Explanatory Memorandum(Circulated by authority of the Treasurer, the Hon Josh Frydenberg MP)
Chapter 3 - Statement of compatibility with human rights
Prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011
Treasury Laws Amendment (International Tax Agreements) Bill 2019
3.1 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.
3.2 This Bill amends the Agreements Act to give force of law to the Convention. This process is part of Australia's domestic procedure for implementing its tax treaties.
3.3 This Bill also introduces a domestic source of income rule to ensure that Australia can exercise its taxing rights under the Convention and future international tax agreements.
Human rights implications
3.4 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 interference with privacy
3.5 The Bill engages the right to protection from arbitrary or unlawful interferences with privacy in Article 17 of the ICCPR by implementing Article 26 (Exchange of Information) of the Convention. Article 26 provides that Australian and Israeli taxation authorities shall exchange such information as is foreseeably relevant to the implementation of the Convention, or the enforcement domestic laws concerning the taxes covered by Article 2 (Taxes Covered) of the Convention. [Article 26, paragraph 1]
3.6 The right in Article 17 of the ICCPR may be subject to permissible limitations, where these limitations are authorised by law and are not arbitrary. For an interference with the right to privacy to be permissible, the interference must be authorised by law, be for a reason consistent with the ICCPR and be reasonable in the particular circumstances. The UN Human Rights Committee has interpreted the requirement of 'reasonableness' to imply that any interference with privacy must be proportional to the end sought and be necessary in the circumstances of any given case.
3.7 The purpose of Article 26 is to enable taxation authorities to correctly apply, administer and enforce the provisions of this Convention, which aims to eliminate double taxation on income without creating opportunities for non-taxation or reduced taxation through tax evasion or avoidance. This is a legitimate and globally recognised aim.
3.8 Article 26 of the Convention is a standard feature of the OECD Model. Any departures from the OECD Model in Article 26 are to accommodate Australia and Israel's domestic policies on information exchange, privacy and related issues.
3.9 Information exchange improves the ability of Australian and Israeli taxation authorities to conduct timely compliance activity and better protect the integrity of their respective tax system. It also enables Australia and Israel 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.
3.10 As members of the Inclusive Framework on BEPS, Australia and Israel are committed to the implementation of the OECD/G20 BEPS Project. That project provides governments with solutions, designed to be implemented domestically and through treaty provisions, for closing the gaps in existing international tax rules that allow corporate profits to disappear or be artificially shifted to low/no tax environments. Information exchange between Australian and Israeli taxation authorities, in accordance with Article 26 of the Convention, is therefore a core part of an international framework for combatting tax evasion and improving global tax compliance.
3.11 Article 26 balances the information needs of taxation authorities with the need to protect taxpayers from arbitrary or unlawful interference with their privacy. The standard of 'foreseeable relevance' provides for the exchange of information in tax matters to the widest possible extent and, at the same time, clarifies that Australia and Israel are not at liberty to engage in 'fishing expeditions' or to request information that is unlikely to be relevant to the tax affairs of a given taxpayer. [Article 26, paragraph 1]
3.12 Any information shared between Australian and Israeli taxation authorities will be treated as secret, in the same manner as taxation information obtained by the authority under domestic taxation laws. Australian and Israeli taxation authorities must take all reasonable measures to protect confidential information from any unauthorised disclosure. [Article 26, paragraph 2]
Protection from discrimination
3.13 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.
3.14 The Convention contains a number of provisions relating to the taxation of individuals. Article 24 (Non-discrimination) of the Convention also contains rules to protect nationals and businesses of Australia and Israel from tax discrimination in the other country, while ensuring that laws intended to maintain tax system integrity continue to apply.
3.15 Article 24 of the Convention enhances the non-discrimination principle by ensuring that Australia or Israel cannot subject nationals or businesses of the other country to less favourable tax treatment than that which applies to their own nationals or businesses who are in similar circumstances. In this context, 'similar circumstances' relates to tax residence status. Differential tax treatment on the basis of residency is permitted under the Convention, provided that such treatment applies equally to the nationals of both countries
3.16 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.
3.17 This Bill is consistent with the right to privacy, as the exchange of information under the Convention is neither arbitrary nor unlawful. Various safeguards are in place to protect the information that is exchanged.
3.18 The Bill is also consistent with, and enhances, the right to protection from discrimination. Any differential treatment that is permitted by the Convention on the basis of residency is proportionate to the pursuit of a legitimate aim and consistent with established international tax principles.