House of Representatives

International Tax Agreements Amendment Bill 2003

Second Reading Speech

Mr Costello (Treasurer)

I move:

That this bill be now read a second time.

This bill will provide legislative authority for the domestic entry into force of two new comprehensive taxation treaties with:

first, the United Kingdom of Great Britain and Northern Ireland; and

also, the United Mexican States.

The bill will repeal schedules 1 and 1A of the International Tax Agreements Act 1953 and insert the text of:

the 2003 United Kingdom tax treaty (including the text of the associated exchange of notes) as schedule 1; and the Mexican tax treaty as schedule 47.

The bill also makes a number of consequential amendments to the Income Tax Assessment Act 1936, the International Tax Agreements Act 1953 and the Taxation (Interest on Overpayments and Early Payments) Act 1983.

The treaties between Australia and Mexico and Australia and the United Kingdom were signed on 9 September 2002 and 21 August 2003 respectively.

Details of the treaties were announced and copies were made publicly available following the date of signature.

The government believes the conclusion of the Mexican tax treaty will strengthen trade, investment and wider relationships between Australia and Mexico.

The 2003 United Kingdom tax treaty reflects the close economic relations between Australia and the United Kingdom and is a major step in facilitating a competitive and modern tax treaty network for companies located in Australia.

The new treaty will substantially reduce the withholding tax on certain dividend, interest and royalty payments in line with outcomes achieved in the recent amending protocol to the United States treaty. This will provide long-term benefits for business, making it cheaper for Australian based business to obtain intellectual property, equity and finance for expansion.

It will significantly assist trade and investment flows between the two countries and further demonstrates the government's commitment to update ageing treaties with major trading partners as recommended by the Ralph report and Review of Business Taxation. The treaty will produce a positive economic outcome for Australia. Gains include a larger and faster growing Australian economy with flow-on effects on employment, trade and investment.

The new treaties achieve a balance of outcomes that will provide Australia with a competitive tax framework for international trade and investment, while ensuring the Australian revenue base is sustainable and suitably protected.

Both the Mexican tax treaty and the 2003 United Kingdom tax treaty will enter into force on the last of the dates on which Australia and the respective treaty partners exchange notes through the diplomatic channel. These notes advise each country that all domestic requirements necessary to give the tax treaty the force of law in the respective countries have been completed.

The enactment of this bill, and the satisfaction of the other procedures relating to proposed treaty actions, will complete the processes followed in Australia for those purposes.

This bill also includes an amendment to the International Tax Agreements Act 1953 clarifying the operation of the dividends articles in Australia's double tax treaties. The need for this clarification follows the introduction of Australia's debt equity rules in 2001.

The proposed amendment will ensure that amounts that are treated as a return on debt under the debt and equity rules are taxed at interest withholding tax rates and not dividend withholding tax rates. This conforms to the internationally accepted view that the dividends article of a treaty applies to equity interests and the interest article applies to debt interests.

Full details of the amendments are contained in the explanatory memorandum. I present the explanatory memorandum to this bill and commend the bill to the House.

Debate (on motion by Mr Swan) adjourned.