House debates

Wednesday, 6 February 2013

Bills

International Tax Agreements Amendment Bill 2012; Second Reading

11:31 am

Photo of Tony SmithTony Smith (Casey, Liberal Party, Deputy Chairman , Coalition Policy Development Committee) Share this | | Hansard source

On behalf of the opposition I rise to speak on the International Tax Agreements Amendment Bill 2012. This bill was introduced by the Treasurer, Mr Swan, in the last sitting week of last year. As was made clear in the second reading speech and in the explanatory memorandum, it amends the International Tax Agreements Act 1953 to bring into force new taxation agreements with India, the Marshall Islands and Mauritius. I will deal with each aspect briefly.

The India protocol was signed in New Delhi on 16 September 2011 and will amend the agreement between both governments for the avoidance of double taxation and the prevention of fiscal evasion with respect to tax on income. That was signed in 1991. The protocol will also seek to improve the administrative framework for tax co-operation between both countries and will update the rules for the taxation of business profits and services, bringing them into line with international practice. As well, it will insert rules to protect taxpayers from tax discrimination.

With respect to the Marshall Islands and Mauritius agreements, both cover allocation of taxing rights and transfer pricing adjustments. The Marshall Islands agreement was signed in May 2010. There was no pre-existing agreement of this type between Australia and the Marshall Islands. The Mauritius agreement was signed in December 2010. Both agreements include provisions dealing with a range of circumstances. They were outlined in the explanatory memorandum and in the second reading speech.

Very briefly, income from pensions and retirement annuities will generally be taxed only in the country of the recipient's residence, provided the income is subject to tax in that country. Income from government services will generally be taxed only in the country that pays the remuneration. Payments from abroad to visiting students and business apprentices for the purpose of their maintenance, education and training will be exempt from tax in the country visited, and a non-binding administrative mechanism will be established to assist taxpayers to seek resolution of transfer pricing disputes.

These are noncontroversial international agreements that seek to avoid double taxation, codify tax allocation and combat tax avoidance. The coalition supports the bill.

11:34 am

Photo of Ed HusicEd Husic (Chifley, Australian Labor Party) Share this | | Hansard source

We are here today to talk about the amendment bill for the international tax agreements of 1953 designed to cover a number of jurisdictions—chiefly, Mauritius, Marshall Islands and India—and, in particular, to deal with a number of issues arising from the taxation of profits and cross-border services. The agreement with India, as indicated by the Assistant Treasurer in his second reading speech, is basically a protocol that will amend the Australia-India tax treaty, which was signed well over two years ago, and promote closer economic cooperation. The protocol will also improve the integrity of the Australian tax system by improving the exchange of information and also build in new provisions providing mutual assistance in the collection of tax debts. In relation to Marshall Islands and Mauritius the bilateral agreements eliminate double taxation of certain income, particularly that earned by individuals, government workers, students, businesses, apprentices, pensioners, retirees and the like. Both Marshall Islands and Mauritius will need to provide reciprocal taxation treatment in relation to Australian government employees in some of those categories. Importantly, this will also provide a mutual agreement procedure for the resolution of taxpayer disputes involving transfer pricing. The government has had a big focus on this issue and ushered legislation on it through the parliament last year.

I want to reflect on the impact of the economic relationship with India and what elements of this agreement will do. Something that deeply impresses me is the strong entrepreneurial spirit of the Indian-Australians I see in my area. Indian-Australians and other Australians from the subcontinent are a part of our community that is growing in value. In fact, it is often reflected upon that one of the most common surnames in Blacktown is Singh. This reflects the huge contribution of Indian-Australians to our community. The number of stores, enterprises and other small businesses operated by Indian-Australians continues to grow and continues to be valued because it is providing jobs, prosperity and vibrancy to the region. I take this opportunity to thank those members of the Indian-Australian community for their efforts in promoting economic growth and jobs in the area and for what they do to promote closer economic relations between our two countries. Again, that is a subject that is touched upon by this amendment bill.

It is worth noting that the businesses operated in my area and throughout Australia started by Indian-Australians sometimes become platforms to launch into broader ventures reaching across borders. The diaspora here forms an important link in strengthening the bonds between our two nations and boosting trade and commerce. Trade and investment links between our two countries are especially strong, and expanding. Trade has more than doubled in the last six years to well over $20 billion. Within Australia, Indian investment approvals are up by $11 billion over 2011-12. That is no small amount, and it has grown a hundredfold over 10 years. Taking this into account, it is important that we have solid, transparent and well-known standards for the taxation of business profits and cross-border services, with international tax norms being crucial as this level of economic activity continues to expand.

Another element of this legislation that is worth reflecting on hinges on efforts to help combat tax avoidance and evasion. The focus on this area across various parts of the globe continues to grow and sharpen. Governments are starting to give voice to concerns about the impact that the structuring of cross-border commercial arrangements by multinationals is having in terms of eroding the taxation revenue of governments. In the UK, for example, there has been a very active debate about the taxation contribution of—of all companies—Starbucks. The heat of this issue has been fuelled by strong remarks by the British Prime Minister, David Cameron, who spared little in expressing what he really thinks of this issue. He says: 'It is a world where some companies navigate around legitimate tax systems, and even low tax rates, with an army of clever accountants.' He also knows that the UK cannot deal individually with the issue of tax avoidance and evasion and he recognises that international tax agreements like the one we are talking about today do need to be strengthened. He says: 'Acting alone has its limits. Clamp down in one country and the travelling caravan of lawyers, accountants and financial gurus just moves on elsewhere.' Importantly, Prime Minister Cameron said, 'We want to use the G8 to drive a more serious debate on tax avoidance and evasion.'

If you move to the other side of the planet right here in our own backyard, we have been focused on the amount of tax paid by some well-known international firms. It is interesting that the other week it was revealed that Apple Australia generated over $6 billion in revenue here in Australia but paid only $40 million in tax. Apparently that is two-thirds of one per cent of its turnover. People will rightly rush and point out that we tax profits, not revenue, so it might be wrong to needle that firm on this.

According to analysis reported by the Financial Review, Apple's profit was $99 million, shrinking 48 per cent on its 2011 result, and this is despite the fact that sales revenue ballooned 23 per cent off the back of the new generation of iPhones and iPads. Given this, is it fair to needle a multinational like Apple about the amount of tax paid? Because while they generated $6 billion in revenue, they apparently racked up, from what I understand, $5.5 billion in costs. How? They do not manufacture here. They have no factories here. I do not know what their R&D effort is here—I do not if they are claiming that this is driving their costs up. They have got a growing number of retail outlets, which I am happy about—they are creating jobs locally; that is great—but surely those outlets do not cost $5.5 billion to maintain.

They have a head office here, but you would not know it because they maintain a cloak of invisibility and their key management team dodge any scrutiny and refuse to even engage on public policy issues. Given the lack of work they do on that front, you would hardly say that it cost $6.6 billion to maintain a head office here and dodge that limelight.

According to Mark Zirnsak of the Tax Justice Network Australia, 'it seems somewhat incredible that they have $5.5 billion in costs'. I imagine that their costs are probably tied to transfer pricing arrangements, which again is the subject of an element of the amendment bill that we are debating now. I imagine that the costs are tied to that transfer pricing arrangement between Apple's Australian operations and their US parent. It would be great to learn more about what they do, but Apple steadfastly refuses to engage with stakeholders. Ask anyone who has sought answers from them about their Australian operations and you will hear a common theme: they will not talk.

Another firm that is certainly in the frame when it comes to its tax bill is Google, who is being similarly targeted. I think, by way of contrast, Google at least engages with government, is prepared to talk and be a lot more open about issues. While they will obviously—and all the major tech firms—be a remaining focus on the impact of transfer pricing and the impact of their tax arrangements and what they do in terms of our tax revenue and our base of tax revenue, at least they are willing to engage. Apple, on the other hand, believe that they are above scrutiny, and that is completely unacceptable.

I have been a great admirer of this firm and its impact on the way we engage with IT but, over the course of the last few years, following attempts to get answers on their pricing strategies, my admiration has well and truly dimmed. There have been well-known price disparities between the US and Australian markets that Apple operates in. They are not the only culprit but they are by far and away the most defiant, and Australian consumers have borne the brunt of price discrimination by them and now Australian taxpayers are shouldering a heavy burden too. So it seems that others are seeing beyond the glitz to start driving change on taxation arrangements.

You can see that is part of what we are doing here today in the International Tax Arrangements Amendment Bill. You can see it in the transfer pricing arrangements and what we have been doing in terms of legislation there. Assistant Treasurer David Bradbury has announced work is being done to improve the transparency of the Australian business system to discourage aggressive tax minimisation.

I have to confess I have been a bit cynical about Treasury's desire to tackle this mainly because, as a member of the House of Representatives Standing Committee on Infrastructure and Communications that is looking at IT price discrimination, Treasury made a submission, which I have to characterise as an apologia. They justified price discrimination that is costing businesses and consumers up to $10 billion and, while businesses and consumers have been waiting for the power of Treasury and even the ACCC to be brought to bear in driving out this level of inflationary waste within our economy, that hope has been for nothing. However, it has been a contrast to see Treasury move as quick as greased lightning to shore up the tax base.

There is no doubt this is important. The bill tackles this in part—the bill we are debating now. We cannot afford to have some businesses paying their fair share and others having a lighter load. That lighter load has been carried, as Prime Minster Cameron said, by a travelling caravan of lawyers and accountants.

I just wish that Treasury would apply an equal level of fervour to tackle the scourge of price discrimination as it affects consumers and businesses.

While on the issue of tax and efforts to broaden the GST to cover online transactions, there is an interesting aside. State governments are locking arms to push the federal government to lower the threshold on online retail transactions, reckoning that this will provide a protective blanket for small business in Australia. That is interesting, given that the New South Wales government slashed support for small business advisory services in my state and the federal government had to step in to provide over $200,000 in extra funding for the Greater Western Sydney Business Enterprise Centre. At the same time they were saying that state governments are protecting small business by changing online transaction thresholds. Any move to lower this threshold will be counterproductive because every dollar of taxation revenue raised will see us spend more on Customs or Australia Post to try and enforce the lower threshold. Customers lose, taxpayers lose and, in the longer term, small businesses lose. This move should be resisted and both sides of politics should lay their cards on the table about what will be done in terms of the threshold. I for one argue against lowering the threshold because I do not think it will be of benefit.

Coming back to the legislation and what it is trying to give effect to, in terms of the way in which we relate to a number of jurisdictions, in part it also deals with transfer pricing and tax evasion. This will take greater focus as we move ahead. It is certainly the case that the level of work that has been applied by the group of people brought together to look at the way we change our taxation arrangements to avoid aggressive tax minimisation by multinationals will continue. I think a lot of these firms do have something to answer in relation to the way they have structured their affairs, and we need to move on this more. Australian consumers who have been affected by price discrimination and taxpayers who have been affected by minimisation should be helped. As I said earlier, I hope that Treasury applies an equal level of fervour in dealing with the inflationary impact of price discrimination as it does in trying to protect our taxation base. They are equally important, they both deserve attention and there should be moves to deal with these issues. That certainly should be championed by Treasury, which I would imagine can recognise that lower cost bases for business are good for economic stimulus and growth within our nation. It will potentially give a platform for business to be able to expand further, not just here but in international markets.

It is good to have the opportunity to speak on this bill. I look forward to seeing this and the other work that is being done to tackle what are fairly serious issues being considered by governments both here and abroad.

11:48 am

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 2012. The bill amends the International Tax Agreements Act 1953 to give effect to new bilateral taxation treaties with India, the Marshall Islands and Mauritius. The purpose of these treaties is twofold: firstly, to foster and develop closer economic and trade relationships with those countries and, secondly, to enhance the integrity of the tax system through enhanced frameworks through which tax administrators can prevent international fiscal evasion. A moment ago, my colleague the member for Chifley spoke about that eloquently and identified how the taxation and transfer pricing systems are causing problems for this country and internationally. They are worthwhile objectives.

I will focus my remarks on how this legislation affects our relationship with India, a country with which Australia has had a longstanding special relationship and with which we have much in common. Australia and India both celebrate 26 January as an important national day. For Australia, 26 January is the anniversary of the landing of the First Fleet in Sydney Cove and has become our national day.

For India, since 1950, 26 January has been celebrated as the day India became a republic. Both countries are members of the Commonwealth and have had a strong British influence in their history. Both countries share a love for cricket, and both countries have democratically elected governments. In fact, India is the world's largest democracy, and Australia is one of the modern world's oldest democracies.

Today, around 400,000 Australians are of Indian origin, and India is Australia's largest source country of migration and skilled entrants. It is also Australia's largest source of international students, with around 40,000 international students from India currently studying in Australia. I would estimate that, over the years, the number of students from India who have studied in Australia must now number a million or more, and that in turn reinforces the ties between our two countries, because those students, having gone back to their own country, would have made connections and friends with people here in Australia.

Two-way trade between Australia and India in 2011-12 was about $18 billion and is growing rapidly. Indian investment in Australia is about $11 billion, whilst Australian investment in India is over $4 billion. Today India is the world's third largest economy and, with an expected economic growth rate of 6¾ per cent per annum over the next decade, India's international influence will continue to grow. In acknowledgement of the important ties between India and Australia, Prime Minister Julia Gillard visited India in October 2012, and in recent months foreign minister Bob Carr, trade minister Craig Emerson and arts minister Simon Crean have all visited India to reinforce the importance of the relationships between the two countries by signing agreements in areas of mutual interest.

Since 2008 around 60 ministerial visits have taken place between the two countries. Adding to the ministerial visits, the second Australia-India roundtable was held in New Delhi on 4 and 5 December last year, with resources minister Martin Ferguson inaugurating the roundtable. The roundtable brings together government, business and academic leaders from both countries to discuss areas of common interest. I particularly note that at the roundtable there was discussion about the deepening of security collaboration between India and Australia, including through regular bilateral naval exercises. Potential areas for future defence cooperation include development of amphibious capabilities, submarine rescue, operational communication links and maritime domain awareness in overlapping zones of interest in the Indian Ocean. The two nations could bring together maritime legal specialists to develop shared understandings on critical regional issues such as freedom of navigation. Of course, the two countries could also engage with China, Indonesia and other countries in the region on regional security matters. I also note that at the roundtable there were discussions on energy and education, which also paves the way for future investment decisions between the two countries. These are all welcome announcements.

For the Indian people who have resettled in Australia, seeing the two countries actively engaging with each other must be heartening for them. Their ties with their homeland will remain an important part of their lives. It is particularly encouraging to see the number of Indian families at local citizenship ceremonies taking up Australian citizenship and embracing Australian life. Indian people can now be found in all walks of Australian life, including in business, in the professions, in hospitality and in farming communities. They are hard working, enterprising and appreciative of the opportunities that Australia has to offer them. They are also people of faith and strong family values, perhaps well reflected in the words of the great Indian statesman Mahatma Gandhi who listed wealth without work, pleasure without conscience, knowledge without character, commerce without morality, science without humanity, worship without sacrifice and politics without principle as the seven blunders of the world.

Mahatma Gandhi's grandson Aaron later added the eighth blunder: rights without responsibilities.

The brutal gang-rape and murder of a young Indian woman last year would have been particularly distressing for the Indian community in Australia, as it was for people around the world. It is a credit to Indian authorities that the alleged offenders have been arrested and are already before the courts. It is equally encouraging and heartening to see the widespread public outrage and rallies undertaken throughout India in support of women's rights, women's safety, and bringing an end to violence against women.

In my electorate of Makin, the Indian presence is notable. Many Indian families have settled in the area and Indian students are possibly the largest group of overseas students at the Mawson Lakes campus of the University of South Australia, which is located within the electorate of Makin. My own immediate neighbourhood has become home to several Indian families and I compliment them on the seamless and harmonious way in which they have settled into their new community. About two years ago, my daughter travelled to India at the invitation of one of her university friends, whose family was returning to India for the holiday period. My daughter was invited to join them and she was overwhelmed by the generosity and hospitality afforded to her while she was in India. Only last week, I spoke with family friends of Italian origin who had just returned from overseas having attended the marriage of their son to his Indian fiance. This kind of integration is wonderful to see.

The legislation we are debating can and will serve the interests of Australia and India. The issue of taxation can be both a barrier to investment decisions and a problem for governments seeking to ensure legitimate tax revenue is raised and that the tax system is neither manipulated nor evaded. In a global economy, taxation laws have become an influencing investment consideration. Consistency of tax laws and their enforcement provides a level playing field for all. Strengthening the taxation system of both Australia and India throughout this agreement will, therefore, create greater certainty for business investment and business operations in both countries. Noting the level of trade and business investment between India and Australia, and the growth trends projected, this agreement becomes even more important to both countries. The treaty reinforces and builds on the close and long-standing friendship and alliance between India and Australia, and I commend the bill to the House.

11:57 am

Photo of Laurie FergusonLaurie Ferguson (Werriwa, Australian Labor Party) Share this | | Hansard source

The Protection of Cultural Objects on Loan Bill 2012 undertakes a number of financial agreements with India, Mauritius—which ironically has got a very strong Indian influence—and the Marshall Islands. Previous speakers have detailed most of those changes, including to the amount of time for an enterprise to be a permanent establishment et cetera. I want to join with the previous speaker, the member for Makin, in speaking about India and the Indian community, because they are so crucial to this country.

What we have seen that is relevant to this legislation is that India's growth for the period 2011-12 was 6.5 per cent and over 2011 itself it was 7.1 per cent. These countries have had a very close diplomatic relationship since 1945 when India sent a High Commissioner here. This has been reinforced in recent years by meetings between the last two prime ministers of this country and the Indian Prime Minister, Manmohan Singh—in November 2009 and again in October 2012—where the relationship was strengthened by being elevated to a strategic partnership. There has also been the instigation of annual education ministers' meetings. This is symptomatic of a reality where India is Australia's fourth-highest export market and, from our side of things, the interest is in the export of minerals, fuels, education, copper and ores; and from the Indian side of the ledger: tourism, diamonds and medicants et cetera being very significant. India has also attracted, in recent years, very strong foreign direct investment; it was 51 per cent greater in 2011 than in 2010, and $36.5 billion was raised. India is the 19th largest exporter and the world's 10th largest importer. It is the 10th largest entity by nominal GDP.

We have a significant need to engage and to be involved, and the current government has very much emphasised that reality. We are talking about a country of 1.2 billion people which is governed through 28 states and seven union settlements. One thing that always intrigues me about India is when we compare it to our national population. We can look at the language groups in India—I and other members in Western Sydney are aware of this from attending a wide variety of language group meetings in Sydney: there are 83 million Bengali speakers—as I said, think of the Australian population—46 million Gujarati speakers; 38 million Kannada speakers in the state of Karnataka; 33 million Malayalam speakers; and 72 million Marathi speakers. Those are just the second string of language groups after Hindi, which is the language of 46 per cent of the population.

India is also a country which has wide pluralism with regard to religion, obviously predominantly Hindu. The last estimates, which are probably serious understatements from certain demographers, say Muslims comprise 13.5 per cent, Christians 2.3 per cent and Sikhs 1.9 per cent. This is an amazing phenomenon. Despite all the problems of this nation, they have held this together. I made this point at a public meeting recently. In comparison, having been in the United States during the recent presidential and congressional elections, not only should we say that India is the largest democracy in the world but we should also say they are far more capable of conducting their elections than the United States of America, given the challenges of such separate language groups, religious diversity, state divisions and the very traumatic security issues that surround the country.

The reality of the Indian diaspora in Australia is also of relevance to me and other speakers. We are talking about a very significant movement of Indian-background nationals in this country. If we look at India's migration ranking relative to other countries, they are the largest contributor in general skilled migration. That is similarly the case with the total skills stream. They are the third highest in the total family stream and the fourth largest national source of migration. What is also relevant is that they are not quite up there with languages spoken at home, because of the predominance of English. What has driven this stream in recent years, with regard to the resources boom and the failure in past years to train Australian people, has been the high reliance on skilled migration. Because of India's strength in English instruction they have been one of the major sources of this migration.

They contribute to us in the sense that they are very youthful—the median age is 31 years, which is six years younger than the Australian population. They are predominantly employed in the professional sector, as seen in the last census and migration movement statistics. Twenty-nine per cent are in the clerical and administration sectors. Just to reinforce the question of skilled migration, 76 per cent of Indians entering this country have come through the skills stream.

It has not been without difficulties. Changes were made to the rules with regard to skilled migration. There was a rather ill-thought out proposed change in recent years, whereby people were essentially promised permanent residency on the basis of Australian qualifications rather than having to compete with people from the rest of the world with university qualifications. We have seen some degree of exploitation of Australian migration rules by the smart operators, the spivs, the migration advisers and their alliance with certain questionable educational institutions in the private sector. We know that the current government had to step in, bring in some rules to make sure that it was regulated properly and not exploited. As I said, to some degree people come here for migration rather than for education. That of course can have a spill-on effect with regard to the credibility of Australian educational institutions. In general, we have been well rewarded by Indian migration to this country.

As I said, in general we have been well rewarded by Indian migration in this country. We see in Western Sydney the enhancement of many of our previously decaying suburban shopping centres. We see a resilience growing up in some of those sectors in regard to retail. When we go to the administrative sector in our country, when we go to professional organisations and the various people who provide services in this country, we know that Indian migration to this country has been very strong and very worthwhile. Let us hope it continues.

Finally, I want to refer to two organisations that are preparing for the long-term reality that confronts any diaspora that comes to this country, and that is ageing. As I said earlier, the Indian diaspora is far younger than Australians in general and the migration stream. However, they are thinking about the future. Many other migration streams in this country, many other communities long established, did not think ahead about ageing and did not prepare for the need for aged care. The first organisation is Sri Om Care, established in August 2007, which under the leadership of Jay Raman has been active in respite care, short-term and day care, seniors programs, undertaking accredited courses, active ageing, health performance and day centres in Chester Hill, Auburn and Seven Hills. I hope that they establish one in my part of Sydney, where there has been a significant Indian migration in recent years.

The other organisation is the South Asian Muslim Association, with whom I have also been heavily engaged over many years, a group that is essentially focusing on MOUs with existing care providers to make sure aged care is culturally sensitive in regard to food, religious practices et cetera. I compliment them for having a bit of morality, a bit of ethics, which does not always characterise groups in the NGO sector. They refuse to take any money from clubs because of the association with gambling. That is a pretty principled stand given the amount of money that other groups receive. There was of course one group that was legendary in the recent debate over gambling; it had been a long-term opponent of gambling but it was exposed for taking considerable amounts of money and therefore was not too keen about change. But this organisation, providing for aged care in the Indian and subcontinent communities, took a principled stand.

India is a country that is crucial internationally and far more important to this country. I commend the legislation to the House.

12:07 pm

Photo of David BradburyDavid Bradbury (Lindsay, Australian Labor Party, Assistant Treasurer ) Share this | | Hansard source

I thank all the members who have contributed to this debate—in particular, the member for Werriwa and the member for Makin. They have ensured that this has been a very wide-ranging debate that reflects the commitment of so many people in this place and this government to enhancing relations in trade and investment and cultural relations with those in other countries—in particular, the Asian region and India.

By the end of this decade, Asia is expected to overtake the economic output of Europe and North America combined to become the world's largest economic power. Average GDP per person in Asia is set to almost double by 2025, a feat that took the United Kingdom over 50 years to achieve during the Industrial Revolution. Our bilateral tax treaty network, which sets out tax arrangements with partner countries and establishes mechanisms for dealing with disputes, needs to cover our emerging trade and investment links right across the region. There is no better time than the present, in this the Asian century, to strengthen our relationship with India by giving the force of law to the new bilateral tax agreement between Australia and India. The Indian protocol will improve the administrative framework for tax cooperation between our two countries. It also provides for enhanced information exchange between the two taxation authorities and ensures the integrity of the tax system by providing for mutual assistance in the collection of tax debts.

The Indian agreement is in addition to the new bilateral taxation agreements between Australia and Marshall Islands and Mauritius. Such international cooperation between revenue authorities is essential to improve transparency and combat tax avoidance and evasion. The government is committed to removing taxation barriers that impede Australia's bilateral trade and investment relationships with other countries, and this bill will give effect to both of these commitments. Each of these agreements will strengthen Australia's bilateral economic relationship with these jurisdictions and, directly or indirectly, will help to discourage taxpayers from seeking to use offshore arrangements to avoid Australian tax. I commend the bill to the House.

Question agreed to.

Bill read a second time.

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