Bills Digest no. 5 2006–07
International Tax Agreements Amendment
Bill (No.1)
2006
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
Main Provisions
Concluding Comments
Endnotes
Contact Officer & Copyright Details
Passage History
International Tax Agreements
Amendment Bill (No.1) 2006
Date introduced: 22 June 2006
House: House of
Representatives
Portfolio: Treasury
Commencement: On Royal Assent.
To provide for the legislative implementation of a Protocol
amending the existing Australia-New Zealand Double Taxation
Agreement.
Background
Australia has agreements with a number of countries, known as
Double Taxation Agreements, aimed at preventing the double taxation
of income where income is received by a resident of one country
from activities in another country. They also aim 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. They 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 provides that agreements are, in most cases, to overrule
provisions of the Income Tax Assessment Act 1936 and the
Income Tax Assessment Act 1997 although a specific
Australian law can overrule an agreement.
The
Agreement with New Zealand for the Avoidance of Double Taxation
and the Prevention of Fiscal Evasion with respect to Taxes on
Income (the 1995 Agreement) was originally signed in 1995
and entered into force that same year. It replaced a previous
double taxation agreement dating back to 1972. It is intended
that the 1995 Agreement will be amended by a
2005 Protocol (the Protocol). The International Tax Agreements
Amendment Bill (No.1) 2006 (the Bill) provides for the legislative
implementation the Protocol, thus enabling ratification by
Australia.
There three main aspects to the Protocol. These are:
- Information exchange. The Protocol amends the 1995 Agreement to
somewhat expand the existing obligations of Australia and New
Zealand to provide tax-related information to each other when this
is requested by the other jurisdiction. The existing safeguards in
the 1995 Agreement regarding treating any such information as
secret are unchanged. Also, there is no obligation to supply the
requested information if that would be contrary to the law and
administrative practice of the relevant jurisdiction, or the
information would disclose confidential information where such
disclosure is contrary to public policy. This provision (Article 2
of the Protocol) is taken from Article 26 of the OECD Model Tax
Convention on Income and Capital.
- Assistance in collection provisions. Article 4 of the Protocol
inserts an entirely new provision into the Agreement. From the
Australian perspective, its practical application is in recovering
tax debts from those Australian taxpayers who have left Australia
but have assets or income in New Zealand. In such cases, the New
Zealand authorities would recover the amount owing to the
Australian Tax Office (ATO) under New Zealand legal processes and
then remit the funds to Australia. There is no obligation on either
country to provide assistance in recovering the tax debt if that
would be contrary to the law and administrative practice of the
relevant jurisdiction, or would be contrary to public policy, or
where the administrative burden on the assisting country is
disproportionate to benefit to the other country in recovering the
debt. Article 4 is taken from Article 27 of the OECD Model Tax
Convention on Income and Capital.
- Article 5 of the Protocol inserts a most favoured nation
provision. In the event that New Zealand reduces withholding tax
rates on dividends, interest and royalties in a treaty with another
country to levels below those in contained in the Articles 10-12 of
the 2005 Agreement, New Zealand must enter into negotiations with
Australia with a view to providing the same treatment to Australia
that is, reducing the taxes to the same level.
The Protocol also applies the provisions of the
Protocol to all federal taxes administered by the ATO. Currently,
all of Australia s international tax agreements, with the exception
of the Timor Sea Treaty, only deal with income tax.(1)
It is now Australian Government policy that all future information
exchange and collection assistance provisions in Australia s
international tax agreements should apply to the broader range of
taxes.(2) The
National Interest Analysis submitted to the Joint State
Committee on Treaties (JSCOT) inquiry into the Protocol commented
that the broader reach will:
assist in the administration and collection of
Goods and Services Tax (GST) and the extension of the benefits of
Australia s Wine Equalisation Tax (WET) rebate to New
Zealand.(3)
The Explanatory Memorandum states there are no financial
implications, however it is expected that there will be a
(unspecified) positive impact on revenue collection by the
ATO.(4) Evidence
given by ATO officials to the JSCOT inquiry into the Protocol state
that:
We already have in place, as was mentioned, over
40 treaties. With a lot of them, some more than others, we are
active in exchanging information. In that area I do not believe
that there will be a need for a great increase or there will be a
great burden, as we already have the infrastructure in place.
Assistance in collection is new for us but it is something that
will assist us. There will be some increased administrative costs
around this area. It is one of those things where we do not know
quite yet how much activity we will have and how much we will need
to put into it. It is virtually impossible at this stage to do any
models or anything like that on the costs.(5)
This inserts the required legislative changes into the Tax
Administration Act 1953 to enable Australia to assist another
country in collecting a tax debt (a foreign revenue claim ) owed to
that State. There must be an international tax agreement dealing
with mutual assistance regarding tax debts between Australia and
the relevant country.
Once a valid foreign revenue claim has been made by the relevant
authority of the foreign country, the Federal Commissioner of
Taxation (the Commissioner) must enter it on a special Register
with 90 days of the claim being made: new section
263-25. Once registered, it becomes a debt due to the
Commonwealth payable within 30 days(6) of notice being
given to the debtor: new section
263-30.(7) The existing provisions of Part 4-15
(collection and recovery of tax-related liabilities) of the Tax
Administration Act 1953 apply to foreign revenue claims.
However, if the Commissioner subsequently decides the debt should
not be pursued for example because of some error or an application
by the debtor to the Commissioner the claim can be deleted from the
Register, thus removing any liability: new section
263-35.(8) Similarly, the Register can also be
amended to change the amount of the claim. Where the Commissioner
decides to delete the foreign revenue claim from the Register
following an application by the debtor, the Commissioner does not
require the approval of the relevant foreign authority: new
subsections 263-35(3)-(4). No guidance is given as to the
sort of grounds on which the Commissioner might delete the claim,
particularly if this was against the wishes of the foreign
country.(9)
When all or part of any debt has been recovered under the above
process, the Commissioner must remit the amount to the relevant
authority of the claiming State: new section
263-40.
Note that tax debts accruing before the commencement of the Bill
will be recoverable under the assistance in collection provisions.
However, the provisions will only apply to requests for assistance
made after the Bill commences.
This inserts the required legislative changes into the
International Tax Agreements Act 1953 and Tax
Administration Act 1953 to allow for the exchange of
tax-related information with another State. There must be an
international tax agreement dealing with information exchange
between Australia and the relevant State. It allows the
Commissioner to make records of, and to exchange information, in
accordance with his or her obligations of the international tax
agreement.
This adds the text of the Protocol as new schedule
4A of International Tax Agreements Act 1953 as
well as inserting references to the Protocol into other parts of
that Act. Approximately 24 other international tax agreements are
similarly included in various existing schedules.
Concluding comments
In its
report, JSCOT unanimously recommended that the Protocol should
be ratified.
Potentially the most far-reaching aspect of the Bill is Schedule
1, dealing with mutual assistance between Australia and New Zealand
in recovering tax debts.(10) However, no evidence was
provided to JSCOT or contained in the Explanatory Memorandum or
second reading speech about how much might be potentially
recoverable by Australia under this scheme.
- Submission
by the Department of the Treasury to inquiry of the Joint Standing
Committee on Foreign Affairs Defence and Trade into Australia's
trade and investment relations under the Australia-New Zealand
Closer Economic Relations Trade Agreement.
- ibid.
- At paragraph 5.
- Explanatory Memorandum, p. 4.
- Transcript of public hearing into Treaties tabled on 11 October
2005 and in February 2006, p. 16.
- Although more time can be given.
- Interest becomes payable if the debt is not paid by the due
date.
- Note that under the Protocol, a debtor cannot take legal action
disputing the debt in the country that is assisting in collecting
the debt. For example, suppose the New Zealand government claimed
that a person now living in Australia owed tax. If the New Zealand
Government lodged a valid foreign revenue claim under the Tax
Administration Act 1953 (as amended by the Bill) the debtor
could not bring a case before an Australian court disputing the
existence or amount of the debt.
- The Explanatory Memorandum at page 14 only comments that the
claim might be deleted if the Commissioner was satisfied with the
foreign country debtor s explanation .
- And other countries, should appropriate international tax
agreements be in place with them.
Angus Martyn
27 July 2006
Bills Digest Service
Information and Research Services
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production. The views expressed do not reflect an official position
of the Information and Research Service, nor do they constitute
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ISSN 1328-8091
© Commonwealth of Australia 2006
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Published by the Parliamentary Library, 2006.
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