tax. It will also help build confidence and integrity in the tax system, which will become more important as workers are called on to pay more and more tax via bracket creep.

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About the author
Leith van Onselen is Chief Economist at the MB Fund and MB Super. He is also a co-founder of MacroBusiness. Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.