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Monday, 1 September 2014
Page: 9328


Ms MARINO (ForrestGovernment Whip) (18:33): On the issue of the International Tax Agreements Amendment Bill 2014, I do not think anybody could doubt the Treasurer's commitment to international tax issues. He has put it fairly and squarely on the table for the G20 meeting. He has made it a priority and has certainly shown a great deal of leadership in relation to international tax avoidance. Even in the Sydney Morning Herald he was quoted as asking how he could talk to a small business person in Sydney, competing against a multinational that does not have to pay tax, while they have to pay tax. He was quoted as saying so. And the Treasurer is determined to get real action on this issue. I support this bill that amends the International Tax Agreements Act 1953 to give effect to the convention between Australia and the Swiss Confederation for the avoidance of double taxation with respect to taxes on income and its protocol. As we said, this is about trade, investment and opportunities.

The convention, also known as the Swiss Convention, was signed in Sydney in July 2013. It applies to taxes on income, and the coverage is explicit in that existing taxes imposed by each country are specifically listed. Australian taxes covered are income tax, fringe benefits tax and resource rent taxes. Swiss taxes covered are federal, cantonal and communal taxes on income. The new convention, when in force, will replace the agreement between Australia and Switzerland for the avoidance of double-taxation with respect to taxes on income and protocol. This is the existing Swiss agreement, which came into force in 1981.

According to the Department of Foreign Affairs and Trade—and this is why this is significant—Switzerland was Australia's fifth largest source of foreign direct investment, at AUD $23 billion, and sixth largest investor overall, at AUD $49 billion in 2012. These are not insignificant amounts. This is so important. Australia's total foreign investment in Switzerland amounted to $27.5 billion in 2012. There is a real two-way issue here. Notable Swiss companies with a base in Australia—and not everybody thinks of them—are mining giants like Glencore and Xstrata. There are pharmaceuticals and financial services companies like Credit Suisse. As well as being our fifth largest investor, Switzerland is also a significant trade partner. DFAT tells us that the merchandise trade between the two countries was worth $3.6 billion in 2012. Total merchandise exports from Australia were $681 million and imports were $2.89 billion. The major Australian export to Switzerland, interestingly, was jewellery, followed by gold, meat, excluding beef, and pharmaceutical products. Major Australian imports were pharmaceuticals, gold, watches and clocks—that would not surprise anyone! DFAT also identifies that two-way services trade amounted to around $1.8 billion in 2012. Switzerland is a significant investor in Australia.

This new treaty, when enforced by this legislation, will fulfil Australia's most favoured nation obligation contained in the existing tax treaty with Switzerland. This will reduce withholding tax rates on dividends, interest and royalties paid by Australian residents to Swiss residents. There will no doubt be a cost to this, but it is expected that this will not be significant and will be covered by changes introduced in this bill. This includes provisions in the new treaty that will modernise the bilateral taxpayer information sharing arrangements, and for the first time permit the exchange of taxpayer information for the explicit purpose—as we have heard so much about—of preventing tax evasion. That is what this bill is doing. This greater transparency includes access to Swiss bank information that could help Australia better enforce its tax laws and reduce tax evasion. We heard a lot about that, too, and that is in this bill.

It is this aspect in particular that will assist in raising revenue and providing balance in the financial impacts of this legislation. In addition, the new treaty will help remove double taxation of transactions between associated entities; prevent the double taxation of fringe benefits provided to employees; prevent tax discrimination against Australian and Swiss nationals; and provide taxpayers with the option of referring unresolved tax disputes to independent arbitration. So we are talking about increased trade and investment and we are talking about the issue of limiting tax evasion.

Another part of the legislation before the House today identifies that so-called dual-resident individuals—for example, individuals who are residents of both Australia and Switzerland, according to the domestic taxation laws of each country—are to be treated for the purposes of the Swiss Convention as being resident of only one country. The convention deems that the person or other legal entity like a corporation to be a resident of the country in which its place of effective management is situated. Business profits are generally taxed only in the country of residence of the recipient unless they are derived by a resident of one country through a permanent establishment located in the other country, in which case the other country may also tax the profits. Importantly, these rules will also apply to business profits derived through a trust. As we know, the use of trusts as a legal entity is common in Australia, but is used to hide or rearrange fund distributions for taxation purposes. The inclusion of trusts in this legislation is really an important step.

This bill will also prescribe time periods for the purpose of deeming whether certain business activities constitute the business to be a permanent establishment. We are starting to see how this is going to work in practical terms. The rules will also prescribe the range of circumstances in which Australia can tax business profits derived by Swiss residents from construction and mining activities—I mentioned those companies earlier—and the operation of substantial equipment in Australia. This bill will also clarify the tax arrangements of agricultural business profits.

According to figures from PRDnationwide Research, Swiss investment included 74,448 hectares of crop and livestock properties scattered throughout NSW and the total Swiss investment in agriculture in 2010-11 was $150 million. Income from immovable property—including income from agriculture and agroforestry, both of which are common in the electorate of Forrest—may be taxed by the country in which the property is situated. Subject to that rule and some other property rules, all other capital gains will be taxable only in the country of residence.

In relation to transport companies, profits derived by an enterprise of one country from the operation of ships and aircraft in international traffic are only taxable in that country. This brings us to a key component of the bill, which is that is the treatment of so-called related entities and associated enterprises. These terms can have an extremely broad meanings and it can be difficult to identify corporate linkages, let alone categorise them. Under the proposals in this bill, profits of associated enterprises may be adjusted by the Australian and Swiss revenue authorities for tax purposes where transactions have been entered into on terms other than at arm's length. No source country tax is payable on intercorporate dividends where the beneficial owner of those dividends is a company that holds, directly or indirectly, at least 80 per cent of the voting power in the case of Australia or the capital in the case of Switzerland of the company, subject to certain conditions.

A 15 per cent limitation applies to most other dividends with some exceptions, such as a five per cent limitation on intercorporate dividends where the owner of those dividends is a company that holds directly at least 10 per cent of the voting power or the capital of the company paying the dividends. Dividends, interest and royalties may generally be taxed in both countries, but there are limits on the tax that the country in which they are sourced may charge on such income flowing to residents of the other country who are the beneficial owners of the income. In relation to the mining industry, which is the source of considerable Swiss investment throughout Australia, the rate limit set on source country taxation of royalty income is five per cent.

There are some smaller impacts that I would like to mention. Payments made from abroad to visiting students or business apprentices for the purposes of their maintenance, education or training will be exempt from tax in the country visited. Directors' remuneration may be taxed in the country in which the company of which the person is a director is a resident for tax purposes. Pensions, social security payments and annuities will be taxable only in the country of residence of the recipient, unless the recipient is not liable to tax in that country in respect of that income. In those cases, such income arising in the other country may be taxed in that other country. Subject to certain conditions, pensions paid from government funds of a country in respect of services rendered to that government will be taxable only in that country.

As I said, the Treasurer and the Minister for Finance are very focused on the issue of tax evasion not only in G20 but also in general. What is contained in this bill will certainly address the issues of tax evasion and assist in that process of addressing the issues. It will increase transparency, which we are looking to increase. Australia, as we know, is open for business to improve the trade and investment in both countries and to certainty for both Australia and Switzerland in that process. The issue of strengthening that relationship cannot be underestimated. I really do support this particular bill but the tax evasion issues, which we have heard so much about, are certainly a focus of the Treasurer and the Finance Minister. This bill is one example of that.