Tony Smith (Casey, Liberal Party, Shadow Assistant Treasurer) Share this | Link to this | Hansard source

This bill before the parliament is a non-controversial bill. It has the coalition’s support. It is a bill to amend the International Tax Agreements Act 1953 to incorporate into Australian law a protocol amending the agreement between our government and the government of the Republic of South Africa for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income. The protocol itself updates that existing agreement between both of our governments in the respects I have just outlined. It was entered into originally in 1999. The updated protocol, as the Minister for Competition Policy and Consumer Affairs made clear in his second reading speech, was signed on 31 March this year.

The existing agreement was negotiated and implemented by the previous government and illustrates our longstanding commitment to encouraging foreign investment and opportunities for Australian businesses in overseas markets. The existing agreement contained a most favoured nation obligation within the non-discrimination article, and the article was triggered—I think the minister pointed this out in his speech—by the renegotiated Australia-United Kingdom tax treaty that came into effect in 2003. Departmental negotiations subsequently commenced to protect taxpayers operating in the other country from discriminatory tax practices, and I am optimistic that this updated protocol will encourage foreign investment and provide further opportunities for Australian businesses in overseas markets. Specifically, as has been outlined in the introductory speech, the protocol that this law will give effect to lower withholding tax rates on interest and royalties. This aligns the withholding tax rate limits for royalties and dividends more closely with the OECD practice.

Since the existing agreement was negotiated in 1999, South Africa has changed its domestic tax treatment of corporate profits, and to address this change, as was outlined, the updated protocol provides a five per cent withholding tax rate for all non-portfolio intercorporate dividends. This provision will be beneficial for Australian non-portfolio investors in South Africa. The updated protocol also provides a 15 per cent withholding tax rate for all other dividends. It brings, additionally, capital gains tax treatment into alignment with the OECD model and also introduces some integrity measures to protect and secure revenue. The protocol facilitates increased cooperation between Australian and South African tax authorities with respect to reducing fiscal evasion. South Africa is Australia’s largest trading partner in Africa. In 2007, Australian exports to South Africa were valued at around $2½ billion. South Africa is also the source of a substantial proportion of foreign investment from Africa.

The negotiations for this updated protocol, as I said at the outset, began under the previous government. The bill gives effect to that protocol in this parliament. It has our support and has the bipartisan support of this House. I commend the bill to the House.

Shayne Neumann (Blair, Australian Labor Party) Share this | Link to this | Hansard source

I rise today to speak in support of the International Tax Agreements Amendment Bill (No. 2) 2008. I do so because I come from South-East Queensland and about seven per cent of the people who settle in Queensland come from South Africa. Approximately 80,000 South African migrants live in the western suburbs of Brisbane, the greater Brisbane area and through Ipswich and the Lockyer Valley in the Boonah shire, which makes up my electorate of Blair. They are attracted to the area because of the climate, the lifestyle and the attitudes of the Australian people. I regularly go to citizenship ceremonies in my electorate, and almost invariably South Africans make up a huge proportion of the people becoming Australians.

Since World War II we have welcomed about six million people to our shores, and about 4.4 million of them have become Australian citizens. We really are a multicultural society. Our relationship with South Africa has been longstanding and friendly, and it is not just because of our mutual love of cricket, rugby union and soccer. South Africa is part of the Commonwealth of Nations, the World Trade Organisation, the Cairns Group and a number of other international organisations of which Australia is also a member.

This bill includes provisions to amend the International Tax Agreements Act 1953 to incorporate into Australian law the protocol signed on 31 March 2008 between Australia and South Africa. The protocol amends the Agreement between the Government of Australia and the Government of the Republic of South Africa for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income. This is an important piece of legislation, because in democratic countries where there is a free press and where there are fundamentally sound economies we need to reduce barriers, which will help advance our cultural and economic relationships. South Africa is a regional superpower, both politically and economically. We witnessed that recently with the intervention of the now retired President of South Africa to achieve some sort of political resolution in Zimbabwe.

About 115,000 South African expatriates live in Australia, and about 7,500 Australians reside in South Africa. It is a fact that in 2007 about 97,000 Australian residents visited South Africa. Regardless of which side of politics has occupied the treasury bench, the relationship between South Africa and Australia has been strong. There have been bilateral agreements relating to extradition, in 2001; defence information, in 2001; air services, in 1995; science and technology cooperation, in 2006; and, of course, double taxation, in 1999 and 2008.

The bill seeks to update the taxation arrangements between our countries and in turn reduce barriers to bilateral trade and investment by lowering withholding tax rates on interest and royalties. Central to this bill is our trading relationship. It is positive that our relationship with South Africa is growing. In 2007, two-way merchandise trade was valued at $3.88 billion. Australian imports from South Africa were $1.35 billion and our exports to South Africa were $2.53 billion. They were mainly in coal, meat and civil engineering equipment. The two-way investment flows between our countries have expanded since the end of apartheid, and there have been great political progress and economic development since the dark days of the Afrikaner regime, which emerged in 1948. At the end of 2007, investment from South Africa amounted to $1.2 billion, and Australia’s investment in South Africa was $893 million, principally in mining, agriculture, infrastructure and services.

The protocol updates the taxation arrangements between our two countries and aligns withholding tax rate limits for dividends, interest and royalties and capital gains tax treatment more closely with OECD practice. The protocol further addresses Australia’s most favoured nation obligation in the existing treaty by inserting rules to protect from tax discrimination taxpayers of one country operating in the other country. It also extends the scope of the existing exchange of information provisions to conform to modern OECD standards and introduces measures which provide for cross-border collection of tax debts.

As the Minister for Competition Policy and Consumer Affairs and Assistant Treasurer outlined in his second reading speech, ‘Tax discrimination under other countries’ tax systems can be a significant barrier to outbound Australian investment.’ I agree.

The protocol updates the existing Australia-South Africa tax treaty, which was signed in 1999. In accordance with Australia’s most favoured nation obligations under that treaty, the protocol introduces new rules to prevent tax discrimination. These rules are broadly aligned with international tax treaty practice and protect Australian nationals and businesses operating in South Africa and vice versa. The rules are similar to those found in other, recent Australian taxation treaties.

The protocol also amends the withholding tax rates that may be imposed on cross-border dividends, interest and royalties. Under the treaty, dividends, interest and royalties paid from one country—the source country—to a person who is a resident in the other country will generally remain taxable in both countries, but with certain new limits on the tax that the source country may charge on payments to residents of the other country.

The new dividends article provides for a withholding tax rate limit of five per cent for all non-portfolio intercorporate dividends. This will replace the current zero rate for non-portfolio intercorporate dividends paid out of profits that have borne full company tax. A 15 per cent rate applies for all other dividends. These rates are consistent with the OECD model tax convention.

The revision of the non-portfolio intercorporate dividend withholding tax rate was negotiated in the context of the South African government’s announcement of changes to its system of taxing corporate profits in its 2007-08 budget. These changes include the phasing out of the secondary tax on companies, which is not subject to treaty limitations, and the introduction of a dividend tax on shareholders. The implementation of these changes is subject to renegotiation of dividend withholding tax rates by South Africa in several of its tax treaties, including its tax treaty with Australia.

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. The protocol will not change Australia’s treatment of franked dividends. Franked dividends paid to South African residents will continue to be exempt from withholding tax.

Source country tax on interest will continue to be limited to 10 per cent. However, no tax will be chargeable in the source country on interest derived by the government of the other country from the investment of official reserve assets or by a financial institution resident in the other country. These exemptions are subject to certain safeguards, which exist and assist to discourage tax avoidance. The general limit for royalties will be reduced from 10 to five per cent. The protocol also provides that amounts derived from equipment leasing, including container leasing, will be excluded from the definition of royalty. Such amounts would be treated either as profits from international transport operations or as business profits. Other features include expanding the list of taxes which can be covered; a redefinition of ‘permanent establishment’, including prescribed time limits for the creation of a permanent establishment where an enterprise operates substantial equipment or is engaged in the exploration for, or exploitation of, natural resources; provisions which align capital gains tax treatment more closely with Australian taxation law and OECD practice; Australia’s taxing rights over Australian real property and the business assets of a foreign resident’s Australian permanent establishment be preserved; and improved integrity measures to provide for a more effective exchange of information on a broader range of taxes, including goods and services tax, and to provide for reciprocal assistance in the collection of taxes.

For those of my constituents who are from South Africa and who run small businesses in my electorate, and who deal with South African companies every day—and there are many, from small business operations in the Lockyer Valley through to Ipswich and in the Boonah Shire—this legislation is a great help to them financially. While the legislation sounds unsexy, it has a big financial impact on my constituents and the many South Africans who live in my electorate.

The protocol, the subject of this bill, arose from the need to meet Australia’s most favoured nation obligations in our existing treaty with South Africa. Tax treaties and like international agreements are extremely important in reducing the barriers between countries and improving international cooperation. Those types of treaties, the protocols that we are talking about here today, facilitate and enhance the movement of people, cultural exchange, ideas and capital. They will do that for a country that we have had a long and established cultural history with as part of the Commonwealth of Nations. This is a country that can only be good for us in the future in terms of our relationships. It is a country that we play sport with, which we deal with, which Australians visit and which my constituents do business with. This legislation before the House not only is good for the future economic development of our country but is vital for the future prosperity of the many South Africans who live in my constituency of Blair in South-East Queensland. I commend the bill to the House.

Luke Simpkins (Cowan, Liberal Party) Share this | Link to this | Hansard source

I rise today to speak in support of the International Tax Agreements Amendment Bill (No. 2) 2008. This bill gives force of law to the updated tax protocol with South Africa, signed in March this year. The bill amends the existing treaty to ensure that taxpayers of one country operating in the other country do not experience tax discrimination. Of course, this bill is very important to the 12,000 to 13,000 South African immigrants that come here each year, permanently or temporarily. Overwhelmingly they stay, and for good reasons. I understand that around 75,000 South Africans permanently relocated to Australia between 1995 and 2005. This reflects the Howard government’s commitment to reducing the skills shortage. I also understand that the number of South Africans migrating to Australia last year rose by 10 per cent but still fell short of the 35 per cent increase from the highs established in 2002 and 2003. Last year, 4,293 South Africans successfully applied for permanent residency in Australia, compared to 3,895 the previous year. In 2002, the number soared to 6,538. For two years prior to that, the number topped 6,000. These numbers include 1,395 primary applicants for visas and almost 3,000 members of their families and dependants.

During 2006-07, South Africa was the sixth place for country of origin, with almost 4,000 South Africans migrating to Australia during this period. Australia has recently increased the numbers of places allocated for skilled migrants by 31,000 for the 2008-09 financial year to a total of 133,500 places. This represents a 30 per cent increase from the previous year’s intake. South Africans represent only a small fraction of Australia’s overall migration numbers, however. South Africans make up less than five per cent of the total of new migrants coming under the skilled migration program. By contrast, 25 per cent come from the UK, 16 per cent from India and 15 per cent from China. Clearly, by the interest shown in migration to this country, there is a great affinity between South Africans and Australia. I, for one, welcome the contribution made by South Africans to the great state of Western Australia and particularly within my electorate of Cowan.

I would like to take the opportunity to focus on a particular group of South African people who have migrated to Australia and made their homes in and around the suburb of Noranda in the south-east of Cowan. This bill will be of benefit to them. I refer to the members of the Northern Suburbs Hebrew Congregation. Twenty-one years ago a group of Jewish South Africans determined that they no longer wished to live under the apartheid regime in South Africa. As we all know, Jewish people have suffered through the ages because of their beliefs and faith. The state of Israel has been effectively under siege and the target of terrorism for every year of its modern period since 1948. Given the persecution, it is little wonder that Jewish people are rightly sensitive to such regimes as existed at that time in South Africa.

It was, however, Australia that benefited from their departure, and Perth in particular. There are about 250 families that are members of the Northern Suburbs Hebrew Congregation, with around 220 being originally from South Africa. In looking over the congregation’s website, the historical link to South Africa is abundantly clear. There is even a list of congregation members and where they had their bar mitzvahs, the majority being in South African synagogues. As I said, the majority came to Perth 21 years ago with nothing. They could not take their assets with them and so they started in Australia with nothing. Like every person from South Africa that I have met, they are grateful to be here and are all now Australians. In recent years, more South Africans have come to Perth and joined the congregation. This later group have welcomed the move to Australia, like so many other South Africans, because they have escaped the crime and violence that afflicts that country so tragically.

When the majority arrived 21 years ago, for the first five years they had no rabbi, yet they still gathered to worship and they generated great community strength. They were also well supported by the City of Bayswater, which rezoned land to allow the construction of Noranda Shul in Garside Court, within my electorate. Spiritually, the Northern Suburbs Hebrew Congregation is now principally looked after by Rabbi Larry Brown. I was at his inauguration on 13 July this year. Apart from Rabbi Brown, the congregation also has amongst its membership Rabbi Chaim Davidowitz and Rabbi Shalom Coleman. Both these Rabbis have served the congregation for many years. I would like to comment on the positive leadership of Rabbi Coleman. Although he was born in England, he did serve as a rabbi in South Africa. In preparing for this debate, I had a long look at the Northern Suburbs Hebrew Congregation’s website. I saw on the website a picture of Rabbi Coleman from the Bloemfontein Synagogue’s golden jubilee in 1953. He was at that time the chief minister. Therefore, although Rabbi Coleman was born in England he forms an important part of the South African heritage for the Northern Suburbs Hebrew Congregation.

I also remember when Rabbi Coleman thanked the former Minister for Foreign Affairs after a visit before the election last year. As I recall, Rabbi Coleman spoke about the support provided by Mr Downer and the coalition government for Israel and Jewish people. Apart from the traditional strong and unequivocal support for Israel and Jewish people in Australia always provided by the coalition, last year there was also direct support provided by the former government. This was in the form of a National Community Crime Prevention Program grant of $43,000 to assist in the security arrangements at Noranda Shul. I was informed yesterday that work on a security wall is progressing as we speak.

Apart from spiritual guidance, leadership at the Northern Suburbs Hebrew Congregation is also provided by the president, Mr Ivan Cohen. He is ably assisted by his vice-presidents, Mr Shalom Hadassin and Charles Fridlender. Although the members of the congregation make great contributions to the Perth community, I would like to just pick out Mr Charles Fridlender as an example of such a contribution to the economy of Perth. Mr Fridlender runs Wavtech, a company that won a Telstra Business Ideas grant in 2001 and a Water Industry Award in 2002. Mr Charles Fridlender is the employer of a number of local people and he contributes towards industry and business in the Osmond Park area, which is outside of my electorate. He has certainly been hardworking and a great advocate. He is a person who has greatly contributed to the economy of Perth and Western Australia.

Before closing, I would also like to mention another South African, who is not actually a member of the Hebrew congregation and is not Jewish. Mr Michael Sutherland was recently elected as the new state member for Mount Lawley. Mr Sutherland brings a wealth of experience from his time as Deputy Lord Mayor of the City of Perth. I welcome his entry into state parliament and the work that he will do. He is a great advocate for South Africans and people of South African origin. In summing up, I know that for all South Africans and for people of South African origin, this bill will be of great benefit. It will allow them more certainty in the future for their business dealings and I know that it will be welcomed by all people of South African origin and South Africans who operate in Western Australia. I commend the bill and the efforts of South African people within Cowan and within Perth.

David Bradbury (Lindsay, Australian Labor Party) Share this | Link to this | Hansard source

I rise in support of the International Tax Agreements Amendment Bill (No. 2) 2008 and to add my comments to the debate, having listened to the member for Cowan and his comments in relation to the large proportion of South Africans that account for his constituency. Whilst obviously it is important for those people, I think that we should acknowledge that this is a big issue in terms of trade more generally for Australia and really does go a long way towards augmenting the very strong bilateral trade relationship that Australia and the Republic of South Africa have.

The bill essentially incorporates into Australian law the protocol amending the double tax agreement that is currently in place between Australia and the Republic of South Africa. That agreement is the Agreement between the Government of Australia and the Government of the Republic of South Africa for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income, and Protocol of 1999. The protocol makes a number of amendments and has in large part been triggered by the most favoured nation status clause that exists within the existing double tax agreement between the two countries. In 2003 when Australia entered into the double tax agreement with the United Kingdom—which is the Convention between the Government of Australia and the Government of the United Kingdom of Great Britain and Northern Ireland for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income and on Capital Gains—the most favoured nation status clause within our double tax agreement with the Republic of South Africa required us to take action to update that agreement with South Africa to ensure that comparable terms were passed on to South Africa. The protocol implements a number of technical amendments.

It is worth reflecting on the significance of Australia’s relationship with South Africa. South Africa is Australia’s largest trading partner in Africa. It is our 21st largest trading partner. In 2007, South African investment in Australia was $1.2 billion and Australian investment in South Africa was approximately $893 million. We are a net trade exporter to South Africa. Australia is ranked 12th on the list of South Africa’s principal export destinations, and Australia is the 16th largest exporter of goods and services to South Africa. South Africa has a population of around 47 million people. We have strong bilateral ties with South Africa, and these are evidenced in some of the other bilateral agreements that the two countries have entered into. They include conventions and agreements that relate to extradition, defence information, air services and science and technology. So it is a significant relationship, and the significance is recognised through the existence of the most favoured nation obligation within the double tax agreement.

In considering the impact of the changes, it is worth reflecting on what a double tax agreement is and what the effect of implementing a double tax agreement is—or, in this case, an amendment through the protocol to the double tax agreement. Double tax agreements are entered into by the contracting states and they set out the means by which each of those contracting states is to tax gains that occur either in respect of their residents or in respect of activities that have a source that relates to their jurisdiction. Obviously in a global economy, where flows of money, investment and capital are occurring across borders on not only a daily basis but a minute by minute basis, it is important to avoid double taxation. Individuals, corporations and entities right across the globe would be discouraged from investing in other nations if their productive efforts were to be taxed not only in the country where that gain was to be sourced but also back in their resident country. That would lead to a situation of double taxation. Where the two contracting states have met their obligations in relation to integrity—the integrity of their tax systems, the integrity of the systems that allow for an appropriate flow of information and an exchange of information to combat some of the practices of tax avoidance that might exist—countries come together and seek to allocate taxation rights to ensure that the principle that one should not be double taxed is, at least in general terms, upheld.

This protocol makes a number of specific technical changes that go a long way towards addressing those particular issues. I note that one of the key elements of the protocol is to update the provisions in relation to the prevention of tax discrimination. The protocol introduces new rules in this regard. They broadly align with the international tax treaty practice and protect Australian nationals and businesses operating in South Africa—and vice versa. It is a measure designed to ensure some freedom of investment between the two countries.

In respect of dividends, I note that there are some changes brought about as a result of article 5 of the protocol, which, in effect, substitutes new provisions in article 10 of the original double tax agreement. The new dividends article provides for a withholding tax rate limit of five per cent for all non-portfolio intercorporate dividends. That replaces the existing zero rate for non-portfolio intercorporate dividends where those dividends are paid out of profits that have already borne the full rate of company tax. A 15 per cent rate applies for all other dividends.

It is important to note that these measures really do bring about some harmonisation with the OECD model tax convention. The changes that have been made in respect of non-portfolio intercorporate dividends, and the withholding tax rate that is applicable therein, were negotiated in the context of the South African government’s recent announcement, in their 2007-08 budget, of changes that they are making to their system of taxing corporate profits. These changes include the phasing out of the secondary tax on companies, which is not subject to treaty limitations, and they will be introducing a new dividend tax on shareholders. The implementation of these changes to domestic South African law is subject to the renegotiation of dividend withholding tax rates by South Africa in several of its tax treaties. In particular, that involves the tax treaty that exists with Australia.

Australian non-portfolio investment in South Africa will benefit; I think we will benefit greatly from the reduced total South African tax on corporate profits which will be brought about as a result of these measures. Franked dividends paid to South African residents will continue to be exempt from withholding tax, which is standard practice right across the international tax arena.

In terms of interest, article 6 of the protocol, which effectively amends article 11 of the double tax agreement, relates to the taxation of interest. Source country tax on interest will continue to be limited to 10 per cent. However, importantly, there have been some changes that ensure that no tax will be chargeable in the source country on the interest derived by the government of the other country or from the investment of official reserve assets or financial institutions resident in the other country. This is a particular exemption that is commonplace in some of the other more recent double tax agreements that Australia has entered into. Those exemptions will, of course, be subject to safeguards to discourage tax avoidance.

The general limit for royalties—perhaps the most typical example of those payments is payments in respect of the granting of intellectual property rights—will be reduced from 10 per cent to five per cent. The protocol provides that amounts derived from equipment leasing, including container leasing, will be excluded from the royalty definition. These amounts will either be treated as profits from the international transport operations article or under the business profits article.

In addition to these measures, the protocol also contains an expanded list of taxes. It contains a refined definition of ‘permanent establishment’. It contains provisions which align capital gains tax treatment more closely with Australian law and the OECD practice. Significantly, improved integrity measures are contained within the protocol to provide for a more effective exchange of information on a broader range of taxes, including the goods and services tax. I note that this particular agreement was entered into prior to the implementation of the goods and services tax in Australia. This is a standard measure that is being introduced into all of our renegotiated tax agreements.

That is a summary of some of the key elements, in a technical sense, that will be implemented by the incorporation of the protocol into Australian law. It is worth noting that this particular agreement has been considered by the Joint Standing Committee on Treaties, and the committee has recommended that binding treaty action be taken. In the course of its deliberations the Joint Standing Committee on Treaties engaged in a fairly extensive process of consultation. I note from the national interest analysis that has been prepared in respect of this agreement that Treasury sought comments from the business community regarding issues that might be raised during the negotiations with South Africa. That involved consultations with the Tax Treaties Advisory Panel which, of course, includes members such as the Business Council of Australia, CPA Australia, the Corporate Tax Association, the Institute of Chartered Accountants, the International Fiscal Association, the Investment and Financial Services Association, the Law Council of Australia, the Minerals Council of Australia and the Taxation Institute of Australia. In addition to that, there has been consultation with the state and territory governments through the Commonwealth-State Standing Committee on Treaties. So there has been extensive consultation.

I would like to turn to the broader issue of withholding taxes and comment also on some of the developments in relation to this government’s efforts to establish Australia as a financial services hub. It is important to understand conceptually what withholding tax is. We have double taxation agreements which seek to allocate taxation rights but, notwithstanding the particular provisions of any double tax agreement, where income is derived in a country that is not the country of residence of the particular individual or entity that is deriving that gain, it is commonplace throughout the tax world for the source country to seek a share of the income tax that might be secured by the government in respect of those gains. The easiest way to do that is to impose a withholding tax.

I note the recent comments of the shadow Treasurer on some of the other measures that this government has pursued in relation to very significant reductions in withholding tax rates and distributions from managed investment trusts. In responding to the Treasurer’s ministerial statement earlier this week, the new shadow Treasurer made the following statement:

It is symptomatic of a government that … says it wants to promote Australia as a financial services hub and then reduces withholding tax for foreigners.

Implicit in that quote is the notion that there is some contradiction between the two propositions—proposition A being to try and secure a place for ourselves as a financial services hub, and proposition B being a desire to reduce withholding taxes. I cannot for the life of me see where the contradiction exists. There is no such contradiction. In fact, if you were looking for tangible ways to attract greater investment to this country, one of the key means would be to reduce withholding taxes. That has been universally acknowledged right throughout the financial services sector.

The first plank of the financial services hub initiatives was the reduction in withholding tax rates, which was implemented as a result of legislation that passed through the parliament earlier this year. This government has taken the existing rate of 30 per cent—one of the highest withholding tax rates in the world in respect of managed investment trust distributions—and is in the process of implementing a staged set of reductions which will ultimately reduce that withholding tax rate to 7.5 per cent in future years. It will be reduced to 22.5 per cent in the 2008-09 year and to 15 per cent in the 2009-10 year. In that year it will be a final withholding tax, as opposed to a non-final one. In future years we foresee reductions down to 7.5 per cent.

The significance of these measures cannot be underestimated, because they send a very clear message to international capital that Australia is a very favourable destination in which they may choose to invest. One of the strongest signals that we can send is the taxation regime that is in existence. If we combine that measure with the continued revision of our double tax agreements, of which the incorporation of this protocol forms an integral part, we see that the government is very much committed to ensuring that the taxation requirements that are imposed domestically, but also those that have effect on international investors, will create a regime that will attract as much investment in Australia as possible.

We have here before the House a very significant example of Australia’s bilateral relationship with South Africa. It is a relationship that we value, and by implementing this protocol we are making good on the most favoured nation obligations contained within the double tax agreement. I commend the bill to the House.

Darren Cheeseman (Corangamite, Australian Labor Party) Share this | Link to 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.

Harry Jenkins (Speaker) Share this | Link to this | Hansard source

Order! It being 2 pm, the debate is interrupted in accordance with standing order 97. The debate may be resumed at a later hour and the member for Corangamite will have leave to continue speaking when the debate is resumed.