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

in reply—I thank the members for Stirling, Blaxland, Parramatta and Lindsay for their very worthwhile contributions to this debate on the International Tax Agreements Amendment Bill (No. 1) 2008. Responding to the needs of both Australian and Japanese business, the new Australia-Japan income tax convention comprehensively updates the existing tax treaty arrangements with Japan, which were last updated in 1969. The existing agreement no longer fully reflects the modern tax treaty policies of either country. The new convention, which will modernise and enhance the bilateral tax arrangements between Australia and Japan, was signed in Tokyo on 31 January this year. The bill will give force to the law of the new tax treaty with Japan by inserting the text of the new convention into the International Tax Agreements Act 1953 and repealing the existing treaty.

Tax treaties do facilitate trade and investment by minimising tax barriers between treaty partner countries. The importance of tax treaties is magnified where the relationship is as strong as that between Australia and Japan. So this is one of the more significant tax treaties that the parliament has considered in recent times. The new convention underlines the strength of the modern and sophisticated bilateral ties between the two countries and reduces obstacles to inhibit further corporate expansion into Japan.

Japan is Australia’s third largest investor. Direct investment by Japan continues to play a key role in the development of many Australian industries, including export industries such as car manufacturing and the natural resource development activities that have driven Australia’s export performance. Australia is now one of the largest recipients of offshore investment by Japanese mutual funds. From Australia’s perspective, Japan is the fourth largest destination of Australia’s investment abroad and it has been Australia’s largest export market for more than 40 years.

The new convention streamlines taxation arrangements between the two countries to the benefit of both economies. The key outcomes from the convention include: lower withholding tax rates on dividend and royalty payments for businesses looking to expand offshore and obtain access to valuable intellectual property, which the member for Lindsay referred to in some detail; specified interest withholding tax exemptions that will facilitate more competitive and accessible cross-border debt arrangements; and broadly aligning capital gains tax treatment with international practice and with Australia’s domestic law. The treaty also ensures Australia’s revenue base is appropriately protected by preserving taxation rights over income from real property and income arising from activities relating to Australia’s natural resources and by enhancing information exchange provisions which allow the tax administrations of both countries to share information—something particularly important in these times of heightened efforts to crack down on tax havens.

Public submissions received as part of the review of Australia’s taxation treaty—again this was referred to by my friend the member for Lindsay—and policy announced by the government earlier this year strongly supported the outcomes of this convention. Modernising, updating and reducing our withholding tax rates have of course been key economic priorities of this government. The new convention will enter into force 30 days after both countries advise that they have completed their domestic requirements, which in this case includes this process of passing the bill. The treaty has been considered by the Joint Standing Committee on Treaties—of which the member for Shortland is a senior member—which has recommended that binding treaty action be taken. I commend the bill to the House.

Question agreed to.

Bill read a second time.

Ordered that the bill be reported to the House without amendment.

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