Chris Bowen (Prospect, Australian Labor Party, Shadow Assistant Treasurer) Share this | Link to this | Hansard source

The Labor Party will be supporting the International Tax Agreements Amendment Bill (No. 1) 2007. This bill amends the International Tax Agreements Act 1953 by inserting the text of the Convention between the Government of Australia and the Government of the French Republic for the Avoidance of Double Taxation with Respect to Taxes on Income and the Prevention of Fiscal Evasion and the text of the Convention between Australia and the Kingdom of Norway for the Avoidance of Double Taxation with Respect to Taxes on Income and the Prevention of Fiscal Evasion to give them the force of law. Inserting the text of the treaties into the International Tax Agreements Act 1953 is a prerequisite for the treaties’ entry into force. These treaties were signed in June 2006 and August 2006 respectively.

Chapter 1 of the bill amends the International Tax Agreements Act 1953 to give force of law in Australia to the France convention. The France convention updates the existing tax treaty signed in 1976 to align tax agreements with modern business practices, the respective tax systems and modern tax treaty practice. The new treaty extends the coverage of the France convention to Australian tax on capital gains and updates the list of taxes to which the new treaty arrangements apply. In the case of Australia, these taxes are the income tax, including that imposed on capital gains, the resource rent tax, to put beyond doubt that this is included as income tax, and any identical or substantially similar taxes imposed under the federal law of Australia—and that exists in the current convention. The resource rent tax and the CGT are not covered by the current treaty.

The new treaty also updates the meaning of ‘permanent establishment’. Under the new convention an enterprise is deemed to have a permanent establishment if it is a building site which lasts more than 12 months or connected supervisory activities which last more than six months, or maintains substantial equipment for rental or other purposes for more than six months. The new treaty also broadens the meaning of real property to include exploration and mining rights over natural resources. Most agreements now include rights to exploit or explore natural resources.

The treaty aligns the treatment of income from independent personal services to the OECD standard and clarifies the application of this article to business trusts. The treaty reduces the rate of dividend withholding tax to zero for individuals paid to a company that is resident in the other country where that company holds more than 10 per cent of the company paying the dividends and the dividend paid has borne the full rate of company tax. Five per cent of other cross-border intracorporate dividends and other dividends may be taxed at 15 per cent. Currently the rate of dividend withholding tax is 15 per cent.

The treaty also reduces the rate of interest withholding tax from 10 per cent to zero where certain interest is derived from investment of official reserve assets—that is, interest flows to the government, its monetary institutions or central banks, or by a financial institution.

The treaty also reduces the rate of royalty withholding tax from a maximum of 10 per cent to five per cent of the gross royalty payment, updates the definition of ‘royalties’ and excludes payments for the use of equipment.

On the greater cooperation between tax authorities on the tax avoidance front, the treaty aligns article 25, ‘Exchange of information’, to the 2005 OECD standard. The effect of the changes is to expand the range of taxes to which the article applies and to clarify that bank secrecy laws do not limit the exchange of information.

The treaty also includes a new article 26, ‘Assistance in recovery’, which authorises and requires Australia and France to provide assistance to each other in the collection of cross-border tax debts.

Chapter 2 of the bill gives force of law to the Norway convention. The Norway convention extends the coverage of the Norway Convention to Australian tax on capital gains and updates the list of taxes to which the new treaty arrangements apply. In the case of Australia, these taxes are the income tax, the resource rent tax and any identical or substantially similar taxes imposed under the federal law of Australia. It also reduces the rate of dividend withholding tax to zero in the source country for dividends where the recipient company holds more than 80 per cent of the voting power of the company paying the dividend, subject to certain conditions; and five per cent for other cross-border intercorporate dividends. Currently, the rate of dividend withholding tax is 15 per cent. This still applies to other dividends not covered by the above arrangements.

It also reduces the rate of interest withholding tax from 10 per cent to zero where interest is derived by a financial institution or the government, its monetary institutions or central bank. Currently, the rate of royalty withholding tax is limited to 10 per cent of the gross payment.

It also reduces the rate of royalty withholding tax to five per cent of the gross royalty payment and extends the meaning of ‘royalty’ to include spectrum licences. Leasing of industrial, commercial or scientific equipment will no longer constitute a royalty.

The treaty also updates the meaning of ‘permanent establishment’ as in the other treaty and broadens the meaning of ‘real property’ to include exploration for natural resources.

The treaty aligns the treatment of income from the independent personal services to the OECD standard under article 7, ‘Business profits’. It also clarifies the application of this article to business trusts and includes a comprehensive ‘Alienation of property’ article, which allocates taxing rights over capital gains.

It provides that pensions, other than government service pensions, will be taxable only in the state of residence of the recipient. Government service pensions, including any national insurance element of such a pension, will be taxable only in the state which created the fund out of which the pension is paid and to which the services were rendered, unless the recipient is a resident and national of the other state. Currently, all pensions are taxable only in the country of residence of the recipient.

It also provides for a sharing of the taxing right in respect of salary, wages and similar remuneration from employment covered by the offshore activities article.

It also closely aligns article 26, ‘Exchange of information’ to the 2005 OECD standard. The effect of the changes is to expand the range of taxes to which the article applies and to clarify that bank secrecy laws do not limit the exchange of information. It includes a new article 27, ‘Assistance in collection of taxes’, which authorises and requires Australia and Norway to provide assistance to each other in the collection of cross-border tax debts.

These two treaties are very similar. This is a standard bill which inserts the treaties into the International Tax Agreements Act and, accordingly, the Labor Party is happy to support it without amendment.

Chris Hayes (Werriwa, Australian Labor Party) Share this | Link to this | Hansard source

I will not take too much of the chamber’s time on this International Tax Agreements Amendment Bill (No. 1) 2007. As the member for Prospect has indicated, this bill is supported by the Labor Party. I am pleased to see the bill finally being debated. It was introduced into the House back in March this year. I will speak briefly to some aspects of the bill and its wider implications for sectors of industry, particularly those sectors of industry that are dominant in my part of the world.

The amendments to the International Tax Agreements Act before us are essential to bring into force the renegotiated tax treaties with France and Norway. Australia has had bilateral agreements with a number of countries aimed at preventing the double taxation of income that it is received by a resident of one country from activities in another country. Such agreements are aimed at aiding the minimisation of tax avoidance and evasion. These double tax arrangements, as they are known, tend to have standardised rules for the taxation of various categories of income depending on its source and the place of residence of the person deriving that income. Broadly, income from certain categories is reserved for taxation in the country of residence of the taxpayer, while income from other sources may be taxed in its country of source, usually at the maximum percentage. Where the country of residence also taxes these classes of income, it is required to allow a credit for the tax paid in the country of source.

The bill before us will incorporate into the act the text of the treaties signed with France and Norway that relate to the avoidance of double taxation with respect to taxes on income. Schedule 1 of the bill amends the act to give force to the Convention between the Government of Australia and the Government of the Republic of France for the Avoidance of Double Taxation with Respect to Taxes on Income and the Prevention of Fiscal Evasion. This convention updates the treaty signed in 1976 and aligns the tax agreement with modern-day business practices, respective tax systems and modern tax treaty practice.

Schedule 2 extends the coverage of the Norway convention to Australian tax on capital gains and updates the list of taxes to which the new treaty arrangements will apply. In the case of Australia, these taxes are income tax, resource rent tax and any identical or substantially similar taxes imposed under the federal laws of this country. The Norway convention replaces the previous convention of 1982.

On the face of it many might wonder why it is important that Australia not only enter into such international tax arrangements but bring them into force. Bringing these bilateral conventions with France and Norway into force is important in building stronger relationships with these two countries and enhancing our trade prospects and opportunities. All members of this place would acknowledge the importance of trade to the Australian economy. Some would even say that trade, particularly in relation to the current resources boom, has been propping up the entire Howard government strategy over the last few years—at least for a number of us that would be a reasonable conclusion.

Last year Australia’s exports were worth $210 billion. That is a significant sum by anyone’s reckoning. As a member representing an electorate in the south-west of Sydney, I know the importance of facilitating trade. The industry sector that employs the greatest number of people in the south-west of Sydney is manufacturing. A report by the Committee for Economic Development of Australia recently noted that, contrary to popular belief, manufacturing exports have not declined. CEDA found that in 1980 manufacturing comprised eight per cent of our total exports while two decades later it is now slightly short of 20 per cent. In 1981 exports were at least one-tenth of manufactured sales but, according to CEDA, now the export share has doubled.

The greater west of Sydney, quite frankly, is the manufacturing heart of Australia. The region generates more than $70 billion of economic value added a year and accounts for a quarter of the state product. Our manufacturing accounts for almost 20 per cent of the gross regional product of greater Western Sydney and this is almost half of the total of value-added manufactured products throughout New South Wales.

Trade is very important to Western Sydney. It is certainly very important to the people who live in Western Sydney, whom I have the very distinct honour to represent. Manufacturers in Western Sydney also understand how important trade is. Just down the road from my electorate office in Ingleburn is Broens Industries. I have spoken about Carlos Broen on a number of occasions in the House. Once again, I just draw the attention of the House to the success of this particular manufacturing story in the south-west of Sydney. Broens has not given up the game when it comes to stiff competition from various overseas manufactured sources, particularly out of China. Carlos Broen knows that, in order to survive, he needed to transform his business and has set about doing that. In fact, Broens now is substantially exporting to places including China. The days of low value-added manufacturing are virtually over because of cheaper offshore labour, but important for Western Sydney is the drive for the new era of Australian manufactured goods, particularly attacking the high end of manufacturing.

The keys to growth in this part of the manufacturing sector are good trade links and, more importantly, good and well-developed trade skills. As many as 50,000 people in the Fairfield, Liverpool and outer south-western Sydney region understand how important this is, because that is how many are employed in the manufacturing area in the south-west of Sydney.

The European Union, when it is taken as a whole, is Australia’s largest trading partner. In 2006, exports to the European Union rose by 25 per cent to a total of $28.6 billion. Between 2005 and 2006 Australia’s manufactured exports to France grew by almost 14 per cent—a move very much in the right direction. I trust it is the sort of thing which will only be able to grow further with the passing of this particular legislation.

For this reason and for the continued growth of our trade with Europe, and in particular France and Norway, I support the provisions of this bill. I hope that this will assist in opening more doors for Australian businesses into France and Norway because I am sure that the quality of export business in south-western Sydney will only benefit from these approaches, particularly in the manufacturing sector, and they will be able to expand their markets into these destinations and hopefully, through that, create more local jobs.

Peter Dutton (Dickson, Liberal Party, Minister for Revenue and Assistant Treasurer) Share this | Link to this | Hansard source

in reply—I thank the previous speaker and other members who have taken part in the debate on the International Tax Agreements Amendment Bill (No. 1) 2007. As part of its response to the review of international tax arrangements, the government undertook to implement a package of reforms that will improve the competitiveness of Australian companies with offshore companies and to maintain Australia’s status as an attractive place for business and investment.

This bill, which will give the force of law to renegotiated tax treaties with France and Norway, further demonstrates the government’s commitment to these outcomes by progressively modernising Australia’s tax treaties. This bill will insert the text of the convention between Australia and France and the convention between Australia and Norway into the International Tax Agreements Act 1953. The conventions between Australia and France and Australia and Norway were signed on 20 June 2006 and 18 August 2006 respectively, and they will replace the existing tax treaties with France and Norway and the separate airline profits agreement with France, dealing with taxation of airline profits. Details of the treaties were announced and copies were made publicly available following signature.

The conventions will further strengthen the economic relations between Australia and the two treaty partners. The conventions serve as another step in facilitating a competitive and modern tax treaty network for companies located in Australia. The conventions will also satisfy Australia’s most favoured nation obligations under the existing treaties with France and Norway. Both conventions will substantially reduce withholding taxes on certain dividend interest and royalty payments in line with those provided in our tax treaty arrangements with the UK and the United States. This will provide long-term benefits for business, making it cheaper for Australian based business to obtain intellectual property, equity and finance for expansion.

The conventions will assist trade and investment flows between Australia and France and Australia and Norway, and further demonstrate the government’s commitment to update ageing treaties with major trading partners, as recommended by the Review of Business Taxation and the Review of International Tax Arrangements. The treaties will produce a positive economic outcome for Australia and the gains will include a larger and faster growing Australian economy with flow-on effects for employment, trade and investment. The new conventions achieve a balance of outcomes that will provide Australia with a competitive tax framework for international trade and investment while ensuring that the Australian revenue base is sustainable and suitably protected. Both conventions facilitate improved integrity measures for administering and collecting tax from those with tax obligations in either or both jurisdictions. The conventions reflect the government’s decision to incorporate enhanced information exchange provisions which meet modern OECD standards and to provide for reciprocal assistance in collection in future tax treaties where appropriate.

The government believes that the conclusion of the conventions will strengthen the integrity of Australia’s tax treaty network through bilateral cooperation between countries to help ensure taxpayers pay their fair share of tax. Both conventions will enter into force after completion of the necessary processes in both countries and will have effect in accordance with their terms. I note that both treaties have been considered by the Joint Standing Committee on Treaties, which has recommended that binding treaty action be taken on both conventions.

The enactment of this bill and the satisfaction of the other procedures relating to proposed treaty actions will complete the processes followed in Australia to bring the conventions into force. On that basis, I commend this bill to the House.

Question agreed to.

Bill read a second time.

Ordered that this bill be reported to the House without amendment.