Bills Digest no. 148 2006–07
International Tax Agreements Amendment
Bill (No. 1) 2007
WARNING:
This Digest was prepared for debate. It reflects the legislation as
introduced and does not canvass subsequent amendments. This Digest
does not have any official legal status. Other sources should be
consulted to determine the subsequent official status of the
Bill.
CONTENTS
Passage History
Purpose
Background
Financial implications
Main Provisions
Concluding Comments
Endnotes
Contact Officer & Copyright Details
Passage History
International Tax
Agreements Amendment Bill (No. 1)
2007
Date introduced:
29 March 2007
House: House of Representatives
Portfolio: Treasury
Commencement:
On Royal
Assent
To incorporate
into Australian law two international treaties signed with France
and Norway relating to the avoidance of double taxation with
respect to taxes on income and the prevention of fiscal
evasion.
Australia has bilateral agreements with a
number of countries, known as Double Tax Agreements, aimed to
prevent the double taxation of income where income is received by a
resident of one country from activities in the other country. The
agreement also aims to help minimise tax avoidance and evasion. The
agreements deal with income from a number of specific sources, such
as business income, dividends, interest and royalties. The
agreements provide for the taxation treatment which is to apply,
particularly which country may tax various categories of income and
limitations of the amount that may be taxed. Subsection 4(2) of the
International Tax Agreements Act 1953 (the ITA Act)
provides that agreements are, in most cases, to overrule provisions
of the Income Tax Assessment Act 1936 and the Act imposing
Australian tax the Income Tax Assessment Act 1997,
although a specific Australian law can overrule an agreement.
Agreements have a common format but differ to
reflect the various tax rules applying in the countries with which
Australia has an agreement.
The aims of Double Tax Agreements are to
prevent:
- the double taxation of income received in one country that is a
party to an agreement by a resident of the other country that is a
party to an agreement. This is achieved by the separation of taxing
powers between the parties and, in certain circumstances, the
giving of credits for the payment of tax in the other country,
and
- tax evasion or avoidance by international tax arrangements.
This is aimed to be achieved by the transfer of information between
the taxation authorities of the countries that are parties to an
agreement.
Agreements 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 the
income, although different limits and variations to the standard
rules apply for the various countries. 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 to a maximum percentage of the income
(the most important categories covered by the later rule are
dividends, royalties and interest). 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. Agreements may
also have general catch all provisions designed to preserve the
operation of Australia tax rules unless specifically excluded by
the agreement.
On 21 June 2006, the Treasurer the Honourable
Peter Costello announced by
press release that Australia and the Republic of France signed
the Convention between the Government of Australia and the
French Republic for the Avoidance of Double Taxation with respect
to Taxes on Income and the Prevention of Fiscal Evasion and
Protocol, done at Paris on 20 June 2006 (the French
Convention). The French Convention will replace the 1976
Australia-France Tax Agreement as amended by the 1989 protocol and
the 1979 Australia-France Airline Profits
Agreement(1).
On 8 August 2006 the Minister for Revenue and
the Assistant Treasurer, the Honourable Peter Dutton, announce by
press release that the Minister and the Norwegian Ambassador to
Australia signed the Convention between the Government of
Australia and the Government of the Kingdom of Norway for the
Avoidance of Double taxation with respect to Taxes on Income and
the Prevention of Fiscal Evasion, done at Canberra on 8 August
2006 (Norwegian Convention). The Norwegian Convention also
replaced the previous 1982 Convention.
Both Conventions have been made consistent
with the Government s response to Review of International
Taxation Arrangements to modernise international taxation
arrangements which recommended that Australia s tax treaties should
move to a more residence based treaty policy in substitution for
treaty policies based on the source taxation of
income(2).
The General Manager, International Tax and
Treaties Division, Department of the Treasury gave evidence to the
Joint Standing Committee on Treaties and stated:
The proposed conventions fulfil our obligations
under the most favoured nation clauses to renegotiate certain
aspects of our tax treaties with France and Norway. The existing
treaties with both countries include MFN clauses relating to the
reductions in withholding taxes. The French treaty also includes an
MFN clause concerning the inclusion of non-discrimination rules.
The entry into force of the 2001 protocol to the Australia-United
States tax agreement triggered our withholding tax MFN obligations
and the 2003 Australia-United Kingdom treaty triggered our
non-discrimination obligations.
The
Explanatory Statement states the direct cost to revenue is
estimated to be approximately A$10 million per annum for the France
Convention and negligible for the Norway
Convention(3).
Schedule 1, items 1-9A make
amendments to the International Tax Agreements Act 1953
(the ITA Act). The amendments are consequential to the 2006 French
Convention which replaces the three previous agreements, namely the
1969 French airline profits agreement, the 1976 French agreement
and the 1976 French agreement as amended by the 1989 Protocol.
Items 11 and 12 will repeal
Schedules 7, 11 and 11A which currently contain the existing three
agreements and substitute new Schedule 11 which
sets out the new 2006 French Convention.
Similarly, Schedule 2, items
1-6 amend the ITA Act to reflect the new 2006 Norwegian
Convention which will be in new Schedule 23. There
are currently 47 Schedules to the ITA Act which contain the
international tax agreements with other countries.
Concluding comments
Both treaties will enter into force when both
countries have completed their domestic requirements. This includes
their incorporation into Australian law which will occur by the
implementation of this Bill. The Standing Committee on Treaties
acknowledges that the Conventions are expected to reduce barriers
to trade and investment by overcoming the difficulty of Parties
overlapping taxing jurisdictions and aiding in the prevention of
tax evasion (4).
- Report of the Joint
Standing Committee on Treaties, Report 79: Treaties
tabled on 10 May (2), 5 and 6 September 2006, p. 27.
- ibid, paragraph 4.7,
p. 29.
- Explanatory
Statement International Tax Agreements Amendment Bill (No. 1)
2007, p. 7.
- ibid, paragraph
4.19, p. 31
Diane Spooner
15 May 2007
Law and Bills Digest Section
Parliamentary Library
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