House of Representatives

International Tax Agreements Amendment Bill (No. 1) 2010

Second Reading Speech

Dr Emerson (Minister for Small Business, Independent Contractors and the Service Economy, Minister Assisting the Finance Minister on Deregulation and Minister for Competition Policy and Consumer Affairs)

I move:

That this bill be now read a second time.

Today I introduce the bill to give the force of law to a new tax treaty with New Zealand, a second protocol to the tax treaty with Belgium and an agreement on the allocation of taxing rights over certain income with Jersey.

Tax treaties facilitate trade and investment by reducing barriers caused by double taxation. The extremely close and significant economic relationship between Australia and New Zealand increases the importance of maintaining up-to-date tax arrangements between both countries. The new tax treaty, signed in Paris on 26 June 2009, strengthens and enhances this relationship.

The treaty updates and modernises the bilateral tax arrangements between Australia and New Zealand. The bill will insert the text of the new treaty into the International Tax Agreements Act 1953 and repeal the existing treaty.

Responding to the needs of both Australian and New Zealand taxpayers, the new treaty comprehensively updates the existing tax treaty arrangements with New Zealand. There are six key outcomes from the treaty. The treaty reduces withholding taxes on certain intercorporate dividends and completely removes them from others. The treaty removes withholding tax on interest payments made to unrelated financial institutions or to the Australian and New Zealand governments. It lowers royalty withholding tax. Australian managed investment trusts will be brought within the scope of treaty benefits. The treaty also provides for the cross-recognition of the tax-exempt status of pensions in both Australia and New Zealand. Last, the treaty contains a short-term secondment provision which will preclude individuals from being caught up in the other country's tax system when they are seconded to that other country for less than 90 days.

Integrity provisions in the treaty will ensure that the reduced withholding tax rates are only available to those genuinely entitled to them. In addition, as New Zealand does not have a comprehensive capital gains tax, the treaty allows Australia to tax capital gains derived by Australian residents who relocate to New Zealand for up to six years after they cease to be an Australian resident, thereby preventing the double nontaxation of such capital gains.

The treaty will enter into force following the last notification that both countries have completed their domestic requirements, which, in the case of Australia, includes enactment of this bill.

The bill will also amend the definition of 'dual listed company arrangement' in the income tax law to align it with the corresponding provision in the treaty with New Zealand.

The government is committed to the implementation of international standards of tax transparency. The second protocol to the tax treaty with Belgium upgrades the exchange-of-information provisions in the tax treaty between Australia and Belgium by enhancing the ability of the Belgian and Australian tax authorities to exchange taxpayer information and to exchange on a wider range of taxes.

In particular, the new provisions provide that neither tax administration can refuse to provide information solely because they do not require the information for their own domestic purposes or because the information is held by a bank or similar institution.

The government is a global leader in combating cross-border tax evasion. The enhanced provisions with Belgium are an important tool in Australia's efforts in this regard, by increasing the probability of detection when taxpayers participate in abusive tax arrangements.

The tax information exchange agreement, together with the agreement for the allocation of certain taxing rights, signed with Jersey earlier this year, are further evidence of the government's commitment in this area.

The bill gives effect to the agreement on the allocation of taxing rights between Australia and Jersey, which will help prevent double taxation of certain cross-border income derived by individuals who are residents of Australia or Jersey. The agreement also provides an administrative mechanism to help resolve transfer-pricing disputes that may arise between taxpayers and the revenue authorities of Australia or Jersey.

The Joint Standing Committee on Treaties has considered these treaties and recommended that binding treaty action be taken in relation to all three treaties.

Full details of the amendments brought forward in the bill are contained in the explanatory memorandum.

Debate (on motion by Mrs Mirabella) adjourned.