Darren Cheeseman (Corangamite, Australian Labor Party) Share this | Hansard source

The International Tax Agreements Amendment Bill (No. 2) 2008 will modernise and enhance the bilateral tax arrangements between Australia and South Africa. Furthermore, this bill will be a part of our commitment to refocus Australia’s trade policy to help lay the foundations for our future prosperity. This will be a new tax protocol, building on the existing Australia-South Africa tax agreement which we entered into in 1999. Through the ratification of this bill, Australia will maintain its most favoured nation obligation in the existing treaty whilst accommodating changes to South Africa’s domestic laws.

Australia’s relationship with South Africa is well founded and continues to strengthen. This bilateral agreement on the double taxation mitigation strengthens a relationship that is framed through a number of other agreements that Australia maintains with South Africa. These agreements include the air services agreement, the agreement covering extradition, the defence information agreement and the science and technology cooperation agreement. Both countries are also collaborating on a range of projects relating to climate change, through the Australia-South Africa Climate Change Partnership. Australia and South Africa also have a history of cooperation across a number of international forums. Most importantly of late, Australia and South Africa have continued to play a key role in setting the agenda for multilateral agricultural negotiations and pressing the World Trade Organisation membership to meet its full, far-reaching mandate to set World Trade Organisation arrangements through the Doha Round of trade negotiations.

South Africa is Australia’s largest trading partner in Africa. In 2007, two-way merchandise trade was $3.88 billion. This represents a significant slice of Australia’s total trade with sub-Saharan Africa, which in 2007 was $5.22 billion. This is a very significant relationship. It is imperative that, with any nation that we have a significant relationship with, we have well-structured and current policy frameworks to nurture and foster those relationships. With domestic changes there is a carry-on effect in bilateral agreements. These changes need to be addressed promptly to maintain the nature of agreements and provide ongoing support and security in the area of trade and investment. In reviewing the policy frameworks to incorporate domestic changes, there is an opportunity to mitigate problems such as double taxation and prevent fiscal invasion in relation to income flowing between Australia and South Africa. Tax discrimination in other countries’ tax systems can be a significant barrier to Australian investment opportunities. Through this agreement, the prevention of discriminatory tax practices is enacted and the provision of non-discriminatory articles addresses the most favoured nation obligation that we currently have.

The bilateral economic and trade relations between Australia and South Africa continue to grow. South Africa is Australia’s largest and most dynamic market in Africa, and South African investment dominates investment from the African continent to Australia. Importantly, whilst this bill brings the fiscal bilateral agreement with South Africa up to speed, it also brings closer alignment with the standards set by the Organisation for Economic Cooperation and Development. Provisions within the new protocol include a five per cent rate for all non-portfolio incorporated dividends, a 15 per cent rate for all other dividends and an amendment to the withholding tax rates applying to those dividends. Australian non-portfolio investment in South Africa will generally benefit from reduced total South African tax on corporate profits as a result of these changes.

In responding to the needs of both Australian and South African business and ensuring the protection of Australia’s revenue base, the new protocol includes a number of other key changes. The new protocol updates the capital gains treatment so that it aligns more closely with the Organisation for Economic Cooperation and Development norms to assist trade and investment flows between the two countries. The new protocol modernises the exchange of information provisions to conform to the Organisation for Economic Development and Cooperation standards that currently exist. This allows the tax administrators of both countries to share tax information. The new protocol also introduces integrity measures which will provide for the cross-border collection of tax debts. Australian non-portfolio investment in South Africa will generally benefit from a reduced South African tax on total corporate profits as a result of these changes.

The treaty has been considered by the Joint Standing Committee on Treaties, which has recommended that binding treaty action is to be taken. By preventing tax discrimination and providing certainty in the tax treatment of cross-border income flows, there is a reduction in compliance burdens on taxpayers. Australia is meeting the challenges proposed in the changes to South African domestic fiscal laws. Australia must also rise to conform to current international standards. This is sound economic practice.

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