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Australian Senate Standing Committee for the Scrutiny of Bills - Scrutiny Digests |
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Purpose
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The bill seeks to set out a framework for the entities that are liable to
pay top-up tax in a way that seeks to achieve outcomes consistent
with the GloBE
Rules.[118] 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.
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Portfolio
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Treasury
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Introduced
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House of Representatives on 4 July 2024
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Bill status
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Before the Senate
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2.115 The bill sets out a framework for certain multinational enterprises operating in Australia to pay a minimum top-up tax rate consistent with the Organisation for Economic Co-operation and Development (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.[120]
2.116 The bill then provides that the amount of tax payable by the entity is the sum of the relevant amounts.[121] What those amounts mean would be set out in the rules,[122] effectively meaning that the rate of taxation would be set by delegated legislation.
2.117 In Scrutiny Digest 9 of 2024 the committee requested the assistant minister’s advice as to the necessity and appropriateness of the meanings of the IIR, Domestic, and UTPR Top-Up Tax being left to delegated legislation and whether guidance could be provided in the explanatory materials as to the anticipated starting rate for each tax amount as well as how the amounts would be calculated.[123]
2.118 The assistant minister advised that the definitions of the three taxes should be set out in delegated legislation to allow for efficiency in incorporating changes at the OECD level. The assistant minister advised that it has been agreed that all multinational enterprise groups operating within the scope of the GLoBE Rules should be paying a minimum 15 per cent effective tax rate in all jurisdictions in which they operate.
2.119 The assistant minister advised that computations for an effective tax rate are best placed in delegated legislation as they rely on accounting information which may be subject to change at the OECD level.
2.120 In relation to whether guidance could be provided as to the anticipated starting rate of tax, the assistant minister stated that the minimum rate of taxation is well established in the official Pillar-Two documents and throughout the explanatory materials, and additional guidance in the explanatory memorandum on these matters is not required.
2.121 The committee thanks the assistant minister for this response. The committee acknowledges the assistant minister’s advice that it is necessary for the rates of tax to be defined in delegated legislation to allow for changes reflecting changes made at the OECD levels.
2.122 However, the committee remains of the view that the bill is essentially providing that the executive government may set the rates of tax in legislative instruments with minimal parliamentary involvement.
2.123 While the committee understands that the rates of top up tax need to remain consistent with international GloBE Rules, the committee has longstanding concerns about the inclusion of rates of tax in delegated legislation as a matter of principle.
2.124 The committee draws its scrutiny concerns to the attention of senators and leaves to the Senate as a whole the appropriateness of leaving the rates of IIR, UTPR and Domestic top-up tax to delegated legislation.
2.125 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.
2.126 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 provides limited information as to the types of additional documents it is intended the rules may incorporate and does not clarify whether they will be freely accessible to the public and affected parties.
2.127 In Scrutiny Digest 9 of 2024 the committee requested the assistant minister’s advice on the following matters:
• 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.[126]
2.128 The assistant minister advised that the documents referred to are publicly available on the OECD website, and that this information was set out in the explanatory memorandum.
2.129 Further, the assistant minister confirmed that where delegated legislation incorporates these materials the explanatory statements will provide for manner of access.
2.130 In response to the committee’s query on the incorporation of documents under paragraph 31(1)(a), the assistant minister advised that section 31 is intended to ensure that additional documents released by the OECD, which are not organised under the heading of Agreed Administrative Guidance, can be incorporated. Any documents related to Pillar Two which will be incorporated will be freely and publicly available.
2.131 The assistant minister concluded that it is necessary and appropriate for these documents to apply both at the time they are made and from time to time to satisfy the objective of ensuring that Australia’s qualification status is not jeopardised. The assistant minster gave the example of where a new GloBE Information Return document is released by the OECD but an appropriate instrument had not yet been made. Finally, the assistant minister advised that it is necessary for the documents to be incorporated as in force from time to time to ensure that Australia is up to date with any changes.
2.132 The committee thanks the assistant minister for this response. The committee notes the assistant minister’s advice that the explanatory memorandum to the bill confirms that OECD Agreed Administrative Guidance and related official documents of the Two-Pillar solution will be freely and publicly available on the OECD website. The committee also welcomes the assistant minister’s advice that any explanatory materials related to any delegated legislation will explain the manner of access to any official Pillar Two documents. Further, the committee welcomes the assistant minister’s advice that any further documents to be incorporated under paragraph 31(1)(a) are intended to be freely and publicly available.
2.133 The committee thanks the assistant minister for this advice. Noting the advice that incorporated documents will be publicly and freely available, the committee considers its concerns have been addressed and makes no further comment in relation to this matter.
2.134 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.[129]
2.135 In Scrutiny Digest 9 of 2024 the committee requested the assistant minister’s advice as to the necessity and appropriateness of clause 30 allowing the delegation of all functions or powers under the bill, which persons, classes or entities are intended to be delegated these powers, as well as requirements of relevant skills, training or experience to exercise said powers or functions, and finally whether the bill may be amended to provide legislative guidance for the scope of powers delegated or the categories of people who would be appropriate for delegation.[130]
2.136 The assistant minister advised that only SES employees within the Australian Taxation Office (ATO) or Department of Treasury can be delegated powers or functions under the bill.
2.137 Within the ATO, specifically, the assistant minister noted that delegations to SES employees must be consistent with the general delegation provision in section 8 of the Taxation Administration Act 1953, which provides that the Commissioner may delegate powers or functions under a taxation law.
2.138 Finally, the assistant minister noted that it would be inappropriate to provide further guidance as to the types of functions or powers that may be delegated due to the ‘novelty’ of this context and to prevent inconsistency with the model rules.
2.139 The committee thanks the assistant minister for this response. However, the committee considers that the response does not address the concerns raised.
2.140 As drafted, proposed section 30 provides that the rules may confer functions or powers relating to the operation, application or administration of the rules on a person or body, in addition to the power to make legislative instruments. As the committee noted in Scrutiny Digest 9 of 2024, the clause provides that the power to make legislative or notifiable instruments cannot be delegated to any person below an SES level.[132] The committee is not concerned with this aspect of the delegation.
2.141 The committee’s concerns, as set out in Scrutiny Digest 9 of 2024, centre on the other functions and powers that the rules may confer on a body or person, beyond those to make delegated legislation.[133] Paragraph 2.78 of the explanatory memorandum, to which the assistant minister referred in their response, only addresses the delegation of powers to make instruments. In the committee’s assessment there is no information available in either the explanatory memorandum or the assistant minister’s response which addresses the powers and functions more generally which may be delegated to any person or body under the rules.
2.142 The committee therefore reiterates its preference 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.
2.143 The committee draws its scrutiny concerns to the attention of senators and leaves to the Senate as a whole the appropriateness of proposed clause 30 of the bill that provides that the rules may allow a person or body to delegate a power or function relating to the operation, application or administration of the rules, with no apparent limits on the delegation (other than delegations relating to instruments).
[117] 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 11 of 2024; [2024] AUSStaCSBSD 185.
[119] Clauses 7, 9 and 11. The committee draws senators’ attention to this provision pursuant to Senate standing order 24(1)(a)(iv).
[120] Subclauses 6(1), 8(1) and 10(1).
[121] Subclauses 6(2), 8(2) and 10(2).
[122] Clauses 7, 9 and 11.
[123] Senate Standing Committee for the Scrutiny of Bills, Scrutiny Digest 9 of 2024 (14 August 2024) pp. 21–22.
[124] The minister responded to the committee’s comments in a letter dated 3 September 2024. A copy of the letter is available on the committee’s webpage (see correspondence relating to Scrutiny Digest 11 of 2024).
[125] Clause 3. The committee draws senators’ attention to this provision pursuant to Senate standing order 24(1)(a)(v).
[126] Senate Standing Committee for the Scrutiny of Bills, Scrutiny Digest 9 of 2024 (14 August 2024) pp. 22–24.
[127] The minister responded to the committee’s comments in a letter dated 3 September 2024. A copy of the letter is available on the committee’s webpage (see correspondence relating to Scrutiny Digest 11 of 2024).
[128] Clause 30. The committee draws senators’ attention to this provision pursuant to Senate standing order 24(1)(a)(ii).
[129] See subclause 30(3).
[130] Senate Standing Committee for the Scrutiny of Bills, Scrutiny Digest 9 of 2024 (14 August 2024) pp. 24–25.
[131] The minister responded to the committee’s comments in a letter dated 3 September 2024. A copy of the letter is available on the committee’s webpage (see correspondence relating to Scrutiny Digest 11 of 2024).
[132] Senate Standing Committee for the Scrutiny of Bills, Scrutiny Digest 9 of 2024 (14 August 2024) pp. 21–22.
[133] Senate Standing Committee for the Scrutiny of Bills, Scrutiny Digest 9 of 2024 (14 August 2024) pp. 21–22.
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URL: http://www.austlii.edu.au/au/other/AUSStaCSBSD/2024/185.html