Economics References Committee
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The Senate Economics References Committee Corporate tax avoidance Part III Much heat, little light so far May 2018 © Commonwealth of Australia 2018 ISBN 978-1-76010-772-7 This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivs 3.0 Australia License. The details of this licence are available on the Creative Commons website: http://creativecommons.org/licenses/by-nc-nd/3.0/au/ Printed by the Senate Printing Unit, Parliament House, Canberra. ii Senate Economics References Committee Members in the 45th Parliament Senator Chris Ketter (Chair) Queensland, ALP Senator Jane Hume (Deputy Chair) Victoria, LP Senator Cory Bernardi South Australia, IND (to 12 September 2016 and from 5 December 2016 to 15 February 2017) Senator Sam Dastyari (to 5 February 2018) New South Wales, ALP Senator the Hon Kristina Keneally (from 15 February 2018) New South Wales, ALP Senator the Hon Ian Macdonald Queensland, LP (from 12 September 2016 to 5 December 2017 and from 15 February 2017 to 22 March 2018) Senator Jenny McAllister New South Wales, ALP Senator Amanda Stoker (from 22 March 2018) Queensland, LP Senator Peter Whish-Wilson (from 14 November 2017) Tasmania, AG Senator Nick Xenophon (to 31 October 2017) South Australia, NXT Senators participating in this inquiry in the 45th Parliament Senator the Hon Doug Cameron New South Wales, ALP Senator Kimberley Kitching Victoria, ALP Senator Gavin Marshall Victoria, ALP Senator Glenn Sterle Western Australia, ALP Senator Dean Smith Western Australia, LP Members in the 44th Parliament Senator Chris Ketter (Chair from 22 October 2015) Queensland, ALP Senator Sean Edwards (Deputy Chair) South Australia, LP Senator Matthew Canavan (to 23 February 2016) Queensland, NATS Senator Sam Dastyari (Chair until 22 October 2015) New South Wales, ALP Senator the Hon. Kim Carr (until 15 May 2015) Victoria, ALP Senator Jenny McAllister (from 15 May 2015) Victoria, ALP Senator Dean Smith (to 23 February 2016) Western Australia, LP Senator Nick Xenophon South Australia, IND Senators participating in this inquiry in the 44th Parliament Senator Chris Back Western Australia, LP Senator Richard Di Natale Victoria, AG Senator Christine Milne (to 10 August 2015) Tasmania, AG Senator Peter Whish-Wilson Tasmania, AG Senator Jacqui Lambie Tasmania, IND Secretariat Mr Mark Fitt, Secretary Mr Alan Raine, Principal Research Officer Dr Anne Holmes, Senior Research Officer Ms Hannah Dunn, Administrative Officer PO Box 6100 Ph: 02 6277 3540 Parliament House Fax: 02 6277 5719 Canberra ACT 2600 E-mail: [email protected] iii Table of Contents Membership of the Committee ........................................................................ iii Abbreviations and acronyms ...........................................................................vii Recommendations .............................................................................................. ix Chapter 1.............................................................................................................. 1 Introduction .............................................................................................................. 1 Conduct of inquiry .................................................................................................. 2 Submissions and public hearings............................................................................ 2 Background to inquiry ............................................................................................ 3 Reports tabled by this inquiry................................................................................. 4 Structure of report ................................................................................................... 6 Acknowledgements ................................................................................................ 6 Chapter 2.............................................................................................................. 7 Evolution of the multinational tax framework ...................................................... 7 International initiatives to address base erosion and profit shifting ....................... 7 Reforms to the Australian corporate tax system to address avoidance .................. 9 Chapter 3............................................................................................................ 15 Where to from here? .............................................................................................. 15 Views on progress already made .......................................................................... 15 Areas for further action ........................................................................................ 22 Chapter 4............................................................................................................ 29 Trumpeting transparency ...................................................................................... 29 Maintaining the pressure ...................................................................................... 29 Chapter 5............................................................................................................ 47 Offshore oil and gas ................................................................................................ 47 Other reviews ........................................................................................................ 47 The state of the industry ....................................................................................... 48 Major projects ....................................................................................................... 50 The logic of taxes on oil and gas .......................................................................... 54 How the PRRT works ........................................................................................... 56 v Revenue from taxation of oil and gas companies ................................................. 58 Issues in the taxation of oil and gas ...................................................................... 59 Prospects for change ............................................................................................. 71 Coalition Senators Additional Comments ...................................................... 77 General comments ................................................................................................ 77 Chapter 3—“Where to from here?” (recommendations 1-2) ............................... 77 Chapter 4—“Trumpeting transparency” (recommendations 3-9) ........................ 78 Chapter 5—“Offshore oil and gas” (recommendations 10-13) ............................ 80 Other reform comments ........................................................................................ 80 Dissenting Comments from the Australian Greens ....................................... 83 ATO staff and outsourcing to the big-four accounting firms ............................... 83 Petroleum Resource Rent Tax (PRRT) ................................................................ 84 PRRT tax credits ................................................................................................... 85 Appendix 1 ......................................................................................................... 87 Summary of Base Erosion and Profit Shifting package ..................................... 87 Appendix 2 ......................................................................................................... 95 Submissions and additional documents ................................................................ 95 Appendix 3 ....................................................................................................... 107 Public hearings ...................................................................................................... 107 vi Abbreviations and acronyms AASB Australian Accounting Standards Board ANAO Australian National Audit Office APPEA Australian Petroleum Production & Exploration Association ASIC Australian Securities and Investments Commission ASX Australian Stock Exchange ATO Australian Taxation Office BEPS Base Erosion and Profit Shifting CbC Country-by-Country CPSU Community and Public Sector Union CSG Coal Seam Gas DPT Diverted Profits Tax EBITDA Earnings Before Interest, Taxes, Depreciation, and Amortisation GDP Gross Domestic Product GST Goods and Services Tax ITF International Transport Workers' Federation KTT Kipper Tuna Turrum LNG Liquefied Natural Gas LPG Liquefied Petroleum Gas LTBR Long Term Bond Rate MAAL Multinational Anti-Avoidance Law MNEs Global Multinational Enterprises NWS North West Shelf OECD Organization for Economic Cooperation and Development PC Productivity Commission PRRT Petroleum Resource Rent Tax PWYP Publish What You Pay TAA Tax Administration Act 1953 TJN-Aus Tax Justice Network Australia TTC Tax Transparency Code vii Recommendations Recommendation 1 3.52 The committee recommends that the thin capitalisation rules be amended so that the worldwide gearing ratio is the only method by which interest related deductions should be calculated for the purpose of tax treatment in Australia. Recommendation 2 3.68 The committee recommends that the government undertake an independent review into the detriment to Australian tax revenue that arises from the current transfer pricing regime, and explore options to modify transfer pricing rules, or other tax laws, to ensure multinational enterprises make the appropriate contribution