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Tuesday, 16 September 2003
Page: 20176


Mr CIOBO (5:32 PM) —I am delighted to speak to the International Tax Agreements Amendment Bill 2003 and to see enacted in legislation these two treaties—the first between Australia and the United Kingdom of Great Britain and Northern Ireland and the second between Australia and the United Mexican States. The bill before the House will provide legislative authority for the domestic entry into force of two new comprehensive taxation treaties. It also provides for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income and on capital gains. The bill will also repeal schedules 1 and 1A of the International Tax Agreements Act 1953 and insert the text of the 2003 United Kingdom tax treaty; this will include the text associated with the exchange of notes as schedule 1 and the Mexican tax treaty as schedule 47. The bill will also make a number of consequential amendments to the Income Tax Assessment Act 1936, the International Tax Agreements Act 1953 and the Taxation (Interest on Overpayments and Early Payments) Act 1983.

At its core, this bill goes towards safeguarding, enhancing and protecting Australia's revenue base while at the same time allowing for future economic growth in Australia. It recognises that Australian companies internationally have a great contribution to make. This bill achieves those goals by reaching for three key objectives: firstly, to promote closer economic relations between Australia and the United Kingdom as well as Australia and Mexico; secondly, to facilitate investment and trade; and, thirdly, to combat fiscal evasion and protect Australian tax revenues.

Before I discuss these three objectives in detail, I want to take particular note of some of the comments that the opposition spokesperson on this area, the member for Kingston, made in speaking prior to me on this bill. He mentioned his concern—and I purport that it was feigned concern—about the way in which this particular bill has been listed for discussion here in the House prior to the recommended 15 sitting days that the treaty needs to be examined. I ask: if there is as much concern as the opposition spokesperson makes out, then why did so few ALP members bother to turn up when the Joint Standing Committee on Treaties had an inquiry and took evidence regarding the treaties at the heart of this bill? It would have been very simple for the ALP to attend in numbers so they could comprehensively grill the various bureaucrats who appeared as witnesses before us when we were analysing these treaties, and yet they did not do that.

It would seem to me that this is a classic case, once again, of the ALP insisting on form over substance. In fact, I do not think too much concern at all resides in the minds of the ALP; rather they see this as an opportunity to pretend they are concerned about the way in which this particular bill has come about. I draw that conclusion only by virtue of the fact that, if there were real concern, no doubt many more ALP members and senators on the treaties committee would have turned up for this particular inquiry. Of course, the opposition spokesperson highlighted their apparent great concern over this bill—which concern I contend is not really there.

I return now to the objectives of this bill. In passing this legislation through the chamber, we will be making sure that we strengthen trade, improve investment and widen the business relationships between Australia and the United Kingdom and between Australia and Mexico. The UK treaty reflects the close economic relationship between the United Kingdom and Australia. The 2003 United Kingdom tax treaty is a major step by which we can facilitate a more competitive and modern tax treaty network for companies located in Australia in their dealings with the United Kingdom. Effectively, the treaty substantially reduces the withholding tax on certain dividend, interest and royalty payments in line with outcomes recently achieved in similar discussions with the United States. The result of this is long-term benefits for business. It makes it cheaper for Australian based businesses to obtain intellectual property, equity and finance for expansion. It also significantly assists trade and investment flows between the two countries.

The way in which this particular updated treaty came about reflects the longstanding relationship Australia has with the United Kingdom and the fact our two countries have historical and cultural links as well as a shared values system. Australia and the United Kingdom derive mutual benefit from cooperation on a broad range of international issues. We share many common interests, including those that arise from our membership of the Commonwealth. The existence of a modern tax treaty between Australia and an investment and trade partner, in this case the United Kingdom, recognises the current and future importance of this economic relationship. In large measure, this bill ensures that through the United Kingdom treaty Australia will be able to build on the existing solid economic relationship. It is an economic relationship that gives rise to discussions of this type and, importantly, it is an economic relationship in which there is, across both the United Kingdom and Australia, an enforced desire to continue growing our countries' economies and to recognise the opportunities that flow from cooperation in this matter.

It is the international economic significance of the United Kingdom, the magnitude of the Australia-United Kingdom investment and trade relationship and, for so many firms, the gateway relationships the United Kingdom has with Europe—and, indeed, Australia has with Asia—that make this new treaty so important. The size of the United Kingdom economy—it is the fourth largest in the world—and its growth performance underline the importance of Australia having the United Kingdom as a treaty partner. The UK has had real economic growth averaging more than two per cent since the mid-1990s. The UK, of course, recognises the fact Australia has a miracle economy, as it is so often referred to. Recent editions of the Economist have highlighted the way in which this coalition government has secured what has been a golden era for Australia's economy.

I am absolutely certain that this treaty could not come at a better time, because it not only ensures Australian companies can make good and effective use of the gateway that the United Kingdom is—as well as being a very good market in its own right—but also provides for UK companies the opportunity to embrace Australia as a market, as well as those gateway markets that Australia provides for. Australia's investment and trade relationship with the United Kingdom is the largest Australia has with any European country. The United Kingdom is our second largest source of foreign investment, our second largest destination for Australian investment abroad, our third largest trading partner and our sixth largest merchandise trading partner. All in all, the importance of the United Kingdom to Australia goes beyond cultural links; it is an important country with regard to economic links.

British businesses have traditionally viewed Australia as an attractive base for their regional operations. Around one-third of all regional headquarters operating in Australia are European and of this third almost half are British. There are many examples of United Kingdom investors in Australia, including Shell, BAE, BP, BT—Bankers Trust—RTZ and Vodafone. In the United Kingdom there are over 1,000 Australian companies, many using the United Kingdom as their base—their branch office—to reach into continental Europe. It is clear not only that investment in Australia is important from a UK perspective but also that Europe as a global market provides fantastic opportunities to Australian companies.

We as a government have continually emphasised the importance of Australian companies to generate wealth by looking at export opportunities. An important treaty like this builds upon Australia's opportunity to develop those exports and to ensure that Australians abroad—and, importantly, Australian companies going abroad—are in a position to take advantage of its opportunities. Key Australian investors in the United Kingdom include News Corporation, National Australia Bank, BHP Billiton, Amcor, Westpac, Commonwealth Bank, Brambles, Lend Lease, Mayne Nickless, AMP, ANZ and Boral. Each of these companies is a success story in its own right. Each of these companies has recognised opportunities and benefits that flow from expansion into foreign marketplaces. This treaty helps to reinforce those opportunities.

Increasing international financial integration has seen substantial increases in Australian investment overseas. As the stock of this investment grows, the flows of dividends and interest also grow, and Australia's taxation interests change towards residence rather than source taxation. This becomes a very important aspect in terms of protecting our revenue base. A key part of the protection of our revenue base for the purposes of Australian taxation is the need to ensure that that protection does not come at the expense of our competitive taxation policy abroad. It is in the need to ensure we maintain a competitive taxation policy that we see the true benefits flowing from these types of treaties. In this way, because of the change towards a residence rather than a source taxation approach, Australian tax interests become more aligned with those of most of the other countries in the OECD, who generally favour lower withholding tax rates limits. However, Australia remains a net capital importer and needs to balance this shift with revenue protection considerations.

I turn to the treaty with Mexico. As I said, the existence of a tax treaty between Australia and a trade and investment partner recognises the importance of this economic relationship. The treaty with Mexico does just that. Australia's trade and investment relationship with Mexico is the largest Australia has with any Latin-American country, but it does not measure among Australia's top 10 relationships in terms of actual value. That does not reflect any reduction in the significance of Mexico as offering potential for Australian companies in the future.

The Mexican economy is the ninth largest in the world. Its growth performance since the mid-1990s has been very strong, underlying the potential importance of building on this economic relationship. In fact, its real economic growth has averaged four per cent since the mid-1990s. Total Australia-Mexico trade exceeded $A1 billion last year. Over the last five years, Australian exports to Mexico have grown at an annual rate of more than 27 per cent. In large part that kind of growth is going to be facilitated and hopefully exceeded as a consequence of the passing of this bill and the enactment of the treaties that lay at the core of the bill.

In 2002 Australian merchandise exports were approximately $A439 million and merchandise imports were about $A514 million, with services exports and imports of $A15 million and $A28 million respectively. Major Australian exports to Mexico include coal, agricultural products and the like, while our major imports from Mexico are telecommunications equipment, computers and computer parts, and motor vehicle parts. The stock of Australian investment in Mexico is modest at just over $A200 million. Australian interests have invested in over 60 Mexican enterprises in the manufacturing, mining, fisheries and services sectors. There is little or no direct investment by Mexico in Australia and portfolio investment in this regard is low. That said, it is very clear that there is much blue sky ahead for the development of the relationship between Australia and Mexico.

What do these treaties address? The fact is that major disincentives can be created through the overlapping of tax jurisdictions. Major disincentives include the potential for double taxation, high rates of withholding taxes on payments to foreigners of dividends, interest and royalties as well as the uncertainty and risk that arise in a general business environment. All of these things often arise from overlapping tax jurisdictions and can be viewed with the expansion of international trade investment as being a very large disincentive.

The introduction of the treaties at the core of this bill aims to minimise these disincentives in a number of ways. The first is by clearly allocating tax jurisdictions between the parties to the proposed treaty. The second is that, by identifying where taxing rights are allocated to both countries, the proposed treaty ensures that source country taxation rights are given priority and double tax is avoided through the provision of tax relief by the resident's country. The third way is achieved through providing mechanisms to resolve disputes in contentious areas, and the fourth way by mutually reducing withholding tax rates limits. Taken together these proposed treaty measures favourably impact on business costs and provide a more positive impetus to the expansion of international investment and trade.

Many people in the community, though, harbour concerns about what takes place through foreign direct investment. I know many Australians harbour concerns and, indeed, constituents in my electorate of Moncrieff on the Gold Coast may have concerns about what the consequences of foreign direct investment are. But there are many benefits that flow to our nation as a result of foreign direct investment, including technology transfers, human capital formation and international trade integration. It provides for a more competitive business environment and enhancement to enterprise development.

The benefits in technology transfers that flow from FDI—that is, foreign direct investment—include an investment of capital into growing Australian companies. This provides and, indeed, encourages pathways along which technology transfer travels. FDI brings in production and product technology, and it brings in new management concepts and improved institutional and governance standards—all of which have direct benefits and assist Australian companies. It also often ensures that foreign enterprises provide training and skill upgrading, which supplements the existing levels of these types of things in the host country—in this case, in Australia.

This is just a brief summary but there are some very real and specific advantages that flow from investment in a country such as Australia through FDI. A good example is the Accor group. The Accor group is a French based company but one which has expanded into Australia and continues to grow rapidly. Accor is of particular interest to me because of its importance in the tourism industry. As a country, we need to continue to grow our tourism infrastructure. I can speak first-hand of the benefits that flow to a city like the Gold Coast as a result of FDI. In this case, Accor continues not only to purchase new hotels but to construct them and refurbish existing tourism infrastructure. This is a key component of ensuring that Australia remains a competitive tourism destination. I am delighted, quite frankly, that there are companies like Accor making the most of opportunities in Australia. In addition, Australians benefit through not only employment but also the knowledge that is shared as a result of that FDI.

In summary, the treaties at the core of this bill are in Australia's national interest. They are in the interests of making sure that Australian companies take the maximum advantage of opportunities that flow to them as a consequence of limiting the scope for overlapping tax jurisdictions, as well as providing a solid framework in which they can expand internationally and continue to grow.