Treasury Laws Amendment (Making Sure Multinationals Pay Their Fair Share of Tax in Australia and Other Measures) Bill 2018 - Commentary on Ministerial Responses [2018] AUSStaCSBSD 250 (14 November 2018)

• Treasury Laws Amendment (Making Sure Multinationals Pay Their Fair Share of Tax in Australia and Other Measures) Bill 2018
• Retrospective application 9
• Broad delegation of administrative powers12

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Treasury Laws Amendment (Making Sure Multinationals Pay Their Fair Share of Tax in Australia and Other Measures) Bill 2018

Purpose	This bill seeks to amend various Acts in relation to taxation to: • amend the Research and Development (R & D) Tax Incentive to encourage firms to increase the proportion of additional R & D expenditure; • ensure that R & D claimants are unable to inappropriately obtain a tax benefit from the program and that R & D offsets are recouped appropriately; • amend the guidance framework to provide certainty to applicants and streamline administration processes; • amend the capitalisation rules to entities; • ensure that offshore sellers of Australian hotel accommodation calculate their GST turnover in the same way as local sellers from 1 July 2019; • remove luxury car tax liability on cars re-imported into Australia following service, repair or refurbishment overseas from 1 January 2019; and • amend the definition of significant global entity
Portfolio	Treasury
Introduced	House of Representatives on 20 September 2018
Bill status	Before the House of Representatives

Retrospective application ^[9]

2.17 In Scrutiny Digest 12 of 2018^[10] the committee requested the Assistant Treasurer's advice as to why it is necessary to retrospectively apply proposed amendments under Schedules 1 and 2 to income years commencing on or after 1 July 2018, or to tax benefits derived on or after 1 July 2018, and whether any persons would be detrimentally affected by the retrospective application.

Assistant Treasurer's response^[11]

2.18 The Assistant Treasurer advised:

The Government's reforms to the Research and Development Tax Incentive will better target the program, and improve its effectiveness, integrity and fiscal affordability.
The reforms were announced on 8 May 2018 as part of the 2018-19 Budget in response to the 2016 Review of the R&D Tax Incentive. The reforms generally apply to income years commencing on or after 1 July 2018. Affected taxpayers were aware of the reforms and the potential impact the reforms would have on the scope of the program from the date of the Budget announcement. An Exposure Draft of the legislation implementing the reforms was also released for public consultation prior to the 1 July 2018 application date.
While the reforms may be important considerations for some taxpayers from 1 July 2018, taxpayers will only be expected to register for the program and lodge income tax returns under the reforms following the end of the income year, from 1 July 2019.
The reforms also amend the General Anti-Avoidance Rule contained in Part IVA of the Income Tax Assessment Act 1936 to ensure the Commissioner can deny inappropriate tax benefits taxpayers may seek to obtain from the program by entering into artificial or contrived arrangements. These integrity amendments apply to tax benefits derived from 1 July 2018, including where the tax avoidance schemes were entered into prior to that date. This is appropriate because tax avoidance schemes operate contrary to the intention of the current law.

Committee comment

2.19 The committee thanks the Assistant Treasurer for this response. The committee notes the Assistant Treasurer's advice that, as the proposed reforms to the Research and Development Tax Incentive were announced as part of the 2018-19 budget on 8 May 2018 and generally apply to income years commencing on or after 1 July 2018, affected taxpayers were aware of the reforms and their potential impact on the scope of the incentive program prior to the proposed application date and an exposure draft of the legislation was released for consultation prior to 1 July 2018. The committee also notes the Assistant Treasurer's advice that, while the reforms will be important considerations for some taxpayers from 1 July 2018, these taxpayers will not register for the program and lodge tax returns under the reforms until 1 July 2019. Finally, the committee notes the Assistant Treasurer's advice that it is appropriate to apply the proposed reforms to the general anti-avoidance rule in Part IVA of the Income Tax Assessment Act 1936 to tax benefits derived from 1 July 2018, including where a tax avoidance scheme was entered into prior to this date, because tax avoidance schemes operate contrary to the intention of the current law.

2.20 In the context of tax law, reliance on ministerial announcements and the implicit requirement that persons arrange their affairs in accordance with such announcements, rather than in accordance with the law, tends to undermine the principle that the law is made by Parliament, not by the executive. Retrospective commencement, when too widely used or insufficiently justified, can work to diminish respect for law and the underlying values of the rule of law.

2.21 However, in outlining scrutiny issues around this matter previously, the committee has been prepared to accept that some amendments may have some retrospective effect when the legislation is introduced if this has been limited to the introduction of a bill within six calendar months after the date of that announcement. In fact, where taxation amendments are not brought before the Parliament within 6 months of being announced the bill risks having the commencement date amended by resolution of the Senate (see Senate Resolution No. 44). The committee also notes that those likely to be affected by these reforms are large research and development entities and not individuals.

2.22 The committee requests that the key information provided by the Assistant Treasurer be included in the explanatory memorandum, noting the importance of this document as a point of access to understanding the law and, if needed, as extrinsic material to assist with interpretation (see section 15AB of the Acts Interpretation Act 1901).

2.23 In light of the information provided, the committee makes no further comment on this matter.

Broad delegation of administrative powers^[12]

2.24 In Scrutiny Digest 12 of 2018^[13] the committee considered that it may be appropriate to amend the bill to require that the Innovation and Science Australia Board (the Board), or a committee appointed to advise the Board, be satisfied that persons performing delegated functions and exercising delegated powers have the expertise appropriate to the function or power delegated, and requested the Assistant Treasurer's advice in relation to this matter.

Assistant Treasurer's response

2.25 The Assistant Treasurer advised:

Schedule 3 to the Bill allows the Board of ISA and its committees to delegate their functions to members of the Australian Public Service assisting the Board. This expands the existing delegation power that authorises the Board to delegate to Senior Executive Service employees only.
I note the Committee considers it may be appropriate to require ISA to be satisfied of a person's expertise before delegating a function.
ISA is authorised to approve delegations under the existing legislation and satisfies itself that persons performing delegated functions have the expertise appropriate to the function delegated as part of its approval processes. It is proposed that functions delegated under the amended powers include high-volume, low-risk functions such as granting extensions of time to submit applications and requesting information on an application.
I do not consider that an amendment is necessary or would contribute to the effective administration of the program in light of ISA's existing and proposed processes that support delegations.

Committee comment

2.26 The committee thanks the Assistant Treasurer for this response and notes the advice that the Board, when exercising its current powers to delegate functions or powers to Senior Executive Service employees, satisfies itself that persons performing delegated functions or powers have appropriate expertise as part of its approval processes. The committee also notes the Assistant Treasurer's advice that he does not consider that an amendment is necessary or would contribute to the administration of the program in light of the board's existing and proposed delegation processes.

2.27 The committee reiterates its preference that delegations of administrative power be confined to the holders of nominated offices or members of the Senior Executive Service or, alternatively, that a limit is set on the scope and type of powers that may be delegated. While the committee notes the advice as to how the Board currently exercises its delegation powers in relation to Senior Executive Service employees, it reiterates that the proposed amendments would expand the scope of employees to whom powers and functions can be delegated to include members of staff at any level and that there is nothing on the face of the bill to require the Board to be satisfied such employees have expertise appropriate to the function or power delegated. It remains unclear to the committee why it would not be appropriate to amend the bill to require that the Board be satisfied that delegates have appropriate expertise, given the Assistant Treasurer's advice that the existing and proposed administrative processes of the Board are designed to ensure this is the case in any event.

2.28 The committee requests that the key information provided by the Assistant Treasurer be included in the explanatory memorandum, noting the importance of this document as a point of access to understanding the law and, if needed, as extrinsic material to assist with interpretation (see section 15AB of the Acts Interpretation Act 1901).

2.29 The committee considers it would be appropriate to amend the bill so as to require that the Innovation and Science Australia Board, or a committee appointed to advise the Board, be satisfied that persons performing delegated functions and exercising delegated powers have the expertise appropriate to the function or power delegated.

2.30 The committee otherwise draws its scrutiny concerns to the attention of senators and leaves to the Senate as a whole the appropriateness of permitting the Innovation and Science Australia Board to delegate its functions and powers to staff members at any level with no legislative requirement that they have expertise appropriate to the function or power delegated.

2.30

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[9] Schedule 1, item 17 and Schedule 2, item 56. The committee draws senators’ attention to these provisions pursuant to Senate Standing Order 24(1)(a)(i).

[10] Senate Scrutiny of Bills Committee, Scrutiny Digest 12 of 2018, at pp. 56-57.

[11] The Assistant Treasurer responded to the committee's comments in a letter dated 29 October 2018. A copy of the letter is available on the committee's website: see correspondence relating to Scrutiny Digest 13 of 2018 available at: www.aph.gov.au/senate_scrutiny_digest

[12] Schedule 3, items 18 and 19. The committee draws senators’ attention to these provisions pursuant to Senate Standing Order 24(1)(a)(ii).

[13] Senate Scrutiny of Bills Committee, Scrutiny Digest No. 12 of 2018, at pp.57-58.