Senate report on Corporate Tax Avoidance

1 June 2018

We make it a practice not to bother our readers unless something important has happened.  On this occasion we are making a slight refinement to that policy – nothing much has happened, but as it turns out, the inactivity is important.

On Wednesday, the Senate Economics References Committee released the third and final report of its 3½ year inquiry into corporate tax avoidance, Much heat, little light so far. While the title is quoting a comment of our own Richard Vann on the effectiveness of the flurry of recent legislative activity (think, MAAL, DPT, CbC reporting, etc), ironically (and one suspects, quite unintentionally) it is also a very apt title for this Report. While the Committee might have been hoping to enliven community support and marshal bipartisan political will behind a concerted legislative plan of action, its final recommendations are fairly anodyne.

There are a number of reasons why the report is not the significant document that once appeared likely.

First, it has taken almost 4 years to get this document finalised and during this time the Committee appears to have lost some of its keenest members – the preface to the document lists many who have resigned or been removed such as Senators Dastyari, Lambie, Smith and Xenophon. Few of the Senators who began this journey in 2014 survived until 2018. 

Secondly, being a creature of the Senate, the Committee was always heavily populated by Opposition and cross-bench members.  At the conclusion of the project, the Committee comprised 11 people (6 members and 5 participants), only 2 of whom were from the Government.

So it was not surprising that the final report is only a majority report: the Coalition Senators criticise the report on the basis that it ‘represent[s] an overreach in some of its criticisms’ while the Greens Senators lodged a dissenting report complaining that the ‘recommendations [are not] commensurate with the size of the tax avoidance epidemic [nor] sufficiently comprehensive to deter tax avoidance strategies.’

There are two substantive recommendations:

  • that the worldwide gearing ratio should be the only method for determining whether a company is thinly capitalised.  (This is the current ALP policy); and
  • an independent review of transfer pricing rules. This could be worthwhile but do we really need another inquiry, and what could such an inquiry hope to accomplish unless we are actually willing to cut our ties with the OECD Transfer Pricing Guidelines?

Much of the rest of the report is driven by the idea that disclosure, rather than substantive reform, will be sufficient to address tax compliance. Hence many recommendations are directed to insisting that more tax-related information be made public:

  • the system by which the ATO publicly discloses corporate tax information each year should be expanded to include private companies and reduce the reporting threshold from $200m to $100m. This recommendation would undo the effect of amendments deliberately made by the current Government in late 2015;
  • a public register should be established which records the ultimate ownership of companies, trusts and other structures.  This is already Government policy –  Treasury released a Consultation Paper in February 2017 – and so presumably will happen once the Government solves the practical difficulties about how to implement it;
  • that all companies and trusts above an undetermined size should be required to lodge general purpose financial statements with ASIC;
  • that extracts from Country-by-Country reports be made publicly available, free of charge. The EU is currently looking at a similar proposal. The OECD considered this option but did not include it in its final report on BEPS Action 13, and, interestingly, Chris Jordan gave evidence to a Senate Estimates Committee hearing last year that other countries would probably stop sending CbC reports to Australia if the ATO was obliged to release them;
  • the voluntary tax transparency code administered by the Board of Taxation should be made mandatory for all corporations of sufficient size operating in Australia; and
  • the ATO include details in its Annual Report on the number and value of any settlements of tax disputes exceeding $50m.  (This is also current ALP policy).

We began this Riposte with the observation that nothing much happened on Wednesday. So far as the current Government is concerned, that statement is probably true.  But, the document is much more important as an indicator of tax policies the ALP will take to the next election, and which may become very relevant in the not-too-distant future.

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Authors

Julian Pinson

Director

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Professor Graeme Cooper

Consultant

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