House debates

Wednesday, 16 September 2009

International Tax Agreements Amendment Bill (No. 1) 2009

Second Reading

4:39 pm

Photo of Tony ZappiaTony Zappia (Makin, Australian Labor Party) Share this | Hansard source

I welcome the opportunity to speak on the International Tax Agreements Amendment Bill (No. 1) 2009, which gives force of law to taxation agreements reached between Australia and the British Virgin Islands and the Isle of Man. The purpose of these agreements was outlined by the Assistant Treasurer in his second reading speech in the House on 19 March 2009 and fundamentally relates to, firstly, overcoming double taxation that may presently occur in relation to certain income of individuals flowing between Australia and the British Virgin Islands and the Isle of Man; and, secondly, the prevention of tax avoidance and evasion. It is my view that these measures may also lead to the detection and successful prosecution of other criminal activities. I am pleased to note that these agreements may be the first of others to come with other countries, because if these measures are to be effective in tax avoidance and evasion then we need to also close the loopholes currently available in those other countries.

We live in a global economy in which funds are instantly moved from one country to another. There was no better example of the global financial economy that has been created than watching the international domino effect of the global financial crisis. What is required but is not yet in place in our global financial system is a uniform set of financial regulations and tax laws. The reality is that we are unlikely to see that for some time, although I understand that uniformity of financial regulations is under consideration by the G20 countries. A paper put out by the OECD with respect to work on countering international tax evasion says:

Since the beginning of 2009, international tax evasion and the implementation of the internationally agreed tax standard has been very high on the political agenda, reflecting recent scandals that have affected countries around the world, the spotlight that the global financial crisis has put on financial centres generally, and the recent G20 London summit. In July 2008, the G8 Heads of State and Governments urged “all countries that have not yet fully implemented the OECD standards of transparency and effective exchange of information in tax matters to do so without further delay, and encourage the OECD to strengthen its work on tax evasion …”

I am certainly encouraged by that statement. There will, however, continue to be low-tax jurisdictions around the world and, whilst that is the case, there will continue to be tax avoidance and tax evasion schemes created by individuals and by global corporations—tax avoidance schemes which deprive Australia of legitimate taxes and which other Australian taxpayers ultimately carry the burden for, either through higher general tax levels or through cuts in government services.

For the year 2005-06, the most recent year for which data was available, the Australian Taxation Office estimates that $5.3 billion flowed from Australia to tax havens in overseas countries. Some of those transfers may well have been legitimate. I strongly suspect, however, that most would have been for tax minimisation or avoidance purposes. On the basis of average tax rates, the tax that may have been avoided by the transfer of $5.3 billion to overseas tax havens would be around $2 billion. That is a significant sum of money. I also note that Project Wickenby has raised over $300 million in lost tax liabilities since it was established in 2004. It is my belief that what we are able to recover is only a minuscule amount of the revenue that is lost each year through international monetary transfers and other tax accounting schemes used by multinational organisations and individuals in order to avoid tax—tax avoidance schemes that are not perpetrated by the millions of hardworking wage-earners who pay their tax weekly.

There is of course a second but equally serious matter associated with the transfer of money to overseas tax havens, and I refer to the transfer of funds raised through criminal activities. The exchange of taxation information between Australia and the British Virgin Islands and the Isle of Man will undoubtedly make it more difficult for criminal organisations or individuals to use these islands to deposit their proceeds of crime. Of course, every time a loophole or a criminal opportunity is closed those engaged in criminal or tax avoidance activities are forced to change their operations. Again, I quote from the document I referred to earlier. On harmful tax practices, it says:

The challenge of combating offshore tax evasion is not new, but it has grown more complex and more serious given the increase scope for illicit use of the international financial system in a globalised world.

That is why it is important to pursue similar agreements with other tax haven countries, and I note the positive references made by the then Assistant Treasurer, now the Minister for Financial Services, Superannuation and Corporate Law, in his second reading speech about Hong Kong, Singapore, Liechtenstein, Switzerland, Luxemburg and Austria. I also note that, to date, Australia has signed tax information exchange agreements with Bermuda, on 15 November 2005; Antigua and Barbados, on 1 February 2007; Netherlands Antilles, on 1 March 2007; and, more recently, with the British Virgin Islands, on 28 October 2008, and the Isle of Man, on 29 January 2009. Equally encouraging is that since November 2008 almost 40 agreements have been signed or announced around the world.

With respect to the legitimate allocation of taxing rights agreements—which, for example will ensure that government employees of the British Virgin Islands working in Australia in a British Virgin Island government office will not be taxed in Australia—I note that the majority of those people affected will be government employees, students and retirees. These are not tax evaders or tax avoiders but legitimate taxpayers who should not be double taxed. In fact, if they were it would be unlikely that they would want to work in the country where they were going to be double taxed. This, in turn, might make it very difficult both for them and the government they were most likely going to be employed by.

This bill supports those taxpayers who do the right thing and targets those who do the wrong thing. I quote again from the same document I referred to earlier on. I quote a statement which I believe was associated with the G8 declaration at L’Aquila in Italy on 8 July 2009 and which appears in annex 1 of an OECD overview of work on countering international tax evasion:

In this difficult time, the protection of our tax base and the efforts to combat tax fraud and tax evasion are all the more important, especially given the extraordinary fiscal measures adopted to stabilise the world economy and the need to ensure that economic activity is conducted in a fair and transparent manner.

For the past 12 months we have been debating in this chamber issues associated with the global economic recession—issues which firstly arose from the global financial crisis but which, in turn, have required extraordinary levels of commitments by governments around the world. These commitments undoubtedly rely on the tax bases of the individual countries. I believe those tax bases have been undermined by people using tax havens around the world to evade or avoid taxes.

We have seen in recent years a trend towards more uniformity in all kinds of laws relating to global matters, and that is a good thing. When it comes to tax laws, it will be a much bigger hurdle to overcome to ensure that there is consistency of tax laws around the world. If there was, then it would make it very difficult for people wanting to perhaps place their operations in a low-taxing country because such countries would not exist. Nevertheless, it is, and should be, an objective of countries around the world, and I am heartened by reports that countries are looking to do exactly that. I understand the work that is currently underway by the G20 countries and others to ensure that some uniformity is progressing and progressing at a good rate.

Likewise, the exchange of information between countries is critical. In fact, it is crucial in identifying funds that have been placed in different bank accounts in different countries solely for the purpose of avoiding tax. This bill goes a long way towards overcoming some of those obstacles, to identifying some of those funds that have been transferred from one country to another. I note that in recent years there have been many, many other agreements similar to this which do exactly the same. I think we are moving in the right direction and many of the tax havens that in years gone by had been used by either criminals, tax avoiders or tax evaders have now been closed down. This is another step towards doing that. I commend the bill to the House and look forward to seeing similar agreements being put in place between Australia and other countries where such tax havens exist.


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