Thursday, 24 October 2019
Treasury Laws Amendment (International Tax Agreements) Bill 2019; Second Reading
International trade stands as the bedrock of global peace and stability. Fostering economic connectivity between nations has always been the surest sign, not only in increasing prosperity but in facilitating the exchange of ideas. The state of Israel has been referred to as the start-up nation, and Australia has much to gain from amending the International Tax Agreements Act 1953 to foster closer economic ties. The Treasury Laws Amendment (International Tax Agreements) Bill 2019 will eliminate double taxation with respect to taxes on income and is similarly an important step in preventing tax evasion.
This bill is the first of its kind between Australia and the state of Israel; it is long overdue. It encourages closer linkages in commercial trade, investment and innovation that go along with our already close cultural ties. Australian businesses are some of the most innovative and internationally competitive. In a world where having a technological edge can make all the difference, the Treasury Laws Amendment (International Tax Agreements) Bill 2019 provides greater ease of access for Australian companies to some of the world's leading technology companies coming out of Israel. As a nation of entrepreneurs and small- to medium-business owners, this government will continue to work in supporting Australian businesses on the international stage and safeguard a fair, rules based trade system. As an important step towards that goal, we are removing double taxation.
The current tax regime has seriously undermined innovative Australian or Israeli companies seeking to expand abroad. Any business owner faced with this tax regime will have thought twice before considering Israel either as a place for expansion of their own businesses or for some of the most innovative Israeli technology companies to come to Australia. For business owners seeking to expand internationally, it is already fraught with tremendous risk, without having to navigate prohibitive tax regulation, freer and fairer markets, and trade, in particular, continues to provide Australians with incredible business opportunities and access to extraordinary technology originating from overseas. Reducing tax barriers to investment is long overdue and helps to support more effective and minimalistic regulation that maximises outcomes for Australians and our partners abroad.
This government is focused on providing Australian businesses with ease of access to overseas markets so that the extraordinary talent and innovative spirit of this country can continue to shape the world and improve the lives of people everywhere. Australian entrepreneurs are at their best when free from government interference and treated equitably wherever they choose to do business, and, through technological innovation, continue to exceed expectations. This bill is as much about supporting Australian businesses and entrepreneurs as it is about providing a much-needed tax reform.
The friendship that Australia and the state of Israel have enjoyed will be strengthened through this bill, as will the history of mateship between our two countries. It is important to note that this new convention does not impact Australia's continued support for a two-state solution, including the resolution of the final status issue. This bill is a genuine reflection of fundamental Australian values which have always stood in support of freedom and democracy. Israel is one of the few genuine democracies in the Middle East, and it is our responsibility to partner with those countries and people who are upholding these ideals. Now, more than ever before, the imperative to collaborate is critical. We cannot take democracy, freedom of speech or free markets for granted but must continue to support these pillars of global peace and prosperity wherever they may be. This bill will encourage our two nations with like values to work together more closely and will enable entrepreneurs from both countries to innovate without being held back or disadvantaged by inhibiting tax regulations.
The nature of this amendment also introduces a domestic source of income rule. This ensures that Australia will still be able to exercise its taxing rights under the new convention and future international agreements.
The passing of this bill is time sensitive. If it were not passed in the spring sitting, the economic benefits would not come into effect until, at the earliest, January 2020.
Whilst the benefits of this bill to Australian businesses and entrepreneurs is clear, the passing of this bill is also critical to implementing the recommendations made by the G20 and OECD. This bill will help tackle tax avoidance, base erosion and profit shifting. A key element in combating the malpractice is through increased information exchange and cooperation with Israel to better tackle this issue and ensure honest and free markets. Both Israel and Australia are members of the Inclusive Framework on BEPS, which provides governments with practical solutions domestically and for use in international treaties, to close loopholes and gaps that may be exploited by organisations to shift profits to lower-tax jurisdictions. This is a decisive bill which shows the government's commitment to tax reform, innovation and closer ties with like-minded peoples.
Australia currently has over 40 bilateral tax treaties in place. That has served the interests of growing Australian businesses and has given Australian consumers access to more goods and services, as foreign companies are encouraged to set up here. It remains an important part of our country's focus on being one of the world's leading start-up powerhouses and innovation leaders. We consistently rank in the top 20 most innovative countries across multiple innovation indexes, and, whilst this is a testament to the Australian entrepreneur, we can be doing more. This bill represents an important effort by the government to provide our business owners with a level playing field when it comes to expanding internationally. Despite the fact that Israel and Australia both have comparatively small populations, we continue to out-innovate, on a per capita basis, many other nations. We will continue to build on this success by supporting an integral part of what keeps our economy growing and acts as a key source of generating new jobs for Australians. It is the ingenuity and hard work of everyday Australians that continues to drive this country forward. The least we can do as a government is to provide them with many of the same opportunities that innovators are afforded across the world. Helping to ensure a fair trading system and encourage a level playing field are important to the continued integrity of our domestic market and to maintain Australia's reputation as the No. 1 destination to do business.
We have a zero tolerance policy for any company or organisation deliberately avoiding paying their fair share of tax when other companies are playing by the rules that this parliament sets. We cannot cut corners or delay when the integrity of our financial markets is under threat. Any unfair advantage is akin to stifling innovation and undercutting entrepreneurs. By the same token, the notion that double taxation is taking place is just as ludicrous and detrimental to consumers and businesses alike. The government announced in the 2019-20 budget to give this convention the force of law to provide that certain income covered by tax treaty is deemed to have an Australian source. As a government that continues to deliver on its promises to the Australian people, we look forward to strengthening our economic and trade ties with the state of Israel, providing more opportunities for Australian and Israeli businesses.
The framework this bill provides is broadly based upon the Model Tax Convention on Income and on Capital. This OECD model tax treaty establishes many of the internationally accepted standards on tax and cross-border transactions. By following this recommendation, Australia is implementing a global standard and uniform approach that resolves many of the most common problems related to the application of tax on international transactions. This will improve certainty for Australian taxpayers deriving income from Israel and makes it just a little easier for entrepreneurs wanting or wishing to expand abroad. Under this treaty, tax would be reduced on cross-border dividends, interest and royalties in both Australia and Israel. This all contributes to the economic growth of a more attractive investment and innovation environment between our two countries which have so much in common.
An integral part in the development of this bill was an extensive consultation process run by the Treasury. State and territory governments were consulted through the Commonwealth-State-Territory Standing Committee on Treaties, as well as the public at large. These public consultations took place in 2014 and were later complemented by additional dialogue in 2015. These submissions were received from companies and professional bodies which provided consistently positive feedback and support for the measure. The feedback pointed to strengthening economic ties with Israel, increased investment and trade, as well as further cooperation in areas of science, innovation and technology. In an age of rapid change and disruption in many industries, we must not only be at the cutting edge of technological development but seek to lead these changes in industries where we choose to compete.
The benefit of being innovative and being innovation and technology leaders can be felt by everyday Australians, with new industries providing more jobs, better pay and better opportunity for all Australians. Any bill which is able to support innovation, businesses and consumers, and help ensure the integrity of our tax system is one well worth supporting. For these reasons, I commend this bill to the House.