House of Representatives

Income Tax (International Agreements) Amendments Bill 1977

Income Tax (International Agreements) Amendments Act 1977

Second Reading Speech

by the Minister for Aboriginal Affairs and the Minister Assisting the Treasurer, the Hon. Ian Viner, M.P.

This Bill will provide legislative authority for two double taxation agreements entered into with other countries.

One is with Greece and applies only to profits derived from international air transport.

The other is with Belgium and deals with all substantial forms of income flowing between Australia and Belgium.

Neither of the agreements can enter into force until all necessary legislative processes have been completed by both Australia and the other country.

The limited agreement with Greece is of a now familiar kind and provides that each country is to exempt from its tax profits derived from international air transport by the other country's international airline.

In effect, each country will have the sole right to tax profits from international traffic derived by its international airline in the other country.

The agreement with Belgium was signed by the Treasurer earlier in the month and is along the lines of Australia's modern agreements, that is, those seven agreements negotiated or re-negotiated since 1967.

That being so, I think that I need not detain the House with an exposition of the purposes that are served by comprehensive double taxation agreements.

Suffice it to say that the agreements provide in ordered ways for the two contracting countries to share in the revenue that is generated from income flowing between them.

Under the agreement with Belgium, Australia is to reduce its withholding tax on dividends flowing to Belgian residents from 30 per cent to 15 per cent of the dividends.

Conversely, Belgium is to reduce its rate of withholding tax on dividends - currently 20 per cent - to 15 per cent.

I mention that profits out of which dividends are distributed by Australian companies to foreign shareholders now bear a company tax rate of 46 per cent so that, with withholding tax at the rate of 15 per cent, the total Australian tax on each $100 of distributed profits is a not insubstantial $54.10.

The agreement specifies a limit of 10 per cent on each country's tax on interest and Royalties flowing to the other.

For Australia this will mean no reduction in our interest withholding tax of 10 per cent.

For Royalties flowing to Belgium, the Australian tax limit of 10 per cent of gross payments may operate to reduce the ordinary tax at general rates on net Royalties.

Belgium will reduce its withholding tax rate on interest and Royalties from 20 per cent to 10 per cent.

The agreement contains measures for the formal relief by the country of residence of double taxation of income that would otherwise be taxed by both countries.

These measures supplement the relief that is available under the ordinary domestic law of each country.

Generally, income which is taxed in full in the country of source will be exempt from tax by the country of residence while, in the case of income that is taxed at reduced rates in the country of residence will tax the income and allow credit for the tax of the country of source.

Apart from the provisions I have mentioned, the agreement with Belgium contains the usual provisions - common to double taxation agreements - relating to the taxation of business profits, visiting businessmen and employees, public entertainers, students and pensioners and so on.

These and other aspects of the arrangements with Belgium are explained in an explanatory memorandum that is being made available to Honourable Members.

I commend the Bill to the House.