Tom Iggulden reported this story on Saturday, July 18, 2015 08:15:00

ELIZABETH JACKSON: The pharmaceutical industry has launched a rear-guard action to stop a clampdown on tax avoidance.



Earlier this month, nine local bosses of pharmaceutical companies appeared before a Senate committee hearing evidence on tax avoidance.



Now the industry has shot back with a "supplementary submission" to the committee, arguing that tax changes could damage investment decisions made by parent companies.



Our political reporter Tom Iggulden has this report:



TOM IGGULDEN: The Australian boss of drug giant Pfizer, David Gallagher, came in for the hardest questions at the Senate inquiry earlier this month.



The local operation buys its supplies from its office in the European tax haven of Luxembourg, minimising its Australian tax bill.



Labor Senator Sam Dastyari asked Mr Gallagher what prices his operation paid.



SAM DASTYARI: You have no idea what every other Pfizer company around the world is paying for that same drug?



DAVID GALLAGHER: Correct, Senator, I don't.



SAM DASTYARI: So how do you know you're getting a good deal?



TOM IGGULDEN: When pushed by independent Senator Nick Xenophon, Mr Gallagher sounded defensive.



NICK XENOPHON: Is there a common rate for the product that you pay? Or does it vary country to country?



DAVID GALLAGHER: It's not within my scope, Senator. I don't know that answer.



NICK XENOPHON: Sorry, but that's kind of important, isn't it?



DAVID GALLAGHER: So we follow the appropriate policies and procedures, Senator.



TIM JAMES: Well, look, the dynamics are these: these are global companies operating in a global market.



TOM IGGULDEN: That's Tim James, CEO of Medicines Australia, the drug industry's lobby group. It's just filed a "supplementary submission" to the inquiry.



TIM JAMES: I think this supplementary submission will be seen in the constructive and helpful manner with which it's intended.



TOM IGGULDEN: The submission warns clamping down on tax avoidance could have dire consequences.



TIM JAMES: Any move to unilaterally and adversely change tax practices in this market, given the very global nature of the marketplace, the companies and the products: it of course could have a detrimental effect on the level of investment and activity in Australia.



TOM IGGULDEN: But Senator Xenophon is seeing it in a different light.



NICK XENOPHON: A not so veiled threat is probably not helpful to this overall debate about: how do we get a fairer tax system? How do you deal with companies that can shift revenue and profits overseas in a way that an Australian-based, home-grown company simply can't?



TOM IGGULDEN: Tim James says he's not trying to be confrontational.



TIM JAMES: (Laughs) No, certainly. No, there is no threat. This is a very considered, constructive and collaborative further submission.



TOM IGGULDEN: There's been no suggestion any of the drug companies are breaking the rules by minimising their tax.



But offence does seem to have been taken at suggestions during the hearing that transfer pricing is immoral.



The submission boasts the industry has set the "gold standard" for corporate ethics.



NICK XENOPHON: If a company makes a lot in its corporate statements in its social responsibility charter, about being a good corporate citizen, about making a positive contribution to the community where they operate, then that does bring into question issues of morality and that does come into play. So I don't think those sorts of questions were unreasonable.



TIM JAMES: We would submit respectfully that what goes in on this market is indeed consistent, as far as transfer pricing is concerned, in other, similar developed economies.



TOM IGGULDEN: The pharmaceutical industry hasn't been the only one embarrassed over its tax arrangements at the inquiry.



Tech giants and miners have also been hauled before senators, with still more headlines following.



The drug industry submission warns of eroding community confidence in the tax system through "misunderstandings" being played out in the media.



NICK XENOPHON: It does seem to be a pretty passive-aggressive response.



I think that, unambiguously, this inquiry has been good for public policy in this country. In no small measure, this inquiry has been a trigger for the Government to expand the anti-avoidance provisions; has lead to the Tax Office taking a more active stance on these issues.



ELIZABETH JACKSON: That's independent Senator Nick Xenophon ending that report from Tom Iggulden.