Ursula Stephens (NSW, Australian Labor Party, Shadow Parliamentary Secretary for Science and Water) Share this | Hansard source

The International Tax Agreements Amendment Bill (No. 1) 2006 is essentially driven by the need to change Australian tax law to facilitate the pursuit of non-residents living in Australia who have foreign tax liabilities. The government is seeking to aggressively align the Australian international taxation system with the OECD model tax convention. Article 27 of this convention provides for mutual assistance in the collection of tax debts. Under many of Australia’s tax treaties there are reciprocal obligations to take measures to pursue persons who have tax debts in one of those jurisdictions. This usually requires a change in the enforcement and investigation powers in each hosted jurisdiction.

There are a number of Australian residents with foreign tax liabilities. According to advice from Senator Kirk, who we know is a constitutional lawyer of great repute, the current statute law does not permit the commissioner to seek to retrieve these funds directly. In order to pursue the matter, the commissioner would need to take Commonwealth action on a case-by-case basis.

Schedule 1 allows the commissioner to create a register of taxpayers with foreign country tax debts and apply the tax collection conditions operative under Australian tax statutes. Provisions are also included to allow conversion of payments in foreign currency from foreign governments to repay Australian tax debts under the reciprocal arrangements of the OECD tax treaty system. Schedule 2 gives the commission information-gathering power for overseas tax debts. This follows measures in schedule 1 and permits exchange of information between nations otherwise captured by tax secrecy laws.

The schedule on the protocol with New Zealand aligns the Australia-New Zealand tax protocol with the OECD model tax treaty, clarifies where information can be exchanged and modifies the agreement to provide for enforcement action by officials on behalf of the other country. There is also a most favoured nation clause, which ensures Australia benefits from the reduction that New Zealand makes under treaties with other nations.

Labor supports these measures, as it is generally committed to the adoption of the OECD model tax treaty. In particular, there is no reason why Australian tax authorities should not cooperate with countries in the pursuit of tax debts if a satisfactory double tax treaty is in place.

I now take this opportunity to make some comments in relation to international taxation. Labor is listening to representations that have been received in the area of international tax. Particular concerns have been raised by Australian fund managers on this issue. Australia currently levies a rate of 30 per cent on income and foreigners earning dividend income in Australia. That is, if an overseas resident places money with an Australian managed fund to invest on their behalf they will pay 30 per cent withholding tax on the earnings as they are paid out. The industry argues that there are benefits to be gained, both to the industry and to the economy as a whole, from a reduction in the withholding tax to a more competitive rate.

Some sections of the Australian business community have called for imputation credits on foreign shares. In other words, if an instruction investor or company invests in a foreign company then this investor should obtain an imputation credit for company tax paid in the other jurisdiction, but this would be paid by the Australian government.

Labor is looking at all options at this stage. Still, there are some cautionary points to be made. Firstly, imputation credits on foreign shares is a very expensive measure. Secondly, it needs to be asked why Australian taxpayers should be responsible for paying imputation credits when the company tax has not been received by the Australian government.

In relation to the issue of dividend withholding tax, there is a benefit of having parity between the company tax rate and the dividend withholding tax rate. This would mean that the tax rate a foreign investor paid on dividends invested here was less than the tax paid by an Australian investor on Australian shares. This would, therefore, place Australian investors at a relative disadvantage. Some of these issues need to be considered very closely. Labor will follow the implementation of this legislation with great interest.