Explanatory Memorandum(Circulated by authority of the Treasurer, the Hon Scott Morrison MP)
Chapter 2. Statement of Compatibility with Human Rights
Prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011
International Tax Agreements Amendment Bill 2016
2.1 This Bill is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011.
2.2 Schedule 1 to this Bill amends the International Tax Agreements Act 1953 (Agreements Act 1953) to give the force of law in Australia to the Agreement between Australia and the Federal Republic of Germany for the Elimination of Double Taxation with respect to Taxes on Income and on Capital and the Prevention of Fiscal Evasion and Avoidance and its Protocol (the German agreement), which were signed in Berlin on 12 November 2015.
Human rights implications
2.3 This Bill engages the following human rights:
- the right to protection from arbitrary or unlawful interference with privacy under Article 17 of the International Covenant on Civil and Political Rights (ICCPR); and
- the right to protection from discrimination under Articles 2(1) and 26 of the ICCPR and Article 2(1) of the International Convention on the Elimination of All Forms of Racial Discrimination (ICERD).
Protection from arbitrary or unlawful interferences with privacy
2.4 The Bill engages the right to protection from arbitrary or unlawful interferences with privacy in Article 17 of the ICCPR because the German agreement obliges the taxation authorities of Australia and Germany to provide personal taxpayer information to each other in certain circumstances. This requirement is contained in Article 26 (Exchange of Information) of the German agreement, with further requirements governing the protection of personal information contained in Article 30 (Protection of Personal Information) of the German agreement. The scope of personal information to be exchanged also extends to persons who are not residents of either country.
2.5 The provision of information under the German agreement is not arbitrary, as it must be 'foreseeably relevant' to the administration of taxation (Article 26). It is also lawful, under the treaty, the Agreements Act 1953 (which gives force of law to the treaty in Australia) and existing privacy laws.
2.6 The sharing of this information is also a reasonable, necessary and proportionate approach aimed at achieving a legitimate objective.
2.7 One objective of the German agreement is to provide a framework for the exchange of information and cooperation between Australia and Germany's taxation authorities as a means of combating international tax avoidance and evasion.
How the German agreement facilitates prevention of fiscal evasion
2.8 Australia is a long-standing supporter of international cooperation to prevent tax evasion. This Bill reinforces Australia's support for international tax transparency and cooperation between taxation authorities to help prevent tax evasion and improve global tax compliance. This is consistent with ongoing international efforts, supported by the G20, to improve tax system integrity.
Reasonable, necessary and proportionate approach
2.9 Given that many taxpayers (both individuals and entities) operate internationally, effective cooperation between the two countries is the best way to combat international tax avoidance and evasion. The exchange of personal taxpayer information is necessary to facilitate this cooperation.
2.10 Both the German agreement and Australian domestic law have safeguards in place to ensure that exchanging information under the agreement is a reasonable and proportionate way to combat international tax avoidance.
2.11 Further, information exchanges envisaged in the German agreement are subject to strict confidentiality rules. That is, any information provided by Australia's taxation authority, the Australian Taxation Office, can only be used by German taxation authorities for the purposes permitted by the German agreement. In general, this means that the information can only be used for tax administration purposes and may only be disclosed to persons (including courts and administrative bodies) concerned with or have the oversight of the assessment, collection, administration or enforcement of, or with litigation with respect to, the taxes covered by the treaty.
2.12 Taxation officers are generally prohibited from disclosing taxpayer information by section 355-25 of Schedule 1 to the Taxation Administration Act 1953. There are limited exceptions to this prohibition that allow disclosure in some circumstances, including disclosure in the course of performing duties as a taxation officer.
2.13 The right to privacy in Australia is protected by the Privacy Act 1988. The Privacy Act enables an individual to make a complaint about the handling of their information, including tax information, by specified Australian government agencies and private sector organisations.
2.14 The Office of the Australian Information Commissioner is also available to investigate and enforce Australia's privacy law where a person alleges that an agency or organisation is non-compliant. Depending on the particular complaint, some possible resolutions could include compensation for financial or non-financial loss, or change to the respondent's practices.
Protection from discrimination
2.15 The Bill engages the right to equal protection of the law and non-discrimination contained in the ICCPR and ICERD. Discrimination under the ICCPR and ICERD comprises differential treatment (a distinction, exclusion or restriction) on the basis of a prohibited ground, which nullifies or impairs the enjoyment of human rights.
2.16 The German agreement contains a number of provisions affecting the tax liability of individuals. Article 24 (Non-discrimination) of the German agreement also contains rules to protect nationals and businesses from one of the two countries from tax discrimination in the other country, while ensuring that laws intended to maintain tax system integrity continue to apply. Thus, in relation to this Bill, the relevant issue is whether differentiation on the basis of residency or nationality constitutes discrimination on prohibited grounds.
2.17 Article 1(2) of the ICERD provides that it does not 'apply to distinctions, exclusions, restrictions or preferences made by a State Party to this Convention between citizens and non-citizens'. On its face, it would appear that a distinction between citizens and non-citizens would not amount to discrimination for the purposes of the ICERD.
2.18 However, the Committee on the Elimination of Racial Discrimination stated in General Recommendation No. 30 that 'differential treatment based on citizenship or immigration status will constitute discrimination if the criteria for such differentiation, judged in light of the objectives and purposes of the [ICERD], are not applied pursuant to a legitimate aim, and are not proportional to the achievement of this aim.
2.19 In other words, differential treatment would not amount to discrimination under international human rights law if the different treatment is proportionate to the achievement of a legitimate aim.
2.20 The express purpose of the German agreement is to eliminate double taxation with respect to taxes on income and on capital without creating opportunities for non-taxation or reduced taxation through tax evasion or avoidance (including through treaty-shopping arrangements aimed at obtaining reliefs provided in the German agreement for the indirect benefit of residents of a third country).
How the agreement facilitates avoidance of double taxation
2.21 Under the German agreement, Australia and Germany agree to restrict their respective taxing rights to avoid double taxation. Taxing rights are 'allocated' over different categories of income including business profits, dividends, interest, royalties and pensions.
2.22 Further, the German agreement provides for relief from double taxation where both countries have a right to tax the income. It also establishes arrangements for the exchange of information between taxation authorities (as mentioned in paragraph 2.4 above) as well as mutual assistance in the collection of tax debts, and provides for resolution of disputes where the two countries attempt to tax the same income. In addition, it requires both countries to refrain from treating the other country's nationals and businesses any less favourably, for tax purposes, than they would treat their own nationals or businesses in the same circumstances.
2.23 In doing so, the German agreement establishes greater legal and fiscal certainty within which cross-border trade and investment (between Australia and Germany) can be carried on and promoted.
2.24 Differential treatment of residents and non-residents is permitted under the German agreement, as well as by both countries' domestic law.
2.25 Article 24 of the German agreement enhances the non-discrimination principle by ensuring that Australia is not able to treat nationals or businesses of Germany differently in similar situations except where legitimate and objective justifications exist, and vice versa. However, the rule preventing discriminatory tax treatment of nationals is subject to the condition that the German national must be in the same circumstances with respect to residence as an Australian national, and vice versa.
2.26 Differential treatment on the basis of a person's residence is a proportionate means of achieving the Bill's legitimate objective, as this approach follows the Organisation for Economic Cooperation and Development (OECD) Model Tax Convention on Income and on Capital, which has been largely adopted by most countries, with some variations.
2.27 This Bill is consistent with the right to privacy, as the exchange of information under the German agreement is neither arbitrary nor unlawful. Various safeguards are in place to protect the information that is exchanged.
2.28 This Bill is also consistent with the right to protection from discrimination, as any differential treatment of nationals is proportionate to the pursuit of a legitimate aim.