Chris Bowen (Prospect, Australian Labor Party, Shadow Assistant Treasurer) Share this | Hansard source

The Labor Party will be supporting the International Tax Agreements Amendment Bill (No. 1) 2007. This bill amends the International Tax Agreements Act 1953 by inserting the text of the Convention between the Government of Australia and the Government of the French Republic for the Avoidance of Double Taxation with Respect to Taxes on Income and the Prevention of Fiscal Evasion and the text of the Convention between Australia and the Kingdom of Norway for the Avoidance of Double Taxation with Respect to Taxes on Income and the Prevention of Fiscal Evasion to give them the force of law. Inserting the text of the treaties into the International Tax Agreements Act 1953 is a prerequisite for the treaties’ entry into force. These treaties were signed in June 2006 and August 2006 respectively.

Chapter 1 of the bill amends the International Tax Agreements Act 1953 to give force of law in Australia to the France convention. The France convention updates the existing tax treaty signed in 1976 to align tax agreements with modern business practices, the respective tax systems and modern tax treaty practice. The new treaty extends the coverage of the France convention to Australian tax on capital gains and updates the list of taxes to which the new treaty arrangements apply. In the case of Australia, these taxes are the income tax, including that imposed on capital gains, the resource rent tax, to put beyond doubt that this is included as income tax, and any identical or substantially similar taxes imposed under the federal law of Australia—and that exists in the current convention. The resource rent tax and the CGT are not covered by the current treaty.

The new treaty also updates the meaning of ‘permanent establishment’. Under the new convention an enterprise is deemed to have a permanent establishment if it is a building site which lasts more than 12 months or connected supervisory activities which last more than six months, or maintains substantial equipment for rental or other purposes for more than six months. The new treaty also broadens the meaning of real property to include exploration and mining rights over natural resources. Most agreements now include rights to exploit or explore natural resources.

The treaty aligns the treatment of income from independent personal services to the OECD standard and clarifies the application of this article to business trusts. The treaty reduces the rate of dividend withholding tax to zero for individuals paid to a company that is resident in the other country where that company holds more than 10 per cent of the company paying the dividends and the dividend paid has borne the full rate of company tax. Five per cent of other cross-border intracorporate dividends and other dividends may be taxed at 15 per cent. Currently the rate of dividend withholding tax is 15 per cent.

The treaty also reduces the rate of interest withholding tax from 10 per cent to zero where certain interest is derived from investment of official reserve assets—that is, interest flows to the government, its monetary institutions or central banks, or by a financial institution.

The treaty also reduces the rate of royalty withholding tax from a maximum of 10 per cent to five per cent of the gross royalty payment, updates the definition of ‘royalties’ and excludes payments for the use of equipment.

On the greater cooperation between tax authorities on the tax avoidance front, the treaty aligns article 25, ‘Exchange of information’, to the 2005 OECD standard. The effect of the changes is to expand the range of taxes to which the article applies and to clarify that bank secrecy laws do not limit the exchange of information.

The treaty also includes a new article 26, ‘Assistance in recovery’, which authorises and requires Australia and France to provide assistance to each other in the collection of cross-border tax debts.

Chapter 2 of the bill gives force of law to the Norway convention. The Norway convention extends the coverage of the Norway Convention to Australian tax on capital gains and updates the list of taxes to which the new treaty arrangements apply. In the case of Australia, these taxes are the income tax, the resource rent tax and any identical or substantially similar taxes imposed under the federal law of Australia. It also reduces the rate of dividend withholding tax to zero in the source country for dividends where the recipient company holds more than 80 per cent of the voting power of the company paying the dividend, subject to certain conditions; and five per cent for other cross-border intercorporate dividends. Currently, the rate of dividend withholding tax is 15 per cent. This still applies to other dividends not covered by the above arrangements.

It also reduces the rate of interest withholding tax from 10 per cent to zero where interest is derived by a financial institution or the government, its monetary institutions or central bank. Currently, the rate of royalty withholding tax is limited to 10 per cent of the gross payment.

It also reduces the rate of royalty withholding tax to five per cent of the gross royalty payment and extends the meaning of ‘royalty’ to include spectrum licences. Leasing of industrial, commercial or scientific equipment will no longer constitute a royalty.

The treaty also updates the meaning of ‘permanent establishment’ as in the other treaty and broadens the meaning of ‘real property’ to include exploration for natural resources.

The treaty aligns the treatment of income from the independent personal services to the OECD standard under article 7, ‘Business profits’. It also clarifies the application of this article to business trusts and includes a comprehensive ‘Alienation of property’ article, which allocates taxing rights over capital gains.

It provides that pensions, other than government service pensions, will be taxable only in the state of residence of the recipient. Government service pensions, including any national insurance element of such a pension, will be taxable only in the state which created the fund out of which the pension is paid and to which the services were rendered, unless the recipient is a resident and national of the other state. Currently, all pensions are taxable only in the country of residence of the recipient.

It also provides for a sharing of the taxing right in respect of salary, wages and similar remuneration from employment covered by the offshore activities article.

It also closely aligns article 26, ‘Exchange of information’ to the 2005 OECD standard. The effect of the changes is to expand the range of taxes to which the article applies and to clarify that bank secrecy laws do not limit the exchange of information. It includes a new article 27, ‘Assistance in collection of taxes’, which authorises and requires Australia and Norway to provide assistance to each other in the collection of cross-border tax debts.

These two treaties are very similar. This is a standard bill which inserts the treaties into the International Tax Agreements Act and, accordingly, the Labor Party is happy to support it without amendment.

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