It is great pleasure to be with you today – spread throughout various locations around Australia – to talk through some of the Australian Government's corporate tax work and priorities.
As some of Australia's leading tax practitioners, you will have a deep interest in the integrity of our tax system. That we have a tax system designed to meet the challenges of an increasingly dynamic and complicated commercial world. A tax system that is robust enough to ensure companies are paying the right amount of tax, while giving commercial certainty and predictability to companies that are trading across multiple jurisdictions and dealing with multiple tax authorities.
Australians rightly demand that our tax system is designed and administered to ensure that everyone pays the tax they owe to the Australian people – and this includes corporate taxpayers.
They rightly expect that integrity of the Australian tax base is a core feature of our tax system.
Today I want to talk to you about some of the measures that the Turnbull Government is pursuing to deliver greater integrity, transparency and opportunities in our tax system.
This includes tackling multinational tax avoidance, the work of the Board of Tax, measures to encourage investment, and tackling some anomalies in our tax rules.
Given that the Treasurer is addressing the National Press Club tomorrow, I will not be addressing the Government's tax white paper process in my speech. I am very happy at the conclusion of my prepared remarks to take some broad questions.
Multinational Tax Avoidance
The Turnbull Government has made no secret that we are not happy with the approach taken by some corporates to their taxation obligations in Australia.
While most Australian companies do the right thing and scrupulously adhere to the law and pay their fair amount of tax, there are some companies that have not acted as good corporate citizens.
Some multinationals employing methods that could be described as overly aggressive tax planning arrangements at best, are now the focus of overseas tax authorities and the Australian Taxation Office to ensure they are paying the right amount of tax.
Fair-minded Australians have a right to be angry that some multinationals that derive considerable economic benefit from business in Australia, and earn Australian-sourced taxable profits, are shirking their Australian tax obligations. This forces Australians who do the right thing, to pay more tax or miss out on community services or investment.
It isn't right. It erodes our tax base. And it won't continue under this Coalition Government.
That is why we have taken strong action both domestically and internationally to close loopholes for multinational tax avoidance. This includes strong new multinational anti-avoidance laws, new information sharing arrangements, more powers for the Australian Tax Office to enforce the law, and a doubling of penalties on large companies that are avoiding tax.
These changes make Australia one of the toughest countries in the world on multinational tax avoidance. The Tax Commissioner Chris Jordan noted last week during his grilling at Senate Estimates that "Australia's laws are stronger than ever".
He is right. Our government has acted to ensure our tax system can keep up.
Unfortunately, the former Labor Government failed to ensure that our tax system kept pace with the changing realities of the commercial world and new profit shifting opportunities. With the growing importance of intellectual property, digital technology and integrated global supply chains - change was required to our tax system.
We are absolutely committed to shutting down tax avoidance strategies used by multinationals that have too easily been able to exploit gaps and mismatches in our international tax system and weaknesses in Australian domestic tax law.
So what have we done about this?
In 2014 we tightened thin capitalisation rules to stop multinationals claiming excessive debt deductions.
We introduced the new Multinational Anti-Avoidance Law to stop companies artificially structuring themselves to move profits from doing business here to low tax countries offshore.
We introduced country-by-country reporting and the common reporting standard.
Penalties for profit shifting have also now been doubled so that large companies caught out have to pay not only the tax that they sought to avoid, but a penalty of up to 100 per cent of that tax.
Importantly these tougher laws are supported by the Australian Tax Office that has been given the resources and the support to enforce them.
The ATO has expanded their international team. It is now larger than it was under the previous Government.
Last week before a Senate Estimates hearing the Tax Commissioner outlined the ATO's no-nonsense approach to tax avoidance. And I quote Chris Jordan:
"My message to companies operating in Australia is clear – you must pay your fair share of tax on the profits you earn. There is no getting around it, there are no exceptions to be made, and there is no weakness in our resolve to administer the tax system."
While stressing that the majority of companies do the right thing, he put tax avoiders on notice. Again he said:
"These companies have pushed the envelope on reasonableness – they play the game, they string us along, they believe we can be stooged. Enough is enough. No more. We will be reasonable with those that genuinely cooperate, but we will now take a much harder stance on those who do not."
The resolve of the Australian Taxation Office is clear and the resolve of the Government is clear.
The Turnbull Government is committed to cracking down on those companies that are dodging their tax responsibilities.
Through the International Structuring and Profit Shifting project, which is run by the ATO, over $400 million in liabilities has already been raised.
Further to this, our Multinational Anti-Avoidance Law is already underway and the tax office has focused on almost 400 taxpayers as a result.
Significantly, while the law came into effect on the first of January this year, the ATO has the ability to pursue arrangements that were entered into before this date.
We have seen some good will with companies contacting the ATO proactively to correct their tax arrangements. And this is the prudent and sensible thing to do.
Australia has led the world on the global action plan on multinational tax avoidance – most particularly when we Chaired the G20.
The Government will continue to work with the OECD and other countries to implement other OECD Base Erosion and Profit Shifting recommendations in a way that will maximize their effectiveness.
As part of the BEPS plan, as it is known, Australian was one of 31 countries to recently sign a multilateral agreement to share tax information on the activities of multinational companies.
We have also introduced into Parliament legislation to impose GST on imported digital products and services. We will introduce legislation to impose GST on low value goods purchased from overseas which are currently exempt.
From next year foreign businesses will have to compete on the same playing field as local Australian businesses.
So, what's next?
The Government is finalising options for a tough new tax taskforce to ensure that multinational corporations operating in Australia pay the right amount of tax on the economic activity that is taking place here in Australia.
The Government will continue to provide the resources to the ATO to ensure this happens.
This new tax taskforce will be accountable to the government through transparent reporting and also it will be very clear and transparent to the Australian public about the achievements and the progress that's being made.
We are currently evaluating international models, including in the UK and United States, where whistleblowers are protected and, in some cases, rewarded.
We are considering changes to our laws to encourage whistleblowers to reveal information on artificial tax structures and misconduct.
Further on the issue of transparency, last year you will be very aware that the ATO publicly released tax information on large public companies. The disclosure arrangements have now been extended to include large Australian private companies, and the tax information will be released by the Australian Taxation Office next month.
We are taking these tough actions to ensure that Australians have confidence in the integrity and fairness of our taxation system.
Board of Taxation
I now would like to talk to you about some of the work of the Board of Taxation is conducting, that I am sure many of you have been participating in, or at the very least will have an interest in.
Voluntary tax transparency code
First, the voluntary tax transparency code. As part of the 2015 Budget, the Board was asked to lead the development of a new voluntary code to provide greater public disclosure of tax information by businesses, particularly large multinationals.
I note that the draft Code is stronger than the tax transparency measures of other counties.
A consultation paper containing a draft tax transparency code was released publically in December last year.
The paper sought to strike a balance between community interest in public disclosure, the additional regulatory burden on business, and commercial sensitivities. The submission period closed on 29 January this year and the Government regards this work by the Board and industry as absolutely critical to establishing a code that provides useful information for the community.
The Government is looking forward to receiving the Board's report very soon.
Consultation on the implementation of the anti-hybrid rules
As part of the 2015-16 Budget and coming out of the G20/OECD BEPS Action Plan, the Board was asked to undertake consultation on the implementation of new tax laws to neutralise hybrid mismatch arrangements.
The Board's Working Group released a public discussion paper in November last year, followed by consultations.
The Board will report to the Government over the next few months.
Moving on from the Board of Taxation's work in conjunction with the Government, let me touch on some current legislation and some of the stock-take of legislation that needs to be dealt with which we are focused on at the moment.
There were, as many of you know, 92 announced but un-enacted tax and superannuation measures that the Government inherited from Labor in September 2013.
Of these, the Government announced in December 2013 that 37 of those would proceed.
And today, just six measures remain to be dealt with, taking into account the three measures that have been passed by the House and now have moved to the Senate. The three measures are:
1. Capital gains tax treatment of earnouts:
The origins of the measure lies in an ATO draft ruling that specified that an earnout right is a separate and distinct asset from the underlying business and must have its market value estimated for CGT purposes.
This was followed a few years later by an announcement in the 2010-11 Budget to provide CGT look through treatment for earnout arrangements but it was never enacted.
The amendments will apply to all earnout arrangements entered into after 23 April 2015, the first working day on which draft legislation to give effect to this measure was made public.
In addition, to protect taxpayers who have reasonably and in good faith anticipated changes to the tax law in this area as a result of the announcement by the previous Government in May 2010, the measure also includes protections to preserve their current tax outcomes.
2. A new withholding tax to improve compliance with Australia's foreign resident capital gains tax regime:
This measure was announced by the previous Government in 2013. From 1 July 2016, there will be a 10 per cent non-final withholding tax obligation on a purchaser of certain taxable Australian property where the vendor is a foreign resident.
Foreign residents are liable to pay CGT where they dispose of certain Australian assets, notably direct and indirect interests in Australian real property – that is land, housing, commercial property, shares in land rich Australian entities.
The measure will address difficulties associated with collecting tax from foreign resident taxpayers and ensuring that they comply with their Australian tax obligations.
3. Managed investment trusts:
The implementation of the new taxation system follows recommendations made by the Board of Taxation in its 2009 report on the review of the tax arrangements applying to Managed Investment Trusts (MITs).
The Government is introducing these Bills to modernise the tax rules for MITs.
The new tax system will address long-standing uncertainty and complexity in the tax rules applying to MITs and to investors.
The new tax system will significantly reduce compliance costs for MITs by $30 million per year. Compliance by investors will also be simpler.
It will make it easier for MITs to offer different investment products through a single trust and give trustees practical options for reporting income to members.
Introducing this new system will enhance the competitiveness of Australia's funds management industry and will help to attract more investment into Australia, including into important areas such as infrastructure.
This will help make Australian funds managers more internationally competitive and promote the greater export of their funds management expertise.
The MIT system will encourage Australia's managed funds industry to grow by exporting more of its expertise, and attract additional inflows of investment. This will in turn increase growth and increase jobs.
Closing loopholes in the consolidation regime
On 6 November 2013, the Government announced it would proceed with integrity measures to improve the operation of the consolidation regime.
These measures were recommended by the Board of Taxation.
The Government understands the need to resolve this matter as soon as possible to minimise disruption and provide certainty for taxpayers for past transactions. The Government hopes to have legislation introduced in the 2016 winter parliamentary sitting.
Debt/Equity tax rules
The Government is also developing draft legislation for debt/equity tax rules.
This is expected to be released for public consultation in the coming months.
Finally, in December last year, the Government announced the National Innovation and Science Agenda (NISA) to drive new investment and innovation in Australia. I'm very pleased that the measures included new tax incentives for early stage and late stage investors.
The tax incentives will provide concessional tax treatment for investors through a non-refundable tax offset and a capital gains tax exemption on investments that meet certain criteria.
The tax incentives are designed to encourage investment into Australian innovation companies.
Separate initiatives have also been announced relating to investment at later stages, including reforms to early stage venture capital limited partnerships (ESVCLP) and venture capital limited partnerships (VCLP).
The approach taken for the incentives has been designed to be world's best-practice and developed with reference to other jurisdictions including that of the United Kingdom and Singapore.
The Government is developing a principles-based approach to the design of the legislation to ensure that incentives continue to encourage investment into the future as technologies and as activities change.
Specifically on the non-refundable tax offset:
These incentives will provide eligible investors with a 20 per cent non-refundable tax offset for the amount paid for newly issued shares in an innovation company, where the amount is paid either directly to the innovation company or indirectly through a qualifying innovation fund.
Investors will receive a non-refundable tax offset of up to $200,000 on an affiliate-inclusive basis for investments, direct or indirect, in eligible innovation companies in an income year.
The tax offset will be available to both residents and non-residents.
This means that for investments for up to $1 million, investors receive the full 20 per cent non-refundable tax offset. Investment amounts greater than $1 million in an income year do not increase the amount of the offset available.
In addition to receiving the tax offset, investors will not pay any CGT on gains from the disposal of shares in an innovation company provided those shares are held for at least three years. This applies to both resident and non-resident investors.
Where shares are held for more than 10 years, any incremental gain in value after 10 years will be subject to CGT and deemed to be on capital account.
Capital losses will be unavailable for shares issued as part of these tax incentives for early stage investors.
Ladies and gentlemen, the Turnbull Government is committed to delivering a tax system that is fit for the 21st century.
A tax system that provides greater efficiency, greater certainty and greater opportunity to create a stronger, growing economy. It must be a taxation system that delivers integrity, that preserves our tax base and delivers fairness.
As you can see, just from the short summary of things we have touched on here today, we have a lot on the agenda and we are working very hard to deliver on this goal.