On Friday 17.11.2017, Shadow Treasurer: Andrew Leigh, spoke on “Halting the [tax] havens” in an address in Adelaide to Australian Petroleum Production & Exploration Association Biennial Taxation & Commercial Conference.
It was a wide ranging speech traversing the recent ‘Paradise Papers’ leak and the previous ‘Panama Papers’ leak for the ‘peak’ they gave into multi-national tax planning (amongst a great many other things).
The speech was, however, a spring board for the Shadow Treasurer to canvass Opposition policies on international tax avoidance and transparency measures (announced in May 2017).
Labour’s measures would include the following.
- Public reporting of country-by-country reports. This would require the ATO to make CbC reports (excerpts) publicly accessible; high level data on how much tax is paid in jurisdictions in which the firm operates, the number of employees, and related material.
- Whistle-blower protection and incentive/rewards – Labor would provide protection for whistleblowers who report on entities evading tax to the ATO. Individuals who highlight tax evasion would collect a share of the penalty collected (which the Government’s currently released changes don’t do).
- Implement a publicly accessible registry of the beneficial ownership of Australian legal entities, including trusts. Labor would fully implement the G20 principles Australia signed in 2014 and ensure transparency over who ultimately owns a company, rather than just who is listed on company paperwork. The Financial Action Taskforce found Australia’s beneficial ownership regime to be ‘partly compliant’ regarding companies, and “completely non-compliant” regarding legal arrangements, that is, trusts. Trusts are regularly cited in the use of tax havens, adding an extra layer of opacity to many firms’ arrangements.
- Country of domicile for tax purposes notification – Labor would amend Government procurement process requirements such that the Australian Government tender process would require all companies to state their country of domicile for tax purposes. This would not prevent firms from tendering – rather, it acknowledges that the public who are funding such work are entitled to know the firm’s tax domicile.
- Labor will require mandatory reporting, to shareholders of ‘material tax risk’ tax havens. This proposal would, Mr Leigh said, be a ‘nudge’ in having companies include reputational risk and the involvement of shareholders as part of their tax risk management practices. There is more detail, from the Shadow Treasurer’s paper (below).
Mr Leigh, quoted Justice Louis Brandeis: “sunlight is the best disinfectant” and ended by saying that “firms operating in Australia through tax havens are on notice that a Shorten Labor Government will open the shutters and let the sunlight in”.
Mandatory reporting to shareholders of tax haven as ‘material tax risk’
Companies would be required to disclose, to shareholders, as a ‘Material Tax Risk’, if the company is doing business in an ‘international material tax risk jurisdiction’ (i.e. a known or suspected ‘tax haven’). There is no current legal requirement to do so currently.
The proposal would amend the Corporations Act to require disclosure of dealings in ‘international material tax risk jurisdictions’ to shareholders. The Australian Tax Office would issue guidance on the types of activity, and detail, businesses are required to disclose.
A list of these jurisdictions would be maintained by the ATO and issued as a guidance note to inform companies’ corporate governance regimes. It would be similar to the design of the European Union’s proposed EU-wide ‘blacklist’.
Jurisdictions featured on a draft EU list include:
Andorra, Liechtenstein, Guernsey, Monaco, Mauritius, Liberia, Seychelles, Brunei, Hong Kong, Maldives, Cook Islands, Nauru, Niue, Marshall Islands, Vanuatu, Anguilla, Antigua and Barbuda, Bahamas, Barbados, Belize, Bermuda, British Virgin Islands, Cayman Islands, Grenada, Montserrat, Panama, St Vincent and the Grenadines, St Kitts and Nevis, Turks and Caicos, and the US Virgin Islands.
Aside from existing disclosure requirements, relating to company financial positions, or operations, public policy considerations are part of the Corporations Act.
For example, Section 298 of the Corporations Act 2001 has a mandatory requirement that a company’s annual report include a Directors’ Report. Section 299 requires that the Directors’ report include:
“if the entity’s operations are subject to any particular and significant environmental regulation under a law of the Commonwealth or of a State or Territory–give details of the entity’s performance in relation to environmental regulation”.