Chris Hayes (Werriwa, Australian Labor Party) Share this | Hansard source

I also rise today to support the International Tax Agreements Amendment Bill (No. 1) 2009. The amendment proposed is a significant step towards instilling greater confidence in the integrity and the fairness of the Australian tax system. This amendment, through its limited scope, is another positive move towards eliminating harmful tax practices, especially with regard to tax havens, as it reflects Australia’s commitment to combating tax avoidance and tax evasion.

I imagine that amongst constituents in your electorate and mine, Deputy Speaker Thomson, issues of tax havens probably are not the topic around various kitchen tables, but I will tell you what the topic around kitchen tables is. Australians are being called upon to pay a fair share of their tax. They do not mind paying tax. They do not mind paying their fair share. What they do not like is people who use a loophole to avoid paying their fair share of tax. This particular piece of legislation we have before us moves to do something about that. It is something that has been in the purview of our law enforcement officers to date, as we just heard from the member for Blair when he talked about Project Wickenby, which is an operation involving the Australian Crime Commission, the Australian Federal Police, the Taxation Office and the staff of AusCheck. This is a very successful but certainly ongoing operation to do something about shutting down people inappropriately using tax havens to avoid paying their fair share of tax in this country.

For too long, tax havens have eroded the tax base of many countries, including Australia, and caused not only greater complexity in the systems but also distortions in the financial and real investment flows of money within the system. As I sad, tax havens have been used by people—normally wealthy people—to avoid their fair share of tax, placing an even greater tax burden on the law-abiding members of our community. As you know, the British Virgin Islands and the Isle of Man fall within this category of low tax rates and, more importantly, also have a very high level of secrecy applying throughout their systems. However, this government has taken the initiative of working towards creating a fairer and more transparent system for all. The government wishes not only to eliminate the instances of tax non-compliance between Australia and tax havens of the British Virgin Islands and the Isle of Man; it seeks to improve the conditions of taxpayers who are involved in cross-border transactions and to remove double taxation.

Under the agreements with the British Virgin Islands and the Isle of Man, each country will have a sole taxing right over the salaries paid to their own government employees working abroad. Australia will no longer tax foreign maintenance, education or training payments received from British Virgin Islands or Isle of Man students and business apprentices temporarily studying in this country. Under Article 5 of the Isle of Man agreement, Australia will cease taxing pensions and retirement annuities paid from Australia to residents of the Isle of Man if they have already been subject to foreign tax. I think the important part; in this instance, is to ensure that there is no double taxation element applied through the tax system. These changes that are specifically aimed at the government employees, students, business apprentices and retirees will considerably improve the exchange of taxpayer information between the countries and will clarify which country has the taxing rights over certain income.

Surprisingly, as it stands, income earned in tax havens, like the British Virgin Islands and the Isle of Man, does not come to the attention of Australian Taxation Office unless it is volunteered. I find that absolutely incredible. This is what has given rise to the notion of a tax haven. People who deposit significant sums of money in a tax haven simply do not come to the attention of the Australian Taxation Office unless they volunteer that they have done so or, alternatively, it is detected through such things as Operation Wickenby. With the implementation of these changes, we will see a significant improvement in the flow of information. This will ensure an improvement in the detection of tax fraud and will act as a deterrent to those involved in cross-border transactions. We will see reciprocal taxation treatment between countries, and the amendment will greatly assist the Commissioner of Taxation to obtain information held offshore about the affairs of Australian residents and foreign residents with Australian tax obligations. In relation the Isle of Man, this amendment is also a mechanism for the resolution of transfer-pricing disputes.

The bill before us today gives legal validation to Australia’s international agreements and demonstrates this government’s commitment to the OECD’s harmful tax practices initiative, aimed at improving transparency and tax information exchange globally. I would like to also note that these changes to the legislation have been considered and approved by the Joint Standing Committee on Treaties.

We need to keep in mind that ordinary, hardworking Australian taxpayers, like those in my electorate of Werriwa, are the ones who are indirectly disadvantaged as a result of the loopholes that currently exist with these tax havens. While people can spirit money off to tax havens, a heavier burden is borne by those who legitimately pay tax in this country. As a consequence of the global economic downturn we have seen a decline in the order of $200 billion in tax revenues. It is necessary now, more than ever, to tackle the issue of taxation evasion and avoidance, instead of allowing ordinary hardworking Australian families, who pay their fair share of tax, to bear the burden. It is the right and fair thing to do. Quite frankly, for everyone standing here, it must be considered the ethical position to take.

The Australian Taxation Office has described the tax information exchange agreements as a way to ‘promote fairness and enhance Australia’s ability to administer and enforce its domestic tax laws’. I strongly believe that, by legally incorporating Australia’s international agreements into our domestic law, we are strengthening our political, economic and administrative relationships throughout the globe. I commend this piece of legislation to the House.

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