Bills Digest no. 23 2007–08
International Tax Agreements Amendment
Bill (No. 2) 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
Endnotes
Contact officer & copyright details
Passage history
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.
At the G-20 meeting hosted in Melbourne in November 2006, Australia
and Finland signed the new tax
treaty, Agreement between the Government of Australia and
the Government of Finland for the Avoidance of Double Taxation with
respect to Taxes on Income and the Prevention of Fiscal
Evasion. The new treaty replaces the existing taxation treaty
between Australia and Finland, which was signed in 1984 and amended
by Protocol in 1997 ( the previous agreements ). [2] The Treasurer, the Hon Peter
Costello MP, subsequently announced the new treaty by
media release on 20 November 2006.
The National
Interest Analysis of the treaty, prepared by the Department of
Foreign Affairs and Trade, outlines the basis of Australia s policy
commitment:
The entry into force of Australia s 2001
United States (US) Protocol
[2003]
ATS 14 and the 2003 United Kingdom (UK) Convention
[2003]
ATS 22 triggered the Most Favoured Nation (MFN) obligation
under the existing Australia‑Finland Agreement, requiring
Australia to enter into negotiations with Finland with a view to
providing lower Withholding Taxation (WHT) rates for interest and
royalty payments and to include rules that protect nationals and
businesses from tax discrimination in the other country.
[3]
The treaty was considered by
the Joint Standing Committee on Treaties (JSCAT), which recommended
that the Government take binding treaty action in its
report on Treaties Tabled on 6, 7 and 27
February 2007.
The general purposes of the updated treaty are to:
-
provide relief from double taxation on cross-border income (Article
22 of the Agreement)
-
reduce current rates of withholding taxes on dividends, interest
and royalties and bring into line the treatment of capital gains
tax with OECD practice and its improved integrity measures
[4]
-
set out rules to prevent tax discrimination against nationals and
Australian businesses operating in Finland, and vice versa (Article
23), and
-
improve integrity aspects of administering and collecting tax in
either or both countries, include enhanced information exchange
provisions which meet modern OECD standards.
[5]
The
Explanatory Statement states that Treasury has estimated the impact
of the first round effects on forward estimates as negligible, and
that no significant compliance costs will result from the entry
into force of the Agreement. [6]
Schedule 1, items 1-7 amend the International
Tax Agreements Act 1953 to make a variety of consequential
amendments to the 2006 Finnish agreement, which replaces the 1984
Finnish agreement and the 1984 Finnish agreement as amended by the
1997 Finnish protocol. The consequential amendments include:
Item
8 repeals Schedules 25 and 25A of the Act, which currently
contain the existing Finnish agreements, and substitutes a new
Schedule 25 which sets out the new 2006 Finnish
agreement.
New section 11PA preserves
the provisions of the previous agreements so far as those
provisions continue to have the force of law for tax, in respect of
income to which the previous agreements apply (this is a savings
provision).
Although
commencement of the Bill is on Royal Assent, the Agreement does not
enter into force until 30 days after the date of the last
notification that Parties domestic requirements have been met
(Article 28 of Schedule 25). Therefore,
commencement of enforcement also requires appropriate action by the
Finnish Government. [7]
Endnotes
[1] Spooner, Diane, International Tax Agreements Amendment
Bill (No. 1) 2007.
[2] Media
release, The Hon Peter Costello MP, Treasurer, p. 1.
[3] National Interest
Analysis, para. 6.
[6] Explanatory
Statement, p. 5 6.
[7] While the Finnish
Government announced the signing of the Agreement by
press release in late 2006, it is unclear at this stage whether
the Agreement has been approved by the Parliament of Finland.
PaoYi Tan
14 August 2007
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