Mr HUSIC (Chifley—Government Whip) (11:34): We are here today to talk about the amendment bill for the international tax agreements of 1953 designed to cover a number of jurisdictions—chiefly, Mauritius, Marshall Islands and India—and, in particular, to deal with a number of issues arising from the taxation of profits and cross-border services. The agreement with India, as indicated by the Assistant Treasurer in his second reading speech, is basically a protocol that will amend the Australia-India tax treaty, which was signed well over two years ago, and promote closer economic cooperation. The protocol will also improve the integrity of the Australian tax system by improving the exchange of information and also build in new provisions providing mutual assistance in the collection of tax debts. In relation to Marshall Islands and Mauritius the bilateral agreements eliminate double taxation of certain income, particularly that earned by individuals, government workers, students, businesses, apprentices, pensioners, retirees and the like. Both Marshall Islands and Mauritius will need to provide reciprocal taxation treatment in relation to Australian government employees in some of those categories. Importantly, this will also provide a mutual agreement procedure for the resolution of taxpayer disputes involving transfer pricing. The government has had a big focus on this issue and ushered legislation on it through the parliament last year.
I want to reflect on the impact of the economic relationship with India and what elements of this agreement will do. Something that deeply impresses me is the strong entrepreneurial spirit of the Indian-Australians I see in my area. Indian-Australians and other Australians from the subcontinent are a part of our community that is growing in value. In fact, it is often reflected upon that one of the most common surnames in Blacktown is Singh. This reflects the huge contribution of Indian-Australians to our community. The number of stores, enterprises and other small businesses operated by Indian-Australians continues to grow and continues to be valued because it is providing jobs, prosperity and vibrancy to the region. I take this opportunity to thank those members of the Indian-Australian community for their efforts in promoting economic growth and jobs in the area and for what they do to promote closer economic relations between our two countries. Again, that is a subject that is touched upon by this amendment bill.
It is worth noting that the businesses operated in my area and throughout Australia started by Indian-Australians sometimes become platforms to launch into broader ventures reaching across borders. The diaspora here forms an important link in strengthening the bonds between our two nations and boosting trade and commerce. Trade and investment links between our two countries are especially strong, and expanding. Trade has more than doubled in the last six years to well over $20 billion. Within Australia, Indian investment approvals are up by $11 billion over 2011-12. That is no small amount, and it has grown a hundredfold over 10 years. Taking this into account, it is important that we have solid, transparent and well-known standards for the taxation of business profits and cross-border services, with international tax norms being crucial as this level of economic activity continues to expand.
Another element of this legislation that is worth reflecting on hinges on efforts to help combat tax avoidance and evasion. The focus on this area, across various parts of the globe, continues to grow and sharpen. Governments are starting to give voice to concerns about the impact that the structuring of cross-border commercial arrangements by multinationals is having in terms of eroding the taxation revenue of governments. In the UK, for example, there has been a very active debate about the taxation contribution of, of all companies, Starbucks. The heat of this issue has been fuelled by strong remarks by the British Prime Minister, David Cameron, who spared little in expressing what he really thinks on this issue. He says: “It is a world where some companies navigate around legitimate tax systems, and even low tax rates, with an army of clever accountants.” He also knows that the UK cannot deal individually with the issue of tax avoidance and evasion and he recognises that international tax agreements like the one we are talking about today do need to be strengthened. He says: ‘Acting alone has its limits. Clamp down in one country and the travelling caravan of lawyers, accountants and financial gurus just moves on elsewhere.’ Importantly, Prime Minister Cameron said, ‘We want to use the G8 to drive a more serious debate on tax avoidance and evasion.’
If you move to the other side of the planet, right here in our own backyard, we have been focused on the amount of tax paid by some well-known international firms. It is interesting that the other week it was revealed that Apple Australia generated over $6 billion in revenue here in Australia but paid only $40 million in tax. Apparently that is two-thirds of one per cent of its turnover. People will rightly rush and point out that we tax profits, not revenue, so it might be wrong to needle that firm on this.
According to analysis reported by the Financial Review, Apple’s profit was $99 million, shrinking 48 per cent on its 2011 result, and this is despite the fact that sales revenue ballooned 23 per cent off the back of the new generation of iPhones and iPads. Given this, is it fair to needle a multinational like Apple about the amount of tax paid? Because while they generated $6 billion in revenue, they apparently racked up, from what I understand, $5.5 billion in costs. How? They do not manufacture here. They have no factories here. I do not know what their R&D effort is here—I do not know if they are claiming that this is driving their costs up. They have got a growing number of retail outlets, which I am happy about—they are creating jobs locally; that is great—but surely those outlets do not cost $5.5 billion to maintain.
They have a head office here, but you would not know it because they maintain a cloak of invisibility and their key management team dodge any scrutiny and refuse to even engage on public policy issues. Given the lack of work they do on that front, you would hardly say that it cost $5.5 billion to maintain a head office here and dodge that limelight.
According to Mark Zirnsak of the Tax Justice Network Australia, ‘it seems somewhat incredible that they have $5.5 billion in costs’. I imagine that their costs are probably tied to transfer pricing arrangements, which again is the subject of an element of the amendment bill that we are debating now. I imagine that the costs are tied to that transfer pricing arrangement between Apple’s Australian operations and their US parent. It would be great to learn more about what they do, but Apple steadfastly refuses to engage with stakeholders. Ask anyone who has sought answers from them about their Australian operations and you will hear a common theme: they will not talk.
Another firm that is certainly in the frame when it comes to its tax bill is Google, who is being similarly targeted. I think, by way of contrast, Google at least engages with government, is prepared to talk and be a lot more open about issues. While they will obviously—and all the major tech firms—be a remaining focus on the impact of transfer pricing and the impact of their tax arrangements and what they do in terms of our tax revenue and our base of tax revenue, at least they are willing to engage. Apple, on the other hand, believe that they are above scrutiny, and that is completely unacceptable.
I have been a great admirer of this firm and its impact on the way we engage with IT but, over the course of the last few years, following attempts to get answers on their pricing strategies, my admiration has well and truly dimmed. There have been well-known price disparities between the US and Australian markets that Apple operates in. They are not the only culprit but they are by far and away the most defiant, and Australian consumers have borne the brunt of price discrimination by them and now Australian taxpayers are shouldering a heavy burden too. So it seems that others are seeing beyond the glitz to start driving change on taxation arrangements.
You can see that is part of what we are doing here today in the International Tax Arrangements Amendment Bill. You can see it in the transfer pricing arrangements and what we have been doing in terms of legislation there. Assistant Treasurer David Bradbury has announced work is being done to improve the transparency of the Australian business system to discourage aggressive tax minimisation.
I have to confess I have been a bit cynical about Treasury’s desire to tackle this mainly because, as a member of the House of Representatives Standing Committee on Infrastructure and Communications that is looking at IT price discrimination, Treasury made a submission, which I have to characterise as an apologia. They justified price discrimination that is costing businesses and consumers up to $10 billion and, while businesses and consumers have been waiting for the power of Treasury and even the ACCC to be brought to bear in driving out this level of inflationary waste within our economy, that hope has been for nothing. However, it has been a contrast to see Treasury move as quick as greased lightning to shore up the tax base.
There is no doubt this is important. The bill tackles this in part—the bill we are debating now. We cannot afford to have some businesses paying their fair share and others having a lighter load. That lighter load has been carried, as Prime Minister Cameron said, by a travelling caravan of lawyers and accountants.
I just wish that Treasury would apply an equal level of fervour to tackle the scourge of price discrimination as it affects consumers and businesses.
While on the issue of tax and efforts to broaden the GST to cover online transactions, there is an interesting aside. State governments are locking arms to push the federal government to lower the threshold on online retail transactions, reckoning that this will provide a protective blanket for small business in Australia. That is interesting given that the New South Wales government slashed support for small business advisory services in my state and the federal government had to step in to provide over $200,000 in extra funding for the Greater Western Sydney Business Enterprise Centre. At the same time they were saying that state governments are protecting small business by changing online transaction thresholds. Any move to lower this threshold will be counterproductive because every dollar of taxation revenue raised will see us spend more on Customs or Australia Post to try and enforce the lower threshold. Customers lose, taxpayers lose and, in the longer term, small businesses lose. This move should be resisted and both sides of politics should lay their cards on the table about what will be done in terms of the threshold. I for one argue against lowering the threshold because I do not think it will be of benefit.
Coming back to the legislation and what it is trying to give effect to, in terms of the way in which we relate to a number of jurisdictions, in part it also deals with transfer pricing and tax evasion. This will take greater focus as we move ahead. It is certainly the case that the level of work that has been applied by the group of people brought together to look at the way we change our taxation arrangements to avoid aggressive tax minimisation by multinationals will continue. I think a lot of these firms do have something to answer in relation to the way they have structured their affairs and we need to move on this more. Australian consumers who have been affected by price discrimination and taxpayers who have been affected by minimisation should be helped. As I said earlier, I hope that Treasury applies an equal level of fervour in dealing with the inflationary impact of price discrimination as it does in trying to protect our taxation base. They are equally important, they both deserve attention and there should be moves to deal with these issues. That certainly should be championed by Treasury, which I would imagine can recognise that lower cost bases for business are good for economic stimulus and growth within our nation. It will potentially give a platform for business to be able to expand further, not just here but in international markets.
It is good to have the opportunity to speak on this bill. I look forward to seeing this and the other work that is being done to tackle what are fairly serious issues being considered by governments both here and abroad.