House of Representatives

International Tax Agreements Amendment Bill (No. 1) 2008

Second Reading Speech

Mr Bowen (Minister for Competition Policy and Consumer Affairs, and Assistant Treasurer)

I move:

That this bills be now read a second time.

This bill gives the force of law to a new tax treaty with Japan. The new convention, which will modernise and enhance the bilateral tax arrangements between Australia and Japan, was signed in Tokyo on 31 January 2008. It replaces the existing tax treaty that has been in place since 1969. This bill will insert the text of the new convention into the International Tax Agreements Act 1953 and repeal the existing treaty.

Tax treaties facilitate trade and investment by minimising tax barriers between treaty partner countries. The importance of tax treaties is magnified where the economic relationship is as significant as that between Australia and Japan. The new convention underlines the strength of the modern and sophisticated bilateral ties between the two countries.

Japan is Australia's third largest investor. Direct investment by Japan continues to play a key role in the development of many Australian industries, including export industries such as car manufacturing and natural resource development activities that have driven Australia's export performance. Australia is now one of the largest recipients of offshore investment by Japanese mutual funds. From Australia's perspective, Japan is the fourth largest destination of Australian investment abroad while also being Australia's largest export market for more than 40 years.

Responding to the needs of both Australian and Japanese business, the new convention comprehensively updates the existing tax treaty arrangements with Japan. Key outcomes from the convention include:

lower withholding taxes on dividend and royalty payments for businesses looking to expand offshore and to obtain access to valuable intellectual property;
specified interest withholding tax exemptions that will facilitate more competitive and accessible cross-border debt arrangements; and
broadly aligning capital gains tax treatment with international practice and with Australia's domestic law.

The treaty also ensures Australia's revenue base is appropriately protected by:

preserving taxing rights over income from real property and income arising from activities related to Australia's natural resources; and
enhancing information exchange provisions which allow the tax administrations of both countries to share tax information.
Public submissions received as part of the review of Australia's tax treaty program and policy announced by the government earlier this year strongly supported the outcomes of this convention.

The new convention will enter into force 30 days after both countries advise that they have completed their domestic requirements, which, in the case of Australia, includes enactment of this bill.

The treaty has been considered by the Joint Standing Committee on Treaties, which has recommended that binding treaty action be taken.

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

Debate (on motion by Mrs Bronwyn Bishop) adjourned.