The Business Council welcomes the opportunity to provide a submission to the Senate Inquiry Treasury Laws Amendment (Making Multinationals Pay Their Fair Share – Integrity and Transparency) Bill 2023. The proposed changes seek to deliver on the government’s election commitments on multinational tax and transparency, particularly strengthening Australia’s interest limitation (thin capitalisation) rules.
All companies must meet their tax obligations and where arrangements do not keep pace with community norms, they should be reviewed. Robust tax integrity and transparency measures are an integral complement to more competitive business tax arrangements.
Australia has some of the strongest tax integrity rules in the world, and they have been strengthened over time. Existing integrity measures, institutions and enforcement all contribute towards and complement a high level of compliance with our tax system. The Australian Taxation Office (ATO) is a strong, capable, active and well resourced administrator, with extensive powers and a strict interest and penalty regime. The ATO workforce focused on large companies is “larger and more skilled than it has ever been”, and it has one-to-one engagement with large companies for assurance over approximately two-thirds of all corporate tax (over $60 billion). The ATO has measured the net tax gap in 2019-20 for individuals not in business to be $9.0 billion (or 5.6 per cent), for small business to be $11.9 billion (or 11.6 per cent), and for large companies to be $2.6 billion (or 4.2 per cent).
The BCA supports the notion that measures be balanced against “the need to attract and retain foreign capital and investment in Australia, limit potential additional compliance cost considerations for business, and continue to support genuine commercial activity.” A consultation process that follows best practice principles is critical.
The tax system must ensure that the Australian economy, which is heavily reliant on trade and foreign investment, remains strong and continues to grow. Productivity growth is the key driver of living standards, but the past decade was the worst decade for productivity growth in the past 60 years. Investment is critical for driving productivity and has accounted for two-thirds of labour productivity growth the past 40 years. This includes through procurement of state-of-the-art machinery and equipment and the development and adoption of cutting-edge technologies.
1. The overhaul of the thin capitalisation regime should be accompanied by a legislated requirement for a formal review process, to be conducted within three years.
2. Remove the debt deduction creation rules from the Bill and consider them as part of a broader consultation process into section 25-90 of the of the Income Tax Assessment Act 1997. If the rules are not removed, it should be clarified that they apply only if a scheme was entered into for the sole or dominant purpose of generating excess debt deductions and reducing tax payable in Australia.