Brett Mason (Queensland, Liberal Party, Shadow Parliamentary Secretary for Education) Share this | Link to this | Hansard source

I rise today to indicate that the International Tax Agreements Amendment Bill (No. 1) 2008 will receive the full support of the coalition. The bill primarily gives effect to a new tax treaty with Japan and replaces the previous double taxation agreement that Australia signed with Japan way back in 1969. Like a number of tax bills this year, this bill had its origins last year under the coalition government but lapsed because of the federal election held in October last year.

Japan is Australia’s largest trading partner, which sometimes we forget, and thus it is very important that we build upon this very strong economic relationship. In light of the fact that the original treaty was 38 years old, the coalition government last year began negotiations with the Japanese government to update the tax treaty. The coalition, who were serious about attracting foreign investment into Australia, sought to negotiate an agreement that was based on the OECD model tax convention—consistent with other tax treaties that have been concluded with Australia, such as the agreement that we have with the United States. The new treaty was agreed to in principle by the Japanese Minister of Finance, Koji Omi, and the then Australian Treasurer, the member for Higgins, Mr Peter Costello, on 3 August 2007.

Specifically, this new agreement will reduce withholding tax on dividends, interest and royalty payments. It will improve tax integrity measures and will put in place new rules for real property which bring the capital gains tax treatment into line with that of the OECD. It also facilitates increased cooperation between Australian and Japanese authorities to reduce fiscal evasion.

The coalition parties are the parties of lower taxes, and we support moves that will help to reduce the administrative burdens of tax compliance. When we were in government we moved to lower the corporate tax rate to encourage investment in Australia. This bill is a logical extension as it helps to facilitate investment and trade between Australia and Japan, to the benefit of the people of both countries. I commend this bill to the Senate and urge all senators to support it.

Jan McLucas (Queensland, Australian Labor Party, Parliamentary Secretary to the Minister for Health and Ageing) Share this | Link to this | Hansard source

in reply—I would like to thank Senator Mason for his contribution to the debate on the International Tax Agreements Amendment Bill (No. 1) 2008. I would also like to commend the opposition for their support of the bill.

Both sides of parliament recognise the importance of the new Australia-Japan tax treaty and the significant role it will play in fostering the continued economic development of both economies. Responding to the needs of both Australian and Japanese business, the new Australia-Japan income tax convention comprehensively updates the existing tax treaty arrangements with Japan, which date back to 1969. The existing agreement no longer fully reflects the modern tax treaty policies of either country. The new convention, which will modernise and enhance the bilateral tax arrangements between Australia and Japan, was signed in Tokyo on 31 January this year. The bill will give the force of law to the new tax treaty with Japan by inserting the text of the new convention into the International Tax Agreements Act of 1953 and repealing the existing treaty.

Japanese investment in Australia totalled $55.5 billion in 2007, up $6 billion on the previous year. As a result, Japan is the third largest source of foreign investment into Australia. Direct investment by Japan continues to play a key role in the development of many Australian industries, including export industries such as car manufacturing and natural resource development activities that have driven Australia’s export performance. Australia is now one of the largest recipients of offshore investment by Japanese mutual funds. The new convention underlines the strength of the modern and sophisticated bilateral ties between the two countries and reduces obstacles inhibiting further corporate expansion into Japan. The treaty will underpin the strong bilateral relationship by reducing tax barriers between the two countries and thereby delivering tangible benefits to both Australian and Japanese businesses.

Key outcomes from the convention include: lower withholding taxes on dividend and royalty payments for businesses looking to expand offshore and to obtain access to valuable intellectual property; specified interest withholding tax exemptions that will facilitate more competitive and accessible cross-border debt arrangements; and broadly aligning capital gains tax treatment with international practice and with Australia’s domestic law. The treaty also ensures Australia’s revenue base is appropriately protected by preserving taxing rights over income from real property and income arising from activities related to Australia’s natural resources and enhancing information exchange provisions which allow the tax administrations of both countries to share tax information.

In his address to the House of Representatives, the member for Lindsay highlighted that the tax treaty is:

... an essential element of having an open trading environment across the globe ...

In particular in relation to the withholding tax reductions, the member noted that the removal of withholding tax on certain payments prevents a lock-up of profits offshore while also reducing an impost which is passed on to consumers.

The government is committed to ensuring that Australia’s tax treaties remain relevant to evolving business directions. It is worth while noting that public submissions received as part of their review of Australia’s tax treaty program and policy announced by the government earlier this year strongly supported the outcomes of this convention.

The new convention will enter into force 30 days after both countries advise that they have completed their domestic requirements, which in the case of Australia includes enactment of this bill. The treaty has been considered by the Joint Standing Committee on Treaties, which has recommended that binding treaty action be taken.

Question agreed to.

Bill read a second time.