BILLS Tax Laws Amendment (Cross-Border Transfer Pricing) Bill (No.1) 2012 Second Reading


Senator IAN MACDONALD (Queensland) (13:29): I will make some small contribution to the debate on the Tax Laws Amendment (Cross-Border Transfer Pricing) Bill (No. 1) 2012, but before I do I note in passing how fortunate the parliament is, and indeed Australians are, to have people of the calibre of Senator Bushby and Senator Cormann speaking on such rather technical bills that require a professional understanding of what they are about. I could not help but be impressed by the knowledge of both Senator Cormann and Senator Bushby on these very technical issues. I have to say that, as a small town country lawyer of the past, I profess no expertise at all in taxation matters, particularly in relation to transfer pricing and, unlike Senator Joyce, who was a practising accountant, I do not have that intimate knowledge. But I join my colleagues in opposing legislation which is retrospective in a taxation and financial way. As Senator Cormann and Senator Bushby have clearly pointed out, were these proposals prospective then I suspect the coalition would have supported them. I certainly support the amendments that Senator Cormann will be moving to make them prospective. If they are adopted by the parliament or the Senate then I expect that we will be supporting the legislation. If they are refused, as has been indicated by the Labor Party however, then I would join my colleagues in opposing this legislation.

My principal reason for contributing to the debate on this bill relates to the broad position of foreign ownership, particularly of farming land in Australia. I do not want to go into that in any depth except to say that there is a very good discussion paper out which raises a lot of those issues and which I encourage people to contribute to. I recognise the need to be very cautious about who owns Australia's land and who owns Australia's farming enterprises. I am very conscious of a thought that is gaining precedence around the world. Whilst the last couple of decades have been the decades of the mining boom, there is this belief around parts of the world, which I share, that the next decade could be the decade of the food boom and indeed I think the work being done by some Asian countries in securing their food supplies into the future supports the proposition that the world will more closely look in the years and decades ahead at how we are going to feed ourselves. Many Asian countries and other countries as well are looking to secure sources of food from countries beyond their borders and many are looking at Australia and that has engendered a debate.

Foreign ownership of Australia's farming assets is not new. In fact, in my area up in the north of Queensland, particularly in the sugar areas, I often remind people that the sugar industry was nurtured on foreign money, albeit British and Scottish money, back at the turn of the previous century. There have been big investments by those foreign countries in the sugar industry ever since. We remember the Rum Jungle and Lakelands Downs proposals of the fifties and sixties whereby a lot of foreign money was invested in Australia in agricultural pursuits and we know that many feedlots are owned by Japanese or Indonesian investors and Australia generally welcomes any investment in our agricultural output, be it foreign or local. But I agree with concerns that we have to be careful about just who owns our food and our means of producing food.

The first step, of course, is to find out who owns various pieces of land around Australia, a bit of data that, shamefully, has been missing from our public records for many years and I hope that something will be done at some time to ensure that at least we do know who owns Australia's land. But, generally speaking, I welcome investment in our food production from whatever source but, in some arguments with my very good and learned friend Senator Heffernan, he has alerted me to issues of transfer pricing. I know little about this, I confess, but if there were not some element of transfer pricing relief in the wind then I would also become very concerned about foreign investment in our land which then produces crops which are then taken, in situ almost, from Australia to the investors' homeland and not sold, so there is no price on the way through, meaning that out of the whole exercise Australia benefits little. I will put it the other way: if foreign investors come in and produce any sort of goods here, be they manufacturing or agricultural, and then they sell them in Australia at a price, they willlike everyone elsepay Australian income tax or company tax or payroll tax or any of all the other taxes that every other investor in Australia pays. If that is the case, I do not have a great deal of concern. I do not care whose money is helping to build Australia and build our food production as long as they pay their fair share of tax and as long as they abide by Australia's industrial relations laws and other laws that applybut there is a suggestion which has been put to me.

I have no capacity to follow through and work out whether what has been suggested to me is accurate or not, but I accept what is said to me and understand that it has been the subject of evidence given at a Senate committee which my friend and colleague Senator Heffernan chaired just recently. If there is nothing in the Australian taxation system at the present time which allows for a transfer pricing component on food and agricultural products grown in Australia but sent overseas, then I think there should be. I think the Australian taxation system should be carefully looked at for that purpose.

I do not speak with a great deal of technical knowledge. My understanding of transfer pricing is confirmed from Wikipedia, a source I often go to. Wikipedia tells me that nearly all countries permit related parties to set prices in any manner with goods produced in the country but permit tax authorities to adjust those prices where prices charged are outside an arms-length range. Rules are normally provided for determining what constitutes such arms-length prices and how any analysis should proceed. Prices actually charged are compared to prices or measures of profitability for unrelated transactions, and parties and the rules generally require that market level functions, risks and terms of sale of unrelated party transactions or activities be reasonably comparable to such items with respect to related party transactions or profitability being tested.

My very untechnical understanding is that in the 1940s and 1950s international carmakers used to make parts in Australia. Rather than sell them at a market price in Australia and pay Australian tax on them, they would ship them to their overseas parent at no cost at all. So the Australian company was making no profits, therefore paying no tax in Australia, but was sending the parts at a next-to-nothing price to the parent company overseas who would then assemble the motor vehicle, sell it and pay tax on the sale price in a country which had a much lower taxation regime than occurred in Australia. The Australian Taxation Office came in and said, 'Right, you can sell to your parent overseas at whatever price you like, but we are going to assume that you sold it at the market price and we are going to tax you accordingly.' So Australia got its fair share of tax on work and products produced in this country. That is what I understood transfer pricing to be.

I am surprised to hear that we do not have a similar regime for food. I am told if, as a foreign company you grow a bushel of wheat in Australia and then you ship it overseas without having a sale price in Australia, you do not pay any taxation in Australia. You do not pay any income tax or company tax in Australia because you have not sold at a profit. I would have thought that the Australian Taxation Office would have had a similar arrangement in place as I understand it does in car manufacturing and other manufacturing industriesthat is an assumed price is fixed so that Australia can get a fair share of tax. If that does not apply in agriculture, I want to know why it does not. I suspect that if Senator Heffernan is encouraged to enter this debate he might be able to explain why. I hear from talking to Senator Heffernan in the corridors that there is a bit of discussion about this and so there should be.

My contribution to this debate on transfer pricingin addition to agreeing with Senator Cormann on the bill before uswas to say to the Australian Taxation Office and to the government, if we do not have rules that apply transfer pricing principles to agriculture, then we should have. I hope that someone in the Australian Taxation Office may be listening to this or may read it in Hansard sometime later and write to me: 'You are completely wrong, Senator Macdonald. What you say is not accurate. We can do that.' I would be delighted if they did because, if they did, that then addresses one element of a very much broader question of foreign investment in Australia's land and farming production activities.

I repeat that, if there is no such transfer pricing arrangement in place, then there should be. The government should be giving that very close attention. I hope the taxation department or someone might say to me, 'Mate, you are wrong and we have got that covered.' If that is the case, then it fractionally confines the debate on investment in Australia's agricultural production. It is still a debate that has to be had. It is still a very interesting issue and one that a very good discussion paper is canvassing. But this element of taxation is one that concerns me and, if it has not been addressed, it certainly does need to be addressed. I support the amendments to be moved by Senator Cormann. If they are not accepted by the government, I will be voting against this legislation.

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