House of Representatives

Explanatory Memorandum

Circulated by the authority of the Deputy Prime Minister and Treasurer, the Hon Wayne Swan MP

Glossary

The following abbreviations and acronyms are used throughout this explanatory memorandum.

General outline and financial impact

The Second Protocol with Singapore

This Bill amends the International Tax Agreements Act 1953 (Agreements Act 1953) to give the force of law in Australia to a Second Protocol amending the Agreement between the Government of the Commonwealth of Australia and the Government of the Republic of Singapore for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income signed at Canberra on 11 February 1969 as amended by the Protocol signed at Canberra on 16 October 1989 (Second Protocol), which amends the existing tax treaty with Singapore - the Agreement between the Government of the Commonwealth of Australia and the Government of the Republic of Singapore for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income signed at Canberra on 11 February 1969 as amended by the Protocol signed at Canberra on 16 October 1989 (existing Agreement).

Date of effect: On the date of entry into force of the Second Protocol. For entry into force, Australia and Singapore 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. 047 of 8 September 2009.

Financial impact: Treasury has estimated the revenue impact of the Second Protocol, which upgrades the Exchange of Information Article in the Tax Treaty, as unquantifiable. However, since the Article seeks to expand the scope of taxpayer information available to the Commissioner of Taxation, the proposal is expected to improve taxpayer compliance and increase tax revenue.

Compliance cost impact: In terms of the compliance costs, this proposal 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.

Chapter 1 - The Second Protocol with Singapore

Outline of chapter

1.1 This Bill amends the International Tax Agreements Act 1953 (Agreements Act 1953). This chapter explains the rules that apply in the Second Protocol amending the Agreement between the Government of the Commonwealth of Australia and the Government of the Republic of Singapore for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income signed at Canberra on 11 February 1969 as amended by the Protocol signed at Canberra on 16 October 1989 (Second Protocol), which amends the existing tax treaty with Singapore - the Agreement between the Government of the Commonwealth of Australia and the Government of the Republic of Singapore for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income signed at Canberra on 11 February 1969 as amended by the Protocol signed at Canberra on 16 October 1989 (existing Agreement).

Context of amendments

1.2 This Second Protocol was signed in Canberra on 8 September 2009.

1.3 The Second Protocol was negotiated in the context of recent international progress in improving tax transparency and exchange of taxpayer information between countries.

1.4 Once in force, the Second Protocol will replace the Exchange of Information (EOI) Article in the existing tax treaty with a new Article that meets the international standard on tax information exchange developed by the Organisation for Economic Co-operation and Development (OECD).

Summary of new law

1.5 The main changes to the EOI Article of the existing Agreement (as revised by the Second Protocol) are as follows:

•

neither tax administration can refuse to provide information solely because they do not have a domestic interest in such information, or because the information is held by a bank or similar institution [New Article 19, paragraphs 4 and 5] ; and

•

the Article now expands the scope of the EOI Article, as it will now allow tax administrations to request taxpayer information with regard to all federal taxes and not just taxes to which the treaty applies [New Article 19, paragraph 1] .

Comparison of key features of new law and current law

Detailed explanation of new law

Article I

Substitutes new Article 19 into the existing Agreement

1.6 This Second Protocol aligns the information exchange provisions to the current OECD standard by replacing Article 19 of the existing Agreement. The new Article 19 continues to provide for the exchange of tax information by the tax administrations of the two countries, but differs from the previous approach in the following ways:

•

the scope is expanded to a wider ranges of taxes;

•

the new provision clarifies that the Commissioner of Taxation (Commissioner) is obliged to obtain information for Singaporean tax authorities regardless of whether Australia has a domestic tax interest in the information sought or whether the information concerns a resident of either country; and

•

bank secrecy laws do not limit the exchange of information.

Foreseeably relevant information

1.7 Article 19 authorises and limits the exchange of information by the two competent authorities to information foreseeably relevant to the administration or enforcement of the relevant taxes. The exchange of information is not restricted by Article 1 of the existing Agreement, and may therefore cover persons who are not residents of Australia or Singapore.

1.8 The standard of foreseeable relevance is intended to ensure that information may be exchanged to the widest possible extent. However, competent authorities are not entitled to request information from the other country which is unlikely to be relevant to the tax affairs of a taxpayer, or to the administration and enforcement of tax laws. [New Article 19, paragraph 1]

1.9 The change in wording from 'necessary' used in the previous version of the Article to a 'foreseeably relevant' standard reflects the wording in Article 26 (Exchange of Information) of the OECD Model Tax Convention on Income and on Capital (OECD Model) and no difference in effect is intended.

Taxes to which this Article applies

1.10 Under the corresponding Article in the existing Agreement, the information that could be requested and obtained between the two countries was limited to information in relation to taxes to which that Agreement applied (generally income taxes).

1.11 Under the new Article 19, the range of taxes for which information may be exchanged has been expanded. The Australian competent authority can now request and obtain information concerning all federal taxes from the Singaporean competent authority. This means, for example, that information concerning Australian indirect taxes (that is, the goods and services tax) may be requested and obtained from Singapore. [New Article 19, paragraph 1]

1.12 Similarly, in the case of Singapore, the Singaporean competent authority can now request and obtain information concerning all federal taxes from the Australian competent authority.

Use of exchanged information

1.13 The purposes for which the exchanged information may be used and the persons to whom it may be disclosed are restricted in a manner which is consistent with the approach taken in the OECD Model. Any information received by a country must be treated as secret in the same manner as information obtained under the domestic law of that country, and can only be disclosed to the persons identified in paragraph 2 of the Article. [New Article 19, paragraph 2]

No domestic tax interest required

1.14 When requested, a country is required to obtain information under the new Article in the same manner as if it were administering its domestic tax system, notwithstanding that the country may not require the information for its own purposes. Australia would recognise this obligation to obtain relevant information for treaty partner countries, even in the absence of an explicit provision to this effect. [New Article 19, paragraph 4]

Limitations

1.15 The country requested to provide information under this new Article 19 is not obliged to do so where:

•

it would be required to carry out administrative measures at variance with the law and administrative practice of either Australia or Singapore; or

•

such information is not obtainable under the domestic law or in the normal course of administration.

[New Article 19, subparagraphs 3a) and b)]

1.16 Also, in no case is the country receiving the request obliged to supply information under new Article 19 that would:

•

disclose any trade, business, industrial, commercial or professional secret or trade process; or

•

be contrary to public policy.

[New Article 19, subparagraph 3c)]

Information held by banks, other financial institutions, trusts, foundations, nominees etc

1.17 Paragraph 5 ensures that paragraph 3 of this new Article 19 cannot be used to prevent the supply of information solely because the information is held by banks, other financial institutions, trusts, foundations, nominees etc. The addition of this paragraph will not have any practical application for Australia, since Australian domestic tax law already permits the Commissioner to obtain information from banks and financial institutions in order to meet obligations under EOI Articles in tax treaties or Tax Information Exchange Agreements. [New Article 19, paragraph 5]

Information that exists prior to the entry into force of the Second Protocol

1.18 The following notes reflect the understanding reached during negotiations with regard to when the new exchange of information provisions would have effect, and their application to information existing prior to entry into force of this Second Protocol:

'The two delegations noted that nothing in the Agreement, as amended by the second Protocol, prevents the application of the provisions of the new Article 19 to the exchange of information that existed prior to the entry into force of the second Protocol, as long as the assistance with respect to this information is provided after the second Protocol has entered into force and the provisions of the new Article 19 have become effective.'

1.19 This agreed approach confirms the international practice contained in paragraph 10.3 of The OECD Commentary on Article 26 concerning the exchange of information.

Article II

Date of entry into force of the Second Protocol

1.20 Article II provides for the entry into force of the Second Protocol. The Second Protocol will enter into force on the thirtieth day after the date on which diplomatic notes are exchanged notifying that the domestic processes to give the Second Protocol the force of law in the respective countries have been completed. Once the Second Protocol enters into force the new Article 19 will have effect. In Australia, enactment of the legislation giving the force of law in Australia to the Second Protocol, along with tabling of the Second Protocol in Parliament, are prerequisites to the exchange of diplomatic notes. [Article II of the Second Protocol]

Article III

Second Protocol part of the existing Agreement

1.21 Article III provides that the Second Protocol shall form an integral part of the existing Agreement and will remain in force and apply as long as the Agreement is in force and applicable. [Article III of the Second Protocol]