Supplementary Explanatory MemorandumAmendment to be moved on behalf of the Government (Circulated by authority of the Treasurer, the Hon Peter Costello, MP)
General outline and financial impact
Amends item 34 of Part 3 of Schedule 1 of the Taxation Laws Amendment Bill (No.6) 1999 (TLAB 6) to:
- address the technical omission from its scope of taxation agreements that are with territories, rather than countries; and,
- ensure that the original amendments concerning income from spectrum licences derived through a permanent establishment apply in relation to taxation agreements generally, whether they have entered into force before the amending provisions of TLAB 6, or do so later.
Main points: The amendment does not change the regulation impact statement (RIS) contained in the explanatory memorandum (EM) to TLAB 6.
Policy Objective: The amendment does not change the RIS contained in the EM to TLAB 6.
Chapter 1 - Spectrum Licences
1.1 Part 3 of Schedule 1 to TLAB 6 introduced amendments to the International Tax Agreements Act 1953 to ensure that where a non-resident fails to derive the relevant spectrum income through an Australian permanent establishment (in breach of the spectrum licence conditions) the taxing right accorded to Australia under its double tax agreements in respect of business profits derived through a permanent establishment will remain effective.
1.2 The amendment to Part 3 of Schedule 1 of TLAB 6 will:
- address the technical omission from its scope of taxation agreements that are with territories, rather than countries; and
- ensure that the original amendments concerning income from spectrum licences apply in relation to taxation agreements generally, whether or not they have entered into force before the amending provisions of TLAB 6, or do so later.
1.3 The amendment addresses the technical omission of taxation agreements with territories, rather than countries, from the Bills coverage.
1.4 It is necessary to amend TLAB 6 in this way to prevent tax avoidance possibilities arising if the omission is not corrected, and to ensure residents of territories with a tax agreement in place are not advantaged over Australian residents and other categories of non-residents (including those who comply with the permanent establishment condition of their spectrum licence).
1.5 The amendment also addresses the position of tax agreements essentially negotiated, but not signed, when TLAB 6 enters into force.
1.6 This aspect of the amendment is necessary because it is anticipated that at the time when TLAB 6 comes into effect, there will be a number of tax agreements which are essentially fully negotiated but not yet in force.
1.7 To leave these agreements unaffected by the original amendments could give residents of such countries and territories an advantaged tax position, and would consequently afford them a cost advantage in auctions for spectrum licences.
1.8 It was noted in the Press Release originally announcing the spectrum proposals that in future taxation agreements it is proposed to negotiate specific provisions to address the taxation of income relating to spectrum licences. In that case, legislation implementing those agreements could provide that the present amendment would not apply to them.
1.9 In cases where the matter of relevant spectrum income is specifically dealt with in a future agreement, it is likely, in any case, that the specific provision dealing with the issue would take precedence over the Business Profits Article which these amendments address, so that the amendments would not have a practical effect for such agreements.
1.10 The proposed amendment to TLAB 6 does not affect the application date contained in TLAB 6.