Taxation (Multinational"" global and Domestic Minimum Tax) Bill 2024 - Initial Scrutiny [2024] AUSStaCSBSD 147 (14 August 2024)

• Taxation (Multinational—Global and Domestic Minimum Tax) Bill 202450
• Significant matters in delegated legislation52
• Incorporation of external materials as existing from time to time57
• Broad delegation of administrative powers59

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Taxation (Multinational—Global and Domestic Minimum Tax) Bill 2024^[50]

Purpose	The bill sets out a framework for the entities that are liable to top-up tax in a way that seeks to achieve outcomes consistent with the GloBE Rules.[51] This includes establishing the entities that are within scope of the GloBE Rules, relevant definitions that are used to support the framework and the description of taxes that may be charged to an entity.
Portfolio	Treasury
Introduced	House of Representatives on 4 July 2024
Bill status	Before the House of Representatives

Significant matters in delegated legislation^[52]

1.62 The bill sets out a framework for certain multinational enterprises operating in Australia to pay a minimum top-up tax rate consistent with OECD GloBE Model Rules. The bill provides that tax is payable by an entity if it has one of more of the following type of amounts for a fiscal year:

• IIR Top-up Tax Amount;

• Domestic Top-up Tax Amount; and

• UTPR Top-up Tax Amount.^[53]

1.63 The bill then provides that the amount of tax payable by the entity is the sum of the relevant amounts.^[54] What those amounts mean would be set out in the rules,^[55] effectively meaning that the rate of taxation would be set by delegated legislation.

1.64 The committee's consistent view is that significant matters should be included in primary legislation unless a sound justification for the use of delegated legislation is offered. These include prescribing the amount or meaning of a tax, as one of the most fundamental functions of the Parliament is to levy taxation. The committee's longstanding view is that it is for the Parliament, rather than makers of delegated legislation, to set a rate of tax. Therefore, the committee considers that guidance in relation to the level of a tax should be included on the face of the primary legislation to enable greater parliamentary scrutiny, or further information as to how the tax rate will be calculated to be set out in the explanatory memorandum.

1.65 In relation to the inclusion of these significant matters in delegated legislation the explanatory memorandum states:

To ensure Australia’s framework is sufficiently flexible, the meaning of top-up tax amount for each of these top-up taxes is delegated to the Rules. This flexibility is necessary to ensure that Australia is best placed to accommodate internationally agreed developments in a timely and efficient manner, while still retaining sufficient parliamentary oversight of our domestic law.^[56]

1.66 In this instance the committee notes the justification provided in the explanatory memorandum that setting the rate of these taxes in delegated legislation will provide flexibility to ensure that international agreements are recognised. However, the committee generally does not accept a desire for flexibility alone as sufficient justification for the inclusion of significant matters such as the rate of tax in delegated legislation. The committee is particularly concerned when there is no cap on the amount of taxation that may be provided for by delegated legislation.

1.67 The committee therefore requests the Treasurer’s advice as to:

• why it is necessary and appropriate for the meaning of IIR Top-up Tax, Domestic Top-up Tax and UTPR Top-up Tax, and therefore effectively the rate of taxation, is to be left to delegated legislation; and

• whether any guidance can be provided in the explanatory materials as to what the anticipated starting rate of each of these three tax amounts would be, or, how it is anticipated the amounts would be calculated.

Incorporation of external materials as existing from time to time^[57]

1.68 Subclause 3(1) of the bill provides that the bill is to be interpreted in a manner consistent with the GloBE Rules, the Commentary, Agreed Administrative Guidance, and the Safe Harbours and Penalty Relief: Global Anti-Base Erosion Rules (Pillar Two) published by the OECD on 20 December 2022, and a document or part thereof prescribed by the rules. Subclause 3(4) provides definitions for the Agreed Administrative Guidance, the Commentary and the GloBE Rules.

1.69 The explanatory memorandum provides:

This interpretation is necessary because the effectiveness of the GloBE Rules depends on a coordinated global common approach. This means that OECD Inclusive Framework members are not required to adopt the GloBE rules. But, if they choose to do so, then they:

• must implement and administer the rules in a way that is consistent with the Model Rules and Guidance agreed to by the OECD Inclusive Framework; and

• must accept the application of the GloBE Rules applied by other OECD Inclusive Framework members including agreement as to rule order and the application of any agreed safe harbours.

Such alignment and consistency is being enforced through an OECD Inclusive Framework Peer-Review Process.^[58]

1.70 The explanatory memorandum provides no explanation as to whether these incorporated documents may be freely accessible.

1.71 In addition, paragraph 31(1)(a) provides that the rules may apply, adopt or incorporate any matter contained in any other instrument or writing as in force from time to time. In relation to this the explanatory memorandum merely restates the operation of the provision without providing further information as to the types of additional documents it is intended the rules may incorporate and whether they will be freely accessible to the public and affected parties.

1.72 At a general level, the committee will have scrutiny concerns where provisions in a bill allow the incorporation of legislative provisions by reference to other documents because such an approach:

• raises the prospect of changes being made to the law in the absence of parliamentary scrutiny, (for example, where an external document is incorporated as in force 'from time to time' this would mean that any future changes to that document would operate to change the law without any involvement from Parliament);

• can create uncertainty in the law; and

• means that those obliged to obey the law may have inadequate access to its terms (in particular, the committee will be concerned where relevant information, including standards, accounting principles or industry databases, is not publicly available or is available only if a fee is paid).

1.73 As a matter of general principle, any member of the public should be able to freely and readily access the terms of the law. Therefore, the committee's consistent scrutiny view is that where material is incorporated by reference into the law it should be freely and readily available to all those who may be interested in the law.

1.74 Noting the above comments, the committee requests the Treasurer’s advice as to:

• whether the GloBE Rules, the Commentary, Agreed Administrative Guidance, Safe Harbours and Penalty Relief: Global Anti-Base Erosion Rules (Pillar Two) published by the OECD on 20 December 2022 are freely and publicly available; and

• whether the accompanying explanatory statement to any relevant rules will provide for the manner of access and use of the GloBE Rules, the Commentary, Agreed Administrative Guidance, Safe Harbours and Penalty Relief: Global Anti-Base Erosion Rules (Pillar Two) published by the OECD on 20 December 2022; and

• the type of documents that it is envisaged may be applied, adopted or incorporated by reference under paragraph 31(1)(a), whether these documents will be made freely available to all persons interested in the law and why it is necessary to apply the documents as in force or existing from time to time in addition to as in existence when an instrument is first made.

Broad delegation of administrative powers^[59]

1.75 The bill provides that the rules may confer on a person or body a power or function of determining any matter that may be dealt with by the rules, or a power or function relating to the operation, application or administration of the rules. Paragraph 30(2)(b) empowers the person or body to delegate the power or function, subject to a list of limitations to confine powers to make delegated legislation to vest in persons such as the relevant minister, departmental secretary, the Commissioner of Taxation and SES level departmental employees.^[60]

1.76 The explanatory memorandum states in relation to this:

The Rules may confer a power or function relating to the operation, application, or administration of the Rules, which may be exercised via a legislative instrument or notifiable instrument. However, only the Minister may make a legislative instrument in the Rules, which cannot be delegated. Similarly, only the Minister, Secretary or Commissioner may make a notifiable instrument, which can only be delegated to an SES employee within the Department or the ATO. This delegation is appropriate as the SES will have the relevant experience and expertise in making a notifiable instrument, should the need arise.^[61]

1.77 While noting this advice it appears to the committee that the delegation provided for in paragraph 30(2)(b) broadly empowers any non-legislation making functions under the bill to be delegated to any person without limitation. The committee notes that, with the exception of the safeguard relating to the making of delegated legislation, there are no apparent limitations or guidance as to who may be delegated any of the functions or powers available under the bill, and the explanatory memorandum does not provide any further guidance or clarification on this matter.

1.78 The committee has consistently drawn attention to legislation that allows the delegation of administrative powers to a relatively large class of persons, with little or no specificity as to their qualifications or attributes. Generally, the committee prefers to see a limit set either on the scope of powers that might be delegated, or on the categories of people to whom those powers might be delegated. The committee's preference is that delegates be confined to the holders of nominated offices or to members of the Senior Executive Service. Where broad delegations are provided for, the committee considers that an explanation as to why these are considered necessary should be included in the explanatory memorandum.

1.79 The committee requests the Treasurer’s advice as to:

• why it is considered necessary and appropriate for clause 30 to allow for the delegation of all functions or powers under the bill (other than the power to make delegated legislation); and

• which persons, classes or persons or entities it is intended that the delegation power under clause 30 will be exercised in relation to, including whether such persons or entities will be required to possess any relevant skills, training or experience to exercise these powers or functions; and

• and whether the bill can be amended to provide some legislative guidance as to the scope of powers that might be delegated, or the categories of people to whom those powers might be delegated.

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^[50] This entry can be cited as: Senate Standing Committee for the Scrutiny of Bills, Taxation (Multinational—Global and Domestic Minimum Tax) Bill 2024, Scrutiny Digest 9 of 2024; [2024] AUSStaCSBSD 147.

^[51] This term is defined in the explanatory memorandum as the OECD GloBE Model Rules (as modified by the Commentary, Agreed Administrative Guidance and Safe Harbour Rules).

^[52] Clauses 7, 9 and 11. The committee draws senators’ attention to these provisions pursuant to Senate standing order 24(1)(a)(iv).

^[53] Subclauses 6(1), 8(1) and 10(1).

^[54] Subclauses 6(2), 8(2) and 10(2).

^[55] Clauses 7, 9 and 11.

^[56] Explanatory memorandum, p. 15.

^[57] Clause 3. The committee draws senators’ attention to this provision pursuant to Senate standing order 24(1)(a)(v).

^[58] Explanatory memorandum, pp. 31-32.

^[59] Clause 30. The committee draws senators’ attention to this provision pursuant to Senate standing order 24(1)(a)(ii).

^[60] See subclause 30(3).

^[61] Explanatory memorandum, p. 33.