Federal government suppliers need to state tax status: Senate committee

A parliamentary report has recommended the federal government make companies competing for government contracts say where they are taxed, as well as naming and shaming corporate tax dodgers.

Corporations involved in tax avoidance need to be named and shamed, a parliamentary committee said.

An interim report from the Senate standing committee on economics, titled "You cannot tax what you cannot see", made 17 recommendations, including that the government work with other countries with "marketing hub" activity to improve transparency.

It wants an annual public report on "aggressive tax minimisation and avoidance activities" tabled in the parliament and a mandatory tax reporting code for any Australian corporation with an annual turnover above a certain figure.

The committee formed the view that overseas tax incentives offered to multinational companies are behind aggressive tax minimisation and erosion of Australia's tax base, and that Australia should work with the OECD to tackle base erosion and profit shifting, but if needs be, be prepared to take unilateral action.

The report said that increased transparency in reporting tax practices needed to be improved dramatically.

"[The committee] was also taken aback by the reluctance of some companies to disclose information to the committee, or, of greater concern, where some companies seemed not to be in possession of what seemed important information about their company's operations in other countries," the report said.

"The committee, however, is dismayed by the ingenuity shown by some companies in avoiding answering questions posed by the committee. This reluctance verged on contempt for the committee process, exhibited disdain for Australian taxpayers, and overall reflected poorly on those particular companies."

One of the recommendations called on the federal government to make companies state in which location they reside for tax purposes when tendering and competing for government contracts.

"The committee supports efforts to remove disadvantages for Australian companies when competing with foreign-based entities that arise because of differences in taxation between jurisdictions," the report said.

"As a role model for the community, the committee considers that the Australian Government should evaluate tenders for the goods and services it procures using a comparable tax benchmark, and not disadvantage Australian companies that have higher tax burdens than competitors from other jurisdictions."

It was recommended that agencies inform the relevant Minister when contracts above a yet-to-be-determined threshold are awarded to offshore domiciled companies.

The government has ruled out naming and shaming companies, but Assistant Treasurer Josh Frydenberg says the Tax Office is going after these companies. Frydenberg responded to the committee's recommendations on Monday morning, despite the interim report only being tabled late on Tuesday.

The contents of the report were leaked to the media at the weekend, which is against parliamentary rules and has infuriated senators.

Independent senator Nick Xenophon said there needs to be an inquiry into how the recommendations were leaked, fearing the breach could lead to sloppiness in dealing with confidential information.

Treasurer Joe Hockey has pointed the finger at Labor senator and committee chairman Sam Dastyari, while his Liberal committee colleague Sean Edwards claimed the inquiry report was "whored out" for personal gain.

Senator Edwards said he "felt there had been great damage done" and referred the matter to the Senate president. However, Senator Dastyari said he did not believe the recommendations were controversial, and that none of the evidence presented to the committee detailed illegal behaviour.

"The questions that people are asking is, 'How is this type of behaviour legal?'" he said.

Senator Edwards said the government's dissenting report was issued because most recommendations in the report were things the coalition had already addressed or had no intention of addressing.

The dissenting report stated coalition senators have deep concerns about some of the recommendations and said the most pressing part of the report is the lack of credit given for actions the government has taken.

"Most significantly, the interim report fails to recognise that the Coalition Government has taken strong action in our nearly two years in office to combat corporate tax avoidance," the dissenting report said.

"The Bill to implement our Multinational Anti-Avoidance Law is scheduled for introduction into Parliament in the coming sitting weeks."

The Australian Greens proposed an additional seven recommendations to the report, including that the Tax Office make public details of the 10 companies that transfer most wealth offshore.

Greens leader Richard Di Natale said the corporate tax dodgers are ripping off Australians, and ordinary taxpayers should know how.

CPA Australia said some of the important issues in the report had been overshadowed by the "name and shame" idea, calling for balance in the debate.

"Yes, tax arrangements that are blatant, artificial, and contrived need to be struck down," chief executive Alex Malley said. "The ATO is properly empowered and resourced to do that."

The committee is expected to present the final report, which the committee says will focus on transfer pricing and profit shifting, on November 30.

During the course of the committee's hearings, Apple, Google, and Microsoft all admitted they were being audited by the Australian Taxation Office, with Apple Australia chief, Tony King, stating in evidence that he did not know of the so-called double Irish Dutch sandwich process of minimising taxation for multinational corporations.

The committee called into question the amount of tax paid locally by the world's largest company by market cap, a mere $80 million in 2013-14.

"In the case of Apple, the committee questioned whether it was plausible that the Australian subsidiary could have a taxable income of only $247 million from revenue of $6,073 million in 2013-14, effectively representing an operating margin before tax of just over 4 per cent," the report said.

"Apple responded that it had participated in the ATO's advanced pricing agreement (APA) program since 1991 in order to apply an agreed arm's length principle to these international related party transactions."

In response to questions on notice, Google said it was unable to break out its revenue by country, as the company only breaks out companies which contribute more than 10 percent of overall revenue.

Last year, Australian Treasurer Joe Hockey called companies that engage in corporate tax evasion "thieves", saying it requires a global effort to combat companies evading tax.

"They're stealing from us and our community," he said. "The only way we can address this is through global action.

"We can have all the measures we want in Australia, but there will still be ways they can try and reduce, significantly reduce, or even evade their tax obligations in Australia."

With AAP