House of Representatives

Explanatory Memorandum

Circulated By the Authority of the Deputy Prime Minister and Treasurer, the Hon Wayne Swan MP

General outline and financial impact

Existing agreements

Schedule 1 to this Bill amends the International Tax Agreements Act 1953 (Agreements Act 1953) to modify and streamline its structure, and remove the majority of the existing Schedules to that Act. Schedule 1 is not intended to alter the entry into force or application of Australia's tax treaties.

New agreements

Schedule 2 to this Bill amends the Agreements Act 1953 to give the force of law in Australia to new taxation agreements with Aruba, Chile, the Cook Islands, Guernsey, Malaysia, Samoa and Turkey.

Aruban agreement

This Bill amends the Agreements Act 1953 to give the force of law in Australia to the Agreement between the Government of Australia and the Kingdom of the Netherlands, in respect of Aruba for the Allocation of Taxing Rights with respect to Certain Income of Individuals and to Establish a Mutual Agreement Procedure in respect of Transfer Pricing Adjustments (Aruban agreement), which was signed in Canberra on 16 December 2009.

Date of effect : The Aruban agreement must first enter into force. For entry into force, Australia and Aruba are required to provide notification on the completion of the necessary domestic procedures. Once the Aruban agreement enters into force it will apply in Australia in respect of any income year beginning on or after 1 July in the calendar year next following the date on which it enters into force.

Proposal announced : This measure was announced in the then Assistant Treasurer's Media Release No. 110 of 16 December 2009.

Financial impact : Minimal.

Compliance cost impact : No significant compliance costs are expected to result from the entry into force of the Aruban agreement.

Chilean convention

This Bill amends the Agreements Act 1953 to give the force of law in Australia to the Convention between Australia and the Republic of Chile for the Avoidance of Double Taxation with respect to Taxes on Income and Fringe Benefits and the Prevention of Fiscal Evasion and its Protocol (Chilean convention), which was signed in Santiago on 10 March 2010.

Date of effect : The Chilean convention must first enter into force. For entry into force, Australia and Chile are required to provide notification on the completion of the necessary domestic procedures. Once the Chilean convention enters into force it will take effect in Australia in four stages, namely:

•

in respect of withholding tax, on income derived on or after the first day of the second month following entry into force;

•

in respect of fringe benefits tax, on fringe benefits derived on or after 1 April in the year following entry into force;

•

in respect of other tax, on income derived in the income year beginning 1 July following entry into force; and

•

in respect of administrative provisions, upon entry into force.

Proposal announced : This measure was announced in the then Assistant Treasurer's Media Release No. 038 of 10 March 2010.

Financial impact : Minimal.

Compliance cost impact : The establishment of a tax treaty between Australia and Chile which is broadly consistent with international norms would generally be expected to reduce compliance costs.

Summary of the regulation impact statement

A copy of the regulation impact statement to the Chilean convention is available on the Joint Standing Committee on Treaties web site at www.aph.gov.au under Joint Committees administered by the House.

Cook Islands agreement

This Bill amends the Agreements Act 1953 to give the force of law in Australia to the Agreement between the Government of Australia and the Government of the Cook Islands on the Allocation of Taxing Rights with respect to Certain Income of Individuals and to Establish a Mutual Agreement Procedure in respect of Transfer Pricing Adjustments (Cook Islands agreement), which was signed in Rarotonga, on 27 October 2009.

Date of effect : The Cook Islands agreement must first enter into force. For entry into force, Australia and the Cook Islands are required to provide notification on the completion of the necessary domestic procedures. Once the Cook Islands agreement enters into force it will apply in Australia in respect of any income year beginning on or after 1 July in the calendar year next following the date on which it enters into force.

Proposal announced : This proposal was announced in the then Assistant Treasurer's Media Release No. 082 of 28 October 2009.

Financial impact : Minimal.

Compliance cost impact : No significant compliance costs are expected to result from the entry into force of the Cook Islands agreement.

Guernsey agreement

This Bill amends the Agreements Act 1953 to give the force of law in Australia to the Agreement between the Government of Australia and the States of Guernsey for the Allocation of Taxing Rights with respect to Certain Income of Individuals and to Establish a Mutual Agreement Procedure in respect of Transfer Pricing Adjustments (Guernsey agreement), which was signed in London on 7 October 2009.

Date of effect : The Guernsey agreement must first enter into force. For entry into force, Australia and Guernsey are required to provide notification on the completion of the necessary domestic procedures. Once the Guernsey agreement enters into force it will apply in Australia in respect of any income year beginning on or after 1 July in the calendar year next following the date on which it enters into force.

Proposal announced : This proposal was announced in the then Assistant Treasurer's Media Release No. 069 of 8 October 2009.

Financial impact : Minimal.

Compliance cost impact : No significant compliance costs are expected to result from the entry into force of the Guernsey agreement.

Malaysian protocol (No. 3)

This Bill amends the Agreements Act 1953 to give the force of law in Australia to the Third Protocol amending the Agreement between the Government of Australia and the Government of Malaysia for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income as amended by the First Protocol of 2 August 1999 and the Second Protocol of 28 July 2002 (Malaysian protocol No. 3), which was signed on 24 February 2010.

Date of effect : On the date of entry into force of the Malaysian protocol (No. 3). For entry into force, Australia and Malaysia are required to provide notification on the completion of the necessary domestic procedures.

Proposal announced : This measure was announced in the then Assistant Treasurer's Media Release No. 027 of 24 February 2010.

Financial impact : Unquantifiable, but most likely positive.

The updated exchange of information provisions in the Malaysian protocol (No. 3) are expected to increase the Commissioner of Taxation's access to taxpayer information, but they do not alter Australia's taxing rights. Consequently the protocol is expected to result in enhanced taxpayer compliance and additional tax revenue.

Compliance cost impact : In terms of the compliance costs, this protocol is expected to result in a low overall compliance cost impact, comprised of a low implementation impact and no change in ongoing compliance costs relative to the affected group.

Samoan agreement

This Bill amends the Agreements Act 1953 to give the force of law in Australia to the Agreement between the Government of Australia and the Government of Samoa for the Allocation of Taxing Rights with respect to Certain Income of Individuals and to Establish a Mutual Agreement Procedure in respect of Transfer Pricing Adjustments (Samoan agreement), which was signed in Canberra on 16 December 2009.

Date of effect : The Samoan agreement must first enter into force. For entry into force, Australia and Samoa are required to provide notification on the completion of the necessary domestic procedures. Once the Samoan agreement enters into force it will apply in Australia in respect of any income year beginning on or after 1 July in the calendar year next following the date on which it enters into force.

Proposal announced : This measure was announced in the then Assistant Treasurer's Media Release No. 111 of 16 December 2009.

Financial impact : Minimal.

Compliance cost impact : No significant compliance costs are expected to result from the entry into force of the agreement.

Turkish convention

This Bill amends the Agreements Act 1953 to give the force of law in Australia to the Convention between the Government of Australia and the Government of the Republic of Turkey for the Avoidance of Double Taxation with respect to Taxes on Income and the Prevention of Fiscal Evasion and its Protocol (Turkish convention), which was signed in Ankara on 28 April 2010.

Date of effect : The Turkish convention must first enter into force. For entry into force, Australia and Turkey are required to provide notification on the completion of the necessary domestic procedures. Once the Turkish convention enters into force it will take effect in Australia in three stages, namely:

•

in respect of withholding tax, on income derived on or after 1 January in the calendar year next following entry into force;

•

in respect of other tax, on income derived in the income year beginning 1 July following entry into force; and

•

in respect of administrative provisions, upon entry into force.

Proposal announced : This measure was announced in the then Assistant Treasurer's Media Release No. 079 of 29 April 2010.

Financial impact : The estimated impact of the Turkish convention on the forward estimates is small.

Compliance cost impact : The establishment of a tax treaty between Australia and Turkey, which is broadly consistent with international norms, would generally be expected to reduce compliance costs.

Summary of the regulation impact statement

A copy of the regulation impact statement to the Turkish convention is available on the Joint Standing Committee on Treaties web site at www.aph.gov.au under Joint Committees administered by the House.