COMMONWEALTH OF AUSTRALIA Official Committee Hansard SENATE ECONOMICS LEGISLATION COMMITTEE ESTIMATES (Additional Estimates) THURSDAY, 19 FEBRUARY 2004 CANBERRA BY AUTHORITY OF THE SENATE INTERNET The Proof and Official Hansard transcripts of Senate committee hearings, some House of Representatives committee hearings and some joint committee hearings are available on the Internet. Some House of Representatives committees and some joint committees make available only Official Hansard transcripts. The Internet address is: http://www.aph.gov.au/hansard To search the parliamentary database, go to: http://parlinfoweb.aph.gov.au Thursday, 19 February 2004 Senate—Legislation E 1 SENATE ECONOMICS LEGISLATION COMMITTEE Thursday, 19 February 2004 Members: Senator Brandis (Chair), Senator Jacinta Collins (Deputy Chair), Senators Chapman, Murray, Watson and Webber Senators in attendance: Senators Allison, Brandis, Chapman, Conroy, Kirk, Lundy, Mackay, Mason, Murphy, Stephens and Watson Committee met at 8.39 a.m. TREASURY PORTFOLIO Consideration resumed from 18 February 2004 In Attendance Senator Coonan, Minister for Revenue and Assistant Treasurer Treasury portfolio Mr Mark Rodrigues Mr James Bond Mr Gareth Perry Mr Steve French Mr Chris Legg Mr Peter McCray Mr Jim Murphy Mr Mike Rawstron Dr David Gruen Dr Jim Hagan Dr Steven Kennedy Dr Martin Parkinson Dr Heather Smith Ms Bernadette Welch Australian Accounting Standards Board Mr David Boymal, Chairman Mr Angus Thomson, Technical Director Australian Competition and Consumer Commission (ACCC) Mr Robert Antich, General Manager, Compliance Strategies Branch Mr John Bridge, Chief Finance Officer Mr Brian Cassidy, Chief Executive Officer Mr Joe Dimasi, Executive General Manager, Regulatory Affairs Division Mr Tim Grimwade, General Manager, Adjudication Branch Ms Lee Hollis, General Manager, Enforcement Co-ordination Branch Ms Helen Lu, General Manager, Corporate Management Branch ECONOMICS E 2 Senate—Legislation Thursday, 19 February 2004 Mr Mark Pearson, General Manager, Mergers and Asset Sales Branch Mr Nigel Ridgway, Deputy General Manager, Compliance Strategies Mr Graeme Samuel, Chairman Mr David Smith, Executive General Manager, Compliance Division Ursula Everett, Adjudication Branch Australian Prudential Regulation Authority (APRA) Mr Ross Jones, Deputy Chairman Mr Tom Karp, Executive General Manager, Diversified Institutions Mr Brandon Khoo, Executive General Manager, Specialised Institutions Dr John Laker, Chairman Mr Charles Littrell, Executive General Manager, Policy, Research and Consulting Dr Darryl Roberts, General Manager, Rehabilitation and Enforcement Mr Stephen Somogyi, Member Australian Securities and Investments Commission (ASIC) Professor Berna Collier, Commissioner Mr Carlos Inglesias, Executive Director, Infrastructure Mr Ian Johnston, Executive Director, Financial Services Regulation Mr Peter Kell, Executive Director, Consumer Protection Mr Jeffrey Lucy, Acting Chairman Ms Pam McAlister, Director, FSR Legal and Technical Mr Greg Pound, Chief Accountant Ms Jan Redfern, Executive Director, Enforcement Mr Malcolm Rodgers, Executive Director, Policy and Markets Regulation Ms Pauline Vamos, Director, FSR Licensing Australian Taxation Office (ATO) Mr Michael Carmody, Commissioner of Taxation Mr Paul Duffus, First Assistant Commissioner Ms Lesley East, Assistant Deputy Commissioner Mr Greg Farr, Second Commissioner Mr Kevin Fitzpatrick, First Assistant Commissioner Ms Erin Holland, Deputy Commissioner Mr Mark Jackson, Deputy Commissioner Mr Mark Konza, Deputy Commissioner Ms Alison Lendon, Deputy Commissioner Mr Michael McDermott, Assistant Deputy Commissioner Mr Neil Mann, Deputy Commissioner Ms Donna Moody, Chief Finance Officer Mr Gregory Topping, Assistant Deputy Commissioner Ms Raelene Vivian, Deputy Commissioner Inspector-General of Taxation Mr David Vos, Inspector-General Mr Steve Chapman, Deputy Inspector-General National Competition Council (NCC) Mr John Feil, Chairman ECONOMICS Thursday, 19 February 2004 Senate—Legislation E 3 Ms Michelle Groves, Director Mr Ross Campbell Mr Alan Johnston Productivity Commission Mr Robert Kerr Mr Garth Pitkethly ACTING CHAIR (Senator Watson)—I declare open this public hearing of the Senate Legislation Committee. I would like to take this opportunity of welcoming back Mr David Boymal. I presume, Mr Boymal, you have been advised of the rules and protection offered through parliamentary privilege in relation to what you say. Mr Boymal—Yes. ACTING CHAIR—I thank you for assisting the committee by coming back this morning. We apologise for any inconvenience it may have caused. Would you like to comment on any matters that were raised yesterday? Mr Boymal—No. ACTING CHAIR—Then we will proceed to questions. Senator CONROY—We were talking about what is now AASB 1046. We had been talking about excess value last night. I want to move on to a slightly different strand. Under that standard, benefits in the form of equity in an entity other than the disclosing entity or its subsidiaries—for example, an overseas-listed parent company—is not classified as an equity compensation scheme. Does this mean that such benefits do not need to be disclosed? Mr Boymal—I will pass the question to Mr Thomson. Mr Thomson—Could I clarify that? If you had an Australian company with an overseas parent, the management in Australia may be remunerated in part with equity from the overseas parent, perhaps because the local company may not be listed and therefore there is no equity available in that entity. Where that happens, it would be normal practice for the Australian legal entity to pay in some way for that equity. So there should actually be a cash amount or a payable representing that equity compensation. So it is not that it would go unrecorded— Senator CONROY—Even if it is an option? Mr Thomson—Presumably— Senator CONROY—Let us say it is a US company and they have not quite adopted expensing, because there is still a lively debate over there—so there is no value to be attributed to it in the US, because they do not. Therefore it is an option to be issued in a US company. Mr Thomson—I understand that they may not attribute any value under their accounting standards, but the commercial reality would be that they have given away something of value. Senator CONROY—I am with you 100 per cent, but the issue is why we do not capture it as part of their remuneration. This is not just about the accounting treatment; it is also about ensuring disclosure to shareholders in that company here. ECONOMICS E 4 Senate—Legislation Thursday, 19 February 2004 Mr Boymal—Could I explain? It is quite correct when you say that it is not required to be expensed in the United States. But it is also not required to be expensed in Australia. However, in the United States, that there is value in the option has been recognised or acknowledged for a long time. That is why in the United States reporting, notwithstanding that it is not expensed, the values to be attributed to the options are disclosed. Therefore it is not correct to say that because they do not expense it they are not acknowledging there is a value in it. Actually, more so in the United States than here, because their rules have been around for much longer, they would acknowledge that there is a value to it. Senator CONROY—The angle I am coming at this from is that of wanting to make sure that remuneration is disclosed to Australian shareholders and the Australian market so that people can make a judgment about these things. I am keen to make sure you are confident that you will be capturing any remuneration in shares other than the disclosing entity or its subsidiaries. Mr Boymal—No. I think you have a point that, if a company was trying to deliberately circumvent and was in the situation of having an overseas parent, they could deliberately circumvent by simply avoiding the parent company putting a charge through to the subsidiary. Therefore, if that were the case—and there would be no way to stop that from happening— then it would not be disclosed in the cash remuneration, nor would it be disclosed in the issuance of options. Senator CONROY—I am in danger of getting my wife in trouble here. My wife works for a company—not that she is in senior management—that is basically an American company that has listed here simply for the purposes of the employee share scheme, otherwise it would not bother listing here. Say, for instance, if Goldman Sachs wanted to issue shares in Goldman Sachs in the US to the managing director of Goldman Sachs here in Australia without doing that, how will we deal with this as an issue? It is not as though it necessarily has to be completely deliberate. For the purposes of disclosure to the Australian markets to know what the executive is being remunerated, is there a way we can capture it? Is this is a simple one to think about and tweak a bit or is this one that moves into a completely different area that is simply too hard to handle? What is the rationale behind leaving these schemes out? Mr Boymal—There are probably jurisdictional difficulties. In the first instance, the number of instances where the Australian public shareholders would be interested are very limited, because most of the overseas-owned companies are 100 per cent owned and therefore it is not typical that the public would be interested. But there are a few like that. Where the Australian subsidiary and the overseas parent are both listed and therefore the public is differentially interested in both, the AASB takes the view that the directors would in fact have to be breaching their governance responsibilities by one of the companies bearing and therefore hiding a charge that is properly attributed to the other company. So you have a combination of very few instances in the first place— Senator CONROY—You have never heard of transfer pricing? Mr Boymal—Yes, I have heard of it. Senator CONROY—This is an equivalent, almost—a transfer share option.