Nick Minchin (SA, Liberal Party, Minister for Finance and Administration) Share this | Link to this | Hansard source

On 22 March 2007, Senator Fielding asked a question in relation to private equity. I undertook to obtain further information in relation to Senator Fielding’s question from the Treasurer. I seek leave to incorporate this information in Hansard.

Leave granted.

The answer read as follows—

Senator FIELDING (2.34 p.m.)—My question is to Senator Minchin, the Minister representing the Treasurer. Minister, I draw your attention to the UK government’s recent announcement of an inquiry into the loss of tax revenue caused by high-debt private equity buyouts. Minister, given that Australian taxpayers will lose more than $1 billion in revenue as a result of the Qantas takeover, will the Australian government also investigate the massive tax losses from such deals?

Senator Minchin—The Treasurer has provided the following answer to the Senator’s question:

I do not accept the premise of your question that Australian taxpayers will lose more than $1 billion in revenue as a result of Airline Partners Australia’s (APA) bid for Qantas. APA’s offer for Qantas remains subject to market acceptance and there is no guarantee that it will proceed as it depends on market acceptance.

The tax laws apply to everyone in Australia equally. And the Australian Tax Office (ATO) ensures that everyone pays their fair share of tax in compliance with the tax law. The ATO is well resourced to go after both people and companies that don’t comply with the tax law.

It should be noted that any revenue reductions flowing from private equity buy-outs may be offset by revenue gains flowing from the sale of shares and reinvestment of sale proceeds.

The Council of Financial Regulators is the co-ordinating body for Australia’s main financial regulatory agencies. The Council of Financial Regulators, consisting of the Reserve Bank of Australia (RBA), the Australian Prudential Regulation Authority (APRA), the Australian Securities and Investments Commission (ASIC) and Treasury, have established a working group to look at private equity investment and any attendant risks.

The Reserve Bank of Australia published the CFR’s first report in its Financial Stability Review released in March 2007.

I have also asked the Treasury to monitor the work being conducted in the United Kingdom.

Senator FIELDING—Why has the Government agreed to tax treaties which limit our tax take on money going overseas to just 10 per cent?

Senator Minchin—The Treasurer has provided the following answer to the Senator’s question:

The general rate of withholding tax on interest paid to non-residents is 10 per cent on the gross interest paid. This is also the rate that is sought in Australia’s tax treaties.

A tax treaty provides for a balanced outcome whereby both countries are required to limit their taxing rights on cross-border interest payments. Thus Australia’s treaty partner countries must also limit their taxation on interest paid to Australian residents to 10 per cent. This treaty practice is in line with international norms, as set out in the OECD’s Model Tax Convention. If Australia did not take such an approach to tax treaties, the taxation arrangements for Australian businesses operating overseas would not be as beneficial. This would lessen the international competitiveness of Australian owned and based businesses.

A tax of 10% on the gross amount of interest could often amount to more than a 30% (the corporate tax rate) tax on the net income, as tax on gross flows does not allow deductions for expenses incurred by the non-resident in earning that interest income in Australia.