Helen Coonan (NSW, Liberal Party, Manager of Opposition Business in the Senate) Share this | Link to this | Hansard source

I rise to indicate that the coalition supports the International Tax Agreements Amendment Bill (No. 2) 2002. Like so many of the tax bills that have come before the Senate this year, the origins of the content of this bill lie in the hard work undertaken by the Howard government when we reformed the Australian tax system. This bill seeks to update and improve the tax agreement that Australia entered into with South Africa in 1999. South Africa is, of course, Australia’s largest trading partner in Africa. With Australia exporting $2.5 billion worth of goods and services to South Africa last year, it is important that Australia maintains the current tax agreement with South Africa. We remain committed to encouraging investment and opportunities for Australian businesses in overseas markets. The existing treaty contains a most favoured nation obligation in the form of a non-discrimination article. When Australia entered into a tax treaty with the UK in 2003 it triggered the most favoured nation obligation in the South African treaty and it meant that there was a need for amendments to ensure that taxpayers of one country who also operated in another did not experience tax discrimination.

Specifically, this bill amends the International Tax Agreement Act 1953 to include amendments—agreed to on 31 March this year—to Australia’s tax treaty with South Africa for avoiding double taxation and prevention of tax evasion. It will lower the withholding rates on interest and royalties while aligning them more closely with OECD practice. It implements a five per cent withholding tax rate for all non-portfolio intercorporate dividends. It will replace the current zero rate for non-portfolio intercorporate dividends paid out of profits that have borne full company tax. It will also provide a 15 per cent withholding tax rate for all other dividends. These rates are consistent with the OECD model tax convention.

As a result of these changes, Australian non-portfolio investment in South Africa will generally benefit from reduced total South African tax on corporate profits. The bill continues to limit source country tax on interest to 10 per cent. Tax will not be charged in the source country on any interest derived by the government of the other country from the investment of official reserve assets or a financial institution domiciled in the other country. Similarly, the bill reduces the general limit for royalties from 10 to five per cent. Additionally the bill expands the list of taxes covered by the treaty. It brings capital gains tax treatment into alignment with the OECD model. It introduces some integrity measures that allow for exchange of information by tax authorities to secure and protect tax revenue, and it provides for reciprocal assistance in the collection of tax revenue. The measures in this bill, as I said, were the direct results of actions taken by the former coalition government to improve taxation rules and to better cooperate with the South African government in relation to international tax affairs. It makes improvements to the tax treatment of Australian investors. It is a positive move that will support Australian exporters. I commend the bill to the Senate.

John Faulkner (NSW, Australian Labor Party, Cabinet Secretary) Share this | Link to this | Hansard source

I thank Senator Coonan for her contribution, on behalf of the opposition, to this important piece of legislation and I thank the opposition for their support of the bill. This bill gives the force of law to a new tax protocol with South Africa which will modernise and enhance the bilateral tax treaty arrangements between Australia and South Africa. South Africa is, of course, Australia’s largest and most dynamic market in Africa. South African investment dominates investment from the African continent into Australia.

The protocol updates the taxation arrangements between Australia and South Africa to enhance Australia’s relationship with South Africa by reducing barriers to bilateral trade and investment in the lowering of withholding tax rates on interests and royalties. The protocol also delivers on Australia’s most favoured nation obligation in the existing tax treaty to provide for rules to prevent tax discrimination. The protocol inserts a non-discrimination article which protects Australian nationals and businesses operating in South Africa, and vice versa, from discriminatory tax practices. The protocol was also prompted by proposed changes to South Africa’s own domestic law of taxation of corporate profits. The protocol amends the withholding tax rates applying to dividends, providing a five per cent rate for all non-portfolio intercorporate dividends and a 15 per cent rate for all other dividends.

These changes align with OECD norms and address South Africa’s changes to its domestic law system of taxing corporate profits. 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 new protocol also includes a number of other key changes. I can report that the treaty has been considered by the Joint Standing Committee on Treaties, which has recommended that binding treaty action be taken. I also commend the bill to the Senate.

Question agreed to.

Bill read a second time.