Michael Keenan (Stirling, Liberal Party, Shadow Assistant Treasurer) Share this | Hansard source

I rise to speak on the International Tax Agreements Amendment Bill (No. 1) 2008. It is a relatively straightforward piece of legislation that has the full support of the opposition. The legislation gives effect in law to a new tax treaty with Japan. The new tax treaty, which updates an older treaty, was negotiated and the detail was concluded by the coalition government before the change of government in November last year.

Before I go into the substance of the bill, I just want to make a few comments about the importance of our relationship with Japan. I think it is important for members in this place to remember that Japan is one of our most important allies. It is, of course, our largest trading partner, although in many ways now you hear so much more about China. I am not trying to set up Japan in opposition to China or anything like that, because China remains terribly important for Australia’s future, but it should be noted that Japan is our largest trading partner. In Western Australia it was actually the Japanese demand for resources that resulted in the opening up of the Pilbara. Those great economic advances in Western Australia were something that Sir Charles Court pursued very readily in his time as a minister and Premier. He established excellent relationships with Japanese political figures and business figures that opened up the north-west of Western Australia. That Japanese influence is extremely important for the whole of the Australian economy.

Moves to improve our economic relationship, such as this bill which updates a tax treaty, are very important for Australia’s national interest and they have the full support of the opposition. This bill amends the International Tax Agreements Act 1953 to incorporate into Australian law the Convention between Australia and Japan for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income. This convention replaces the Agreement between the Commonwealth of Australia and Japan for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income that was signed in Canberra on 20 March 1969. This was obviously at a time when the Australia-Japan relationship, while strong, was not as strong as it is today and it makes sense that this treaty be updated to take into account changes in our respective laws. This new treaty was agreed in principle on 3 August 2007 between the then Treasurer, the Hon. Peter Costello, and the Japanese finance minister, Koji Omi—and I apologise if that is not a particularly good pronunciation. The convention is based on the OECD model tax convention and is generally consistent with other tax treaties that have been concluded by Australia, including treaties we have with the United States and other important trading partners.

The previous treaty no longer reflected the developments in the economic relationship between Australia and Japan, and those developments of course are numerous and vitally important to Australia’s interests. So in recognition of this the coalition government undertook a series of negotiations in 2007 to comprehensively revise the previous convention. The commencement of negotiations by the coalition government illustrates our commitment to encouraging foreign investment and encouraging opportunities for Australian businesses in overseas markets.

Australia and Japan share a mutual understanding. I have had the opportunity to visit Japan on a number of occasions in a personal capacity and an official capacity. We are both market based liberal democracies. Our countries have a very longstanding relationship. In Japan there is a very strong recognition of the importance of Australia to their economic wellbeing, which is obviously reflected in Australia.

Since 1969 when the original treaty was concluded, Japan has been Australia’s largest export market. I think that is very important. Japan remains Australia’s largest trading partner. Japan is also Australia’s third largest source of foreign investment, and that foreign investment has been crucial, as I outlined earlier, for the resources, tourism and manufacturing sectors. Japanese investment, as I said, was vital in opening up those northern parts of Western Australia.

I am optimistic that the agreement on this convention will encourage ongoing negotiations towards a free trade agreement with Japan. This has been something that has been on the agenda for many years. Negotiations, I think it is fair to say, have been patchy. I think initially there was probably more enthusiasm for this treaty in Australia than might have been met with by our Japanese counterparts, but I detect that the mood is rapidly changing. I think it is terribly important that we do conclude this free trade agreement once and for all with our largest trading partner.

The convention updates the previous convention by providing for reduced rates of withholding tax on dividends, interest and royalties; improved integrity measures; and new rules for real property which bring the capital gains tax treatment into line with that of the OECD. The convention has a number of key changes from the previous convention, such as: the inclusion of anti-treaty-shopping provisions in relation to withholding tax rates on dividends, interest and royalties; the inclusion of a limitation on the benefits clause to ensure treaty benefits pass only to qualified persons; rules to prevent tax discrimination; specific provisions for the taxation of business profits from natural resource activities, building sites and the operation of substantial equipment; specific provisions relating to the taxation of income derived through business trusts; provisions preventing double exemption of income derived by temporary residence; and provisions that will encourage the cross-border movement of people, capital and technology between Australia and Japan.

The convention also facilitates increased cooperation between the Australian and Japanese tax authorities to reduce fiscal evasion. The convention will encourage the growth of Australian and Japanese enterprises by making it easier to obtain intellectual property equity and finance. The convention will reduce complexity and compliance costs for Australian businesses and their Japanese counterparts. This convention will lead to real economic benefits for both our economies and will build on the strong relationship between Australia and Japan. I think this is a non-controversial bill, but it is a terribly important bill and it will enhance one of our most important relationships. I commend it very heartily to the House. I congratulate the previous Treasurer for concluding the detail of this particular treaty and I urge all members to support it.

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