Julie Owens (Parramatta, Australian Labor Party) Share this | Hansard source

As I rise to speak on the International Tax Agreements Amendment Bill (No. 1) 2008, I would like to draw the House’s attention to the fact that the three government members listed to speak on this bill are all from Western Sydney. That is quite easy to explain: with a population of nearly two million people, Western Sydney is the third largest economy in Australia. With our population growing faster than the rest of the country, there is perhaps no more serious issue than increasing the economic strength of our communities. We will do that not only by how well we engage the skills, imagination and hard work of our own people, but also by how well we engage with the world. We are lucky in Western Sydney in that, in many ways, we have the world within us. The people who have migrated here have brought to this country their languages, knowledge and business experience and they are comfortable dealing with various parts of the world. We already have the world very much within us in Western Sydney. But our relationship with Japan, which has been strong and enduring over many decades, is one of the most important to us.

I have worked on this bill and read sections of it over the last week. As I have said several times when I have spoken on tax law, it is all a bit dry. In fact, it is very dry. I come from a music background, so I am looking forward to seeing a bill which I understand and which other people have to read three times! There are paragraphs in this bill where, quite frankly, I fell asleep before I got to the end of them. But what underpins it, the purpose of the bill, what it is actually about, is really quite fascinating and has grabbed my imagination as I have worked on it over the last week. The bill underpins an incredibly important relationship. What it deals with is how people make decisions to commit more to Australia, to commit more to the relationship with Japan, to invest, to trade and to essentially commit over the long term to building a stronger relationship. It looks at what barriers there might be, it looks at the complexities, it looks at the burdens of complying with two complex tax codes. It also looks at the needs of the people of both countries in supporting those relationships. It looks at whether the people with businesses who live and work in both countries are getting a fair deal out of the taxation arrangements. So underpinning all of this very dry legislation is an incredibly important process that Australia and Japan will go through in order to strengthen our relationship into the future.

The bill seeks to give force of law to a renegotiated tax treaty. The renegotiations began under the Howard government in 2007 and the new treaty was signed on 31 January 2008. It will replace what will soon become the old tax treaty, which was signed in March 1969 and came into effect on 1 July 1970. That is 38 years ago. During the 38 years of that treaty, the way that businesses think and work, the range of businesses in both countries and the way that business moves between the two countries with technology have changed quite considerably. So it is well and truly overdue that this incredibly important treaty, which underpins the growth of our relationship, be reviewed.

The new treaty will come into force 30 days after both countries have completed their domestic requirements. Japan have already met theirs. This bill is part of the process of Australia meeting our commitment. It inserts the text of the new treaty, which was signed in January this year, into the International Tax Agreements Act 1953 effectively replacing the old treaty of 1969. I hope I am speaking about this in English—I am actually trying very hard to keep this in understandable language. In order to allow the Australia-Japan tax treaty to come into effect, for the purposes of withholding tax from 1 January 2009 the bill needs to pass both houses of parliament and receive royal assent prior to 30 November 2008, so there are some time constraints on the House.

If you are a business or an individual straddling both countries, this is incredibly important and interesting legislation. It is important for businesses operating, or planning to operate, in both countries and trying to deal with the complexities of two tax systems and for the citizens of both countries to ensure that appropriate taxes are paid. The treaty is essentially about removing or reducing tax barriers to cross-border movement of people, capital or technology; tax barriers do apply to all three. It does this by relieving double taxation, preventing tax discrimination and providing certainty with respect to the tax treatment of cross-border income flows, thereby reducing the compliance burdens and excessive taxation on taxpayers and allowing businesses to get on with what it is that they actually do.

The new tax treaty will improve the integrity of the tax system—and, again, it is required after 38 years of change—and will promote cross-border trade and investment with one of our most important trading partners, Japan. You cannot underestimate just how important that relationship is and how important it has been over the last 40 years, not only because of the size of the money flow—and Japan is still our largest trading partner—but also because of its longevity and strength and the quality of the relationship between our two nations. The relationship is not one of a quick buck and it is not one of quick import and export; there are very real longstanding relationships and investments in capital in both countries that hold our relationships in very good stead.

Japan is Australia’s largest export market and it has played a central role in Australia’s postwar economic development. At the moment, China is likely to overtake Japan’s position as the primary export market, but the complementary nature of the Australia-Japan relationship, its longevity and the strength of our personal and business relationships will ensure that that relationship remains vital to both economies long into the future. In 2007 Japan was the world’s second largest economy, measured in US dollars, and the third largest economy, measured in purchasing power parity. Economic growth is expected to continue at the rate of 1.5 to two per cent over the next two years. Japan’s economy is driven by strong business investment and export growth, with strong regional demand providing considerable input.

Japan—this powerhouse to our north—became Australia’s primary export market in 1969, the same year that the old treaty was negotiated, and it continues in the No. 1 position today. In 2007 the two-way trade between our two countries was valued at $54.5 billion, accounting for a 0.9 per cent decrease on 2006. Trade between the two countries is largely stable as a result of the domination in our relationship by multinationals in the resources sector using very long-term supply contracts. Japan is Australia’s third largest source of investment—which, in 2006, was valued at $51 billion. Japanese investment has played a central role in Australia’s postwar economic development, particularly in the resources, manufacturing, auto and tourism sectors.

The Australian-Japan economic relationship is significant due to its historical and contemporary importance, and the two economies enjoy a highly complementary trade relationship and relative geographic proximity. It is a very strong foundation on which to build. Again, this bill ensures that people—and they are people and businesses that build this relationship—are working under the best circumstances in which to do that.

Stakeholders’ submissions which have been received are overwhelmingly supportive of this new treaty, particularly in relation to the 10 per cent withholding tax rate for dividends and the interest withholding tax exemptions. Submissions to the government’s tax treaty review largely suggested that the approach taken in the Japanese tax treaty be applied to future Australian tax treaties.

The Convention between Australia and Japan for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income does a number of specific things. Probably the most significant of these are summarised by the Joint Standing Committee on Treaties in report 91, which was tabled on 12 March 2008. It summarises the key differences between the 1969 Japanese tax treaty and the 2008 Japanese convention. I will just read into the record two of those paragraphs:

4.4 The Committee was advised that the proposed treaty is generally consistent with recent tax treaties concluded by Australia and includes a number of changes from the existing treaty. The key differences are reduced rates of withholding taxes (WHT) on dividends, interest and royalties, and improved integrity measures, particularly relating to rules for the exchange of information on tax matters. The treaty also introduces rules for real property which align the Capital Gains Tax treatment closely with that of the Organisation for Economic Cooperation and Development (OECD).

4.5 Treasury advised that it sought greater clarity in the revised agreement. The organisations that would be subject to exemptions for interests to withholding taxes have been expanded to include the Australian Export Finance and Insurance Corporation, the public authority that manages the investments of Australia’s Future Fund, the Japan Bank for International Cooperation, and Nippon Export and Investment Insurance.

The other key changes which were summarised in that report included the inclusion of anti-treaty-shopping provisions in relation to withholding tax rates on dividends, the inclusion of the comprehensive limitation on the benefits clause to ensure treaty benefits passed only to qualified persons and rules to prevent tax discrimination.

It is quite a complex bill. There are many people in the departments in both countries that have done substantial and really good quality work in a very complex area to put this treaty together. It has been incredibly well supported by stakeholders in the industry and it will, without any doubt, place this extremely important relationship between Australia and Japan in good stead to grow into the future. I commend the bill to the House.

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