Sussan Ley (Farrer, Liberal Party, Shadow Assistant Treasurer) Share this | Link to this | Hansard source

I am pleased to contribute to the debate on the International Tax Agreements Amendment Bill (No. 2) 2009. The bill amends the International Tax Agreements Act 1953 and the Income Tax Assessment Act 1997 to give domestic legal effect to three treaties—known variously as conventions, agreements and protocols—which were entered into during 2009 by Australia with New Zealand, Belgium and Jersey. Each of the three treaties is intended to avoid a situation where a taxpayer who resides in Australia or the other contracting state—New Zealand, Belgium or Jersey—is taxed on the same income both in Australia and in the other state. These agreements are commonly called double tax agreements. The tax treaties also prevent income tax evasion by encouraging cooperation and the sharing of information between contracting states and ensure that the laws of Australia and the other state are enforced.

It may interest you to know, Mr Deputy Speaker, that the treaty with Jersey is a completely new agreement, made between the two states in June last year. The treaty with New Zealand was made on 26 June last year and it replaces earlier tax treaties made between our two nations. In the case of Belgium, the bill gives effect to a protocol which was signed on 24 June 2009 which amends an agreement between the two states that was originally entered into as far back as 1977. As I said, the bill deals with these three treaties. I will just look briefly at each of them.

The Australia-New Zealand convention is Australia’s fourth comprehensive tax treaty with New Zealand. It will modernise the tax relationship between the two countries and will serve to facilitate trade and investment between Australia and New Zealand. The convention will replace the agreement between the government of Australia and the government of New Zealand for the avoidance of double taxation and the prevention of fiscal evasion of taxes on income that was signed in Melbourne in 1995 and the protocol amending the agreement which was signed in Melbourne on 15 November 2005. The treaty updates and modernises the bilateral tax arrangements between Australia and New Zealand. The International Tax Agreements Act 1953 is amended to insert the text of the convention as a schedule to that act. Australia’s tax treaties appear as schedules to the above act, which gives them the force of law in this country.

There are six outcomes from the treaty. It reduces withholding taxes on certain intercorporate dividends and completely removes them from others. It removes withholding tax on interest payments made to unrelated financial institutions or to the Australian or New Zealand governments. It lowers royalty withholding tax. It brings Australian managed investment trusts within the scope of treaty benefits. It provides the cross-recognition of the tax-exempt status of pensions both in Australia and in New Zealand. And it contains a short-term secondment provision which will preclude individuals from being caught up in the other country’s tax system when they are seconded to that other country for less than 90 days. People who are affected by this bill are residents of Australia and/or New Zealand and people who derive income, profit, gains or fringe benefits from Australia or New Zealand. The treaty will enter into force following the last notification that both countries have completed their domestic requirements, which in our case includes enactment of this bill.

In the second agreement with Belgium the bill amends various acts. That includes the second protocol, which was signed in Paris on 24 June 2009. This protocol is an element in combating cross-border tax evasion. It upgrades the exchange of information provisions in the tax treaty between Australia and Belgium by enhancing the ability of the Australian and Belgian tax authorities to exchange taxpayer information and to exchange on a wider range of taxes. In particular, the new provisions provide that neither tax administration can refuse to provide information solely because they do not require the information for their own domestic purposes or because the information is held by a bank or similar institution. The date of effect is 1 January 2010.

The third agreement with which this bill deals is the Australia-Jersey agreement. The bill amends various acts and protocols. This agreement contains articles that are based on corresponding articles contained in Australia’s bilateral tax treaties. The Jersey agreement is the third agreement of its type signed between Australia and a low-tax jurisdiction and was signed in conjunction with the agreement between the government of Australia and the government of Jersey for the exchange of information with respect to taxes which was signed in London on 10 June 2009. The International Tax Agreements Act 1953 is amended to insert the text of the Jersey agreement as a schedule to that act, which will give it the force of law. The Jersey agreement will promote a closer bilateral relationship between Australia and Jersey by eliminating double taxation of certain income derived by individuals, specifically pension recipients, government employees, students and business apprentices.

The Jersey agreement will provide greater cooperation between tax authorities to prevent tax avoidance and evasion. It will also provide an administrative mechanism to help resolve transfer pricing disputes that may arise between taxpayers and the revenue authorities of Australia or Jersey. The amendments made by this bill will impact individuals who are residents of Australia and/or Jersey who derive income from pensions or retirement annuities or the provision of government services or receive payments in their capacity as visiting students or business apprentices and residents of Australia or Jersey who wish to contest a transfer pricing adjustment made by the Australian or Jersey tax authorities. The amendment will take effect from the date of royal assent. Once it enters into force it will apply in Australia with respect to any income year beginning on or after 1 July in the calendar year next following the date on which the agreement enters into force. In Jersey it will apply with respect to any income year beginning on or after 1 January in the calendar year next following the date on which the agreement enters into force.

We understand that the impact of the first round effects on the forward estimates has been estimated as unquantifiable. Identifiable costs to revenue associated with reductions in the rate of withholding tax and the change in taxing rights for pensions have been estimated as $142 million over the forward estimates. However, reductions in New Zealand withholding taxes can be expected to result in an increase in the amount of Australian tax revenue through reduced foreign income tax offsets claimed and increases therefore in Australian taxable income. Given the bilateral flows between Australia and New Zealand, the current features of the Australian and New Zealand tax systems and the impact of the changes in the arrangements under the convention, the revenue costs are expected to be broadly offset by revenue gains. The important thing to note about this bill is that it has been approved by the Joint Standing Committee on Treaties, which of course considers all treaties and makes appropriate recommendations. In this case, it has recommended that binding treaty action be taken in relation to all three treaties. The opposition supports the bill.

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

I speak in support of the International Tax Agreements Amendment Bill (No. 2) 2009. Trade, commerce and investment between countries is good—I do not accept the xenophobia which sometimes permeates our community and sometimes permeates utterances in this place that it is not. Generally treaties between countries relating to trade, commerce and investment are beneficial. They improve understanding, amity and the operation and effectiveness of economies. They improve the livelihood of individuals and communities. They allow us to effectively run our tax system in a way that prevents tax evasion. We have in this place dedicated, through appropriations bills and through the operation of the Australian Taxation Office, many dollars to clamping down on tax evasion—for example, in Operation Wickenby. There have been numerous high-profile individuals involved and well-publicised cases of clamping down on tax evasion which involved individuals conducting international operations. These types of treaties and protocols entered into with other countries can only benefit the consolidated revenue of our country and make sure that people pay their fair share of tax. They overcome the difficulties where people are on short-term secondments, and that is one of the benefits of the treaty between Australia and New Zealand.

Australia and New Zealand are great partners when it comes to economic arrangements. As a practising lawyer before coming to this place I had many cases in New Zealand and travelled there on numerous occasions. I had clients from New Zealand. We got rid of the ‘dingo fence’ in so many areas in the legal profession—areas of law such as family law, corporate law and defamation law—and we have taken a more national approach to the running of the national economy. But we need to make sure that we take an international approach with respect to taxation, trade and investment. Treaties with New Zealand are invariably beneficial to us. Greater and closer economic cooperation between Australia and New Zealand is of benefit to both countries. We have had trade treaties with New Zealand before. As the shadow minister mentioned, this is a new tax treaty signed in Paris on 26 June 2009. It does strengthen and augment our relationship with New Zealand. The shadow minister correctly and aptly outlined the benefits in terms of the key features of the treaty, but there are three that I think are of benefit which I wish to comment upon—that is, those which relate to making sure that, where there are profits from the provision of services in a country, taxation is performed in that country so that there is no duplication or doubling up of taxation.

The treaty also makes clear that income from property—including natural resource royalties and profits from agriculture, fisheries and forestry—may be taxed in full by the country in which the property is situated. That is another sensible amendment. The profits derived from the operation of ships and aircraft in international traffic are generally taxed only in the country of residence of the operator. Nothing infuriates business more, apart from bureaucratic regulation and difficult public service activity, than a business operating in a way that inadvertently incurs double taxation. No-one likes to be taxed. We do need to pay our fair share of tax, but you should not have to pay it twice—once in New Zealand and once in Australia. So the treaty which we are incorporating here by law is of benefit to all Australians in making sure not only that our tax revenue and its integrity is maintained but also that those Australians who trade with, work in or have dealings with New Zealand do not suffer from the stupidity of being taxed twice.

The other aspects of this legislation deal with the Australia-Jersey agreement on the allocation of taxing rights over certain income by amending the International Tax Agreements Act of 1953. The final aspect deals with the Australia-Belgium tax treaty. In both cases they are about making sure that we exchange information, preventing double taxation with respect to Jersey—because there is regularly cross-border income derived by individuals who are residents of Australia or Jersey. It is about ensuring that there is an administrative mechanism to solve transfer pricing disputes. The exchange of information can only benefit the taxation system here in Australia. The 2009 second protocol with Belgium, again, upgrades the exchange of information provisions in the treaty between Australia and Belgium and enhances the ability of both our tax authorities and those in Belgium to exchange information to prevent people, companies and trust arrangements evading tax in Europe as well as in Australia.

This legislation is of benefit to all Australians. It is not objectionable. It is important legislation. It helps the taxpayers of this country. It will allow our taxation office to deal with authorities overseas and improve the capacity of the tax office to get information to prosecute individuals who unlawfully evade tax. It will include the public’s view of the integrity, authority and authenticity of our tax system. In those circumstances, I commend the legislation to be House.

Graham Perrett (Moreton, Australian Labor Party) Share this | Link to this | Hansard source

I commend the member for Blair for his contribution. I am pleased to speak in support of the International Tax Agreements Amendment Bill (No. 2) 2009. Mr Deputy Speaker, I assure you it will be an uneventful presentation. Increasingly, trade and investment are happening on a global scale as the ease of travel and modern communications make our planet much smaller. Who would have thought that a four-wheel drive in Brisbane could affect the rice farmers of Bangladesh, or that a power station in Biloela could affect the lives of maize farmers in Burundi? To quote from a song—and I know it is one of the favourite songs of the member for Bruce, who is at the table—‘It’s a small world after all.’

Tax treaties help enable Australian businesses and our economy to enjoy the benefits of global trade and investment. In fact, Australia has tax treaties with more than 40 countries. This bill amends the International Tax Agreements Act 1953 to put into law three agreements signed in June 2009—namely, the Australia-New Zealand tax treaty, the second protocol to the Australia-Belgium tax treaty and the Australia-Jersey agreement on the allocation of taxing rights over certain income.

I will discuss the New Zealand treaty first. This treaty will modernise the taxation agreement across the Tasman. It will give greater certainty to Australian businesses looking to venture into New Zealand markets and also promote greater economic cooperation between our two countries, thus building on our long history of sporting, cultural, artistic and family links with New Zealand. I will not dwell on the underarm ball by Trevor Chappell or even the responding incident at Ballymore on 19 July 1992, when I saw Richard Loe break Paul Carozza’s nose at the end of the first half of the Bledisloe Cup match—although Paul Carozza did score a second try after that. I will not dwell on those incidents. Obviously we have many close connections with New Zealand, going back to talk of even being one nation and obviously our fighting together in World War I, World War II and beyond.

One of the main aims of the treaty is to reduce the barriers caused by the double taxation of residents of the two countries. Other elements of the treaty include: reduced withholding tax rate limits on certain dividends, interest and royalties; profits from the provision of services performed in a country are to be taxed by that country in certain circumstances; income from real property, including natural resource royalties and profits from agriculture, forestry and fishing, may be taxed in full by the country in which the property is situated; pensions will not be subject to tax in the residence country when they are exempt from tax in the country in which they are sourced; and a short-term secondment provision which will exempt individuals from being taxed by a country when they are seconded for less than 90 days. The treaty also requires Australia and New Zealand to consult at least every five years to ensure the proposed tax treaty continues to operate effectively. This bill also amends the definition of ‘dual listed company arrangement’ in the Income Tax Assessment Act 1997 to ensure it aligns with the definition in the Australia-New Zealand tax treaty.

The next treaty, the second protocol to the Australia-Belgium tax treaty, will improve the exchange of information between the two countries. Under the agreement, Australia and Belgium will be able to request taxpayer information with regard to all federal taxes. This bill requires tax administrators in Australia and Belgium to provide the information to their counterparts when requested. They will no longer be able to deny access to taxpayer information simply because it is of no interest to them or because it is held by a bank. These new measures send a strong signal to those seeking to hide information from the Australian tax office and they will greatly improve our ability to detect tax evaders.

This bill also implements the Australia-Jersey additional benefits agreement to help eliminate double taxation of certain cross-border income of individuals who are residents of Jersey or Australia. Australia has agreed not to tax government employees of Jersey working for non-commercial purposes in Australia as well as students and business apprentices. Jersey has agreed to a reciprocal arrangement for Australian government employees, students and business apprentices working or studying in Jersey. In other words, they have agreed not to milk them twice.

These three tax agreements will come into force once the countries involved have put them into law. Through our negotiations with other countries, this government is working to ensure that Australians get a fair go, even when they are working or studying overseas. This bill ensures that these Australians will get fairer tax treatment. I commend the legislation to the House.

Alan Griffin (Bruce, Australian Labor Party, Minister for Veterans' Affairs) Share this | Link to this | Hansard source

Firstly, I would like to thank those members who contributed to this debate on the second reading of the International Tax Agreements Amendment Bill (No. 2) 2009. The government is committed to supporting trade and investment whilst combating tax evasion through its network of international tax agreements. This bill will give the force of law to three agreements that will support those objectives: the new tax treaty with New Zealand; the second protocol to the Belgian tax treaty, which updates the exchange-of-information provisions; and the agreement with Jersey on the allocation of taxing rights over certain income.

Australia shares an exceptionally close relationship with New Zealand. The tax treaty further enhances this relationship by reducing tax impediments to the cross-border movement of people, capital and technology by facilitating cooperation between taxation authorities to reduce tax evasion and by providing increased legal and fiscal certainty for commerce between the two countries.

The enhanced exchange-of-information provisions in the second protocol to the Belgian tax treaty will be an important tool in Australia’s effort to combat offshore tax evasion. The enhanced provisions will allow the exchange of information on a wider range of taxes in a wider range of circumstances. This will discourage taxpayers from participating in abusive tax arrangements by increasing the probability of detection, making it harder for it taxpayers to evade Australian tax.

The agreement with Jersey was signed in conjunction with a tax information exchange agreement. The agreement on the allocation of taxing rights over certain income will help to prevent double taxation. The tax information exchange agreement between Australia and Jersey will facilitate the exchange of tax information between Jersey and Australia, once again discouraging taxpayers from participating in abusive tax arrangements. I commend this bill to the House.

Question agreed to.

Bill read a second time.