Thursday, 24 October 2019
Treasury Laws Amendment (International Tax Agreements) Bill 2019; Second Reading
That all words after "That" be omitted with a view to substituting the following words:
"whilst not declining to give the bill a second reading, the House recognises:
(1) the importance of Australia’s long-standing relationship with Israel; and
(2) the need to support cooperation between national tax authorities".
The Treasury Laws Amendment (International Tax Agreements) Bill implements the convention between the government of Australia and the government of Israel for the elimination of double taxation with respect to taxes on income and the prevention of tax evasion and avoidance. As signed by Australia and the State of Israel on 28 March 2019. Labor supports this convention, as we've supported previous efforts to encourage cooperative and cooperation between national tax agencies and help detect and prevent tax evasion. Consequently, we'll be supporting this legislation.
The convention will support new trading opportunities for Australian businesses by reducing withholding taxes, helping to create a more favourable bilateral investment environment between Australia and Israel. The convention will also improve tax certainty for businesses and investors by introducing antidiscrimination and arbitration rules as well as a range of rules to prevent double taxation. Additionally, the convention will help detect and end tax evasion. It does this by authorising the revenue authorities of Australia and Israel to exchange taxpayer information on all taxes that are covered by the convention.
Finally, the convention incorporates important integrity provisions from the G20 OECD Base Erosion and Profit Shifting project, known as BEPS. These provisions are designed to minimise tax avoidance opportunities and to ensure that multinational corporations pay the appropriate amount of tax. The new convention will enter into force following the last notification that both countries have completed their domestic requirements, which includes the passage of this bill. As well as amending the International Tax Agreements Act 1953 to give force to the convention, the bill amends the Income Tax Assessment Act 1997 to introduce a new deemed source of income rule. This will ensure that Australia can fully exercise the taxing rights it has negotiated under the new convention and will streamline the negotiation of future international tax agreements. For these reasons, I commend the bill and the amendment to the House.
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.
I'm speaking in support of the Treasury Laws Amendment (International Tax Agreements) Bill 2019, which gives force of law to a taxation treaty between Australia and Israel and will help alleviate concerns about double taxation between our two countries. This is one of 40 taxation treaties that Australia undertakes with other nations to avoid double taxation in both signatory countries. It is nothing new to Australia, but it does support and grow the relationship between our two great countries. The treaty supports cooperation between Australia and Israel and our tax authorities, and may help address multinational tax avoidance issues as well, something both Australia and Israel have been at the forefront of through OECD processes—in particular, the base erosion and profit shifting, or BEPS, regime that's come into play in recent years.
The bill also introduces a general domestic source of income rule to ensure that Australia can exercise its taxing rights. Legislating this rule will help streamline future tax treaty negotiations. The requirement for the legislation of this particular rule comes about to overcome a 1965 High Court decision regarding the ability to tax international income. Australia's rules have provided that income profits or gains that are permitted to be taxed by Australia under the relevant treaty are taken to be sourced in Australia. Currently, Australia seeks to secure agreements to include specific source rules in the course of negotiating a tax treaty or legislate a specific rule where such agreement cannot be secured. Legislating a general rule will ensure that this is not required and will streamline future tax negotiations. The new general provision only applies to Israel's convention and any future international agreements. Existing legislation will apply to previous agreements.
This bill will support a healthy economic relationship between Australia and Israel—a relationship that has certainly stood the test of time and, in recent years, has been growing. Australia's bilateral trade with Israel was worth nearly $1.3 billion in 2018. Significant Australian exports to that country include beef, plastics and aluminium. Obviously Australia derives a benefit from trade with Israel as well. Israel is known as the start-up nation. It has a very healthy start-up and tech sector, and I think that we could learn a lot from Israel in terms of incentives for businesses around research and development and the start-up community to encourage new business enterprises to begin in Australia. Israeli investment in Australia was more than $250 million in 2015, while Australian investment in Israel was worth more than $650 million in that same year.
There are 20 Israeli companies listed on the Australian Stock Exchange, making Israel the third-largest source of foreign company listings in Australia. As I mentioned earlier, that relates to that great culture in Israel of encouraging new business enterprises and businesses to start up within their economy. There's no doubt that the Australian stock market and Australia more generally have benefited from that culture. Australia's relationship with Israel has a very strong historical dimension that's supported by the large Jewish diaspora that live in the many cities and regions of Australia, going back to particularly post World War II. Australia and Israel have cooperated at all levels of international bodies, particularly around economic cooperation and issues associated with tax transparency and accountability, which have been a trend in international tax relations in the wake of the global financial crisis. I'm talking, of course, of OECD programs around base erosion and profit shifting. This particular treaty is based on a model treaty program that is conducted through the OECD to avoid double taxation between countries and to reduce barriers to trade between countries as well, and it will ultimately grow incomes between countries and create jobs.
This is a bill that supports stronger economic ties between Australia and Israel, growing the economic relationship into the future and ensuring a smoother economic relationship, particularly when it comes to taxation issues. Nothing in this treaty will change Australia's commitment to a two-state solution in Israel and negotiation of that particular issue. But this bill ensures that, in the future, the economic prospects between our nations will grow and the relationship will get stronger and stronger to the benefit of both nations. I commend the bill to the House.
I echo the contribution made in this place by the member for Kingsford Smith, who has been a long-time supporter of the Jewish community in his electorate. I know that that support is much appreciated by many members of his community.
This bill, the Treasury Laws Amendment (International Tax Agreements) Bill 2019, is a fairly straightforward bill and one that the Labor Party supports in this place. The bill gives force to a taxation treaty between Australia and Israel that will remove the double-taxation concerns that currently exist between Australians and Israelis. As many Israeli expats live in Macnamara, this is particularly important. We have a vibrant Jewish community, including my family, in the place where I grew up in Macnamara. We have a growing number of Israelis coming to both Macnamara and surrounding communities. The member for Goldstein has a growing number of Israeli expats in his electorate, as do a number of other electorates. This bill will mean that, if people have dual citizenship or have income from one country, people won't be double taxed in Australia. I think that will be welcomed by people in my electorate and is ultimately a good thing.
The other thing this bill will do is create a situation where the Australian taxation authorities and the Israeli taxation authorities will have more cooperation. This will be especially important when dealing with multinational tax avoidance, which is a key part of our relationship with Israel economically. Both countries have a fairly similar economic story and certainly similar economic conditions. Both Australia and Israel are countries where economies have evolved and are evolving quickly. In Israel they do not have as many resources as we have here in Australia. We are absolutely blessed with resources around the country, which have been key drivers in our economy, but in Israel they are resource scarce and have had to rely on ingenuity.
In 1948, when the Labor Party was pivotal in helping to create the state of Israel, my grandfather was one of the first migrants to help establish a newly formed Jewish state after seeing many of his family and his people persecuted throughout World War II and killed off in the Holocaust. He moved to Israel and fought in 1948, in Haifa, and then also served in the Israeli navy, where he brought refugees and Holocaust survivors from Europe to Israel to give them a safe place to live after years of persecution. This is how that relates to this bill: in those days it was a desert land—it is very hot in Israel and, especially in the south, there isn't much green. What happened was that small pockets of communities—kibbutzes—were small socialist utopias, as many people fondly remember. They were small communities where they shared resources and funds, and helped build and transform a country. My grandfather was part of that generation where they turned a desert into an oasis through hard work and ingenuity. They share many of the problems we share. They have a scarcity of water. They have agricultural needs. They have a situation where they need to innovate.
Modern Israel is a far distance away from what the country looked like 70-odd years ago when it was first created. This bill allows for further cooperation. If you're in Tel Aviv now, it is one of the most picturesque, relaxing and wonderful cities in the world. It is a metropolitan city that is deeply progressive and deeply international, and where people are celebrated; one of the largest pride marches in the world happened in Tel Aviv. It is a fabulous place to go and visit.
But Israel is also one of the world's powerhouses of innovation and of IT. Many of the world's largest IT innovators and companies are in Israel, because Israel has this mentality of fostering entrepreneurship, as the previous speakers have spoken about, and a real culture of research, of innovation and of taking risks. That is why a lot of companies choose to do business there. The people and the students coming out of Israel are desperate to make their mark and to find the new innovation, the new thing, that's going to help their community and also humanity more broadly.
When I was working in the Victorian government, in 2017 I had the privilege of going with the Premier, Daniel Andrews, to Israel, to set up the first state based trade office with the state of Israel. We set it up in the same building where Google have their offices, as do PayPal and a number of other major international companies. It was all about making sure that we had more collaboration between, at that stage, the state of Victoria and Israel. It was focused on these ideas of innovation and research, and on how we can assist each other, which was really quite great to be a part of.
One of the things that that trade office signed up to in 2017 was a focus on biomedical science. Israel has some amazing research institutions. They are constantly looking for new ways to push medicines forward and the treatment of various conditions forward. In my electorate, we have the Baker Heart and Diabetes Institute, one of our nation's most outstanding medical research centres, focused specifically on the heart. We announced a partnership, funded by the Victorian government, where the Baker Institute partnered with the Sheba Medical Center to look at ways of protecting the heart from arrhythmias and also to help produce medicines that work against heartbeat irregularities. That is just one small example of the way that collaboration between Australian institutions and Israeli institutions can benefit both countries. Another collaboration we announced was between the Florey Institute of Neuroscience and Mental Health, which is in Parkville in Melbourne, and the Hadassah Medical Center, on a really fascinating piece of research focused around schizophrenia and the ways in which we can help to treat and better understand it.
This bill goes further on that notion that there is much to be gained by cooperation between our two countries. We have many similarities, economically. We both rely on water, and neither of us have very much of it. We both rely on innovation and we both have a large section of our economy which is powered by services and by IT, research and innovation. It is absolutely in our interests to ensure that Australians and Israelis can work together, and so to prevent double taxation, ultimately, is a good thing.
While I'm on my feet, I'll say: obviously, there are serious challenges that both our countries face, especially Israel. While I don't diminish many of the difficulties that Israelis and other people—and, of course, the Palestinians—face on a regular basis, I would say that this bill is important for the relationship between our peoples and our two countries, which is all about allowing people, growth, innovation and economic relationships to flourish, because Israelis and Australians deserve no less.
Finally, I also want to briefly say that yesterday I was very proud to work with the member for Wentworth on a day—and it was quite a difficult day—where we hosted Dassi Erlich and Nicole Meyer, and, unfortunately, their sister Elly Sapper was unwell. These are victims who suffered the most awful abuse at the hands of their school principal, who fled to Israel.
This bill shows that there is much to be gained by having a productive relationship. There is much to be gained by working together with the Israelis. I know that many people in Israel, including the ambassador, understand the pain that that particular case is causing Australians. It is a feature of our relationship and it will be a feature of our relationship until justice is served. In the meantime we on the Labor side of the House support this bill, because it enables further and greater economic cooperation between Australia and Israel, but until such stage as Malka Leifer is returned, it is important that we continue to apply the pressure. I thank the member for Wentworth and all of those on the other side of the House who helped yesterday in providing a really important day and support to the sisters, who have suffered more than enough. On that note I am pleased to support this bill. We have much to gain from improving economic relationships and improving economic conditions. We have many shared challenges, but we have much to gain by working together. I commend the bill to the House.
I thank all those members who've contributed to the debate. I especially thank the member for Macnamara. That was an excellent speech and contribution. The Treasury Laws Amendment (International Tax Agreements) Bill 2019, by amending the International Tax Agreements Act 1953, gives effect to a new tax treaty between Australia and Israel. It also introduces a new deemed-source-of-income rule for the purpose of the new tax treaty and for any future Australian tax treaties. The new treaty is the first of its kind between Australia and Israel and will provide an avenue to support closer linkage between Australia and Israel. The new treaty will create new trading opportunities for Australian businesses and will encourage trade and investment that is critical for our businesses to export, expand and employ more Australians. The new treaty will also help ensure that multinational corporations pay their fair share of tax and further demonstrates Australia's resolve to stamp out international tax avoidance. I commend the bill to the House.
The original question was that this bill be now read a second time. To this, the honourable member for Whitlam has moved as an amendment that all words after 'that' be omitted with a view to substituting other words. The immediate question before the House is that the amendment moved by the honourable member for Whitlam be agreed to.