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Tuesday, 20 September 1983
Page: 1009


Mr HOWARD(8.00) —The Income Tax (International Agreements) Amendment Bill will be supported by the Opposition. It is an uncontroversial measure which provides parliamentary authority for the entry into a number of double taxation agreements most, if not all, of which were concluded during the period in office of the former Government. The double taxation agreements involved relate to those with Ireland, Italy, Korea, Norway and, importantly, include a revised double taxation agreement with the United States of America. The Bill also provides parliamentary ratification for a limited airlines profits agreement with the Republic of India.

The double taxation agreements with Ireland, Italy, Korea and Norway have been drawn up along similar lines to existing double tax agreements with other countries. The revised United States double tax agreement will replace the old agreement which was originally signed in 1953. The old agreement had become outdated following extensive legislative changes in both countries. The new agreement introduces an article providing for source country tax of no more than 10 per cent in respect of interest and royalties. Interest has not been covered by the old agreement. The new agreement also improves the position in respect of the tax treatment of visiting entertainers.

The agreement also introduces a new non-discrimination article. While this article will not be given the force of law in Australia, it does express each country's intention that in enacting tax measures it will not treat taxpayers in a less favourable way than it treats its own taxpayers. It also states the principle of calling for consultation between governments of both countries when any taxation measure is considered to be contrary to the principles of the article. Under the airline profits agreement, Australia and India are to exempt from income tax profits derived by air transport by both countries' international airlines. Australia will be able to tax Indian sourced profits derived by Qantas Airways Ltd and India will have the right to tax Australian sourced profits of Air India.

The Opposition supports this Bill in full as a continuation of the policy of bringing Australia into double taxation arrangements with countries which have a close association with us. Such agreements eliminate international double taxation by rationalising the taxation rights of the signatories. The agreements also assist in the prevention of fiscal evasion for an exchange of information between the tax administrations of the signatories.

I mention two other matters. Firstly, most of those double taxation agreements were negotiated during the time that I was Treasurer. I therefore take this opportunity, as this is the occasion for parliamentary approval of those agreements, to thank the officers of the Australian Taxation Office and the Department of the Treasury for the enormous amount of detailed and at times very tedious and meticulous work which is required in the negotiation of double taxation agreements. It is not a very glamorous task, but it is a very important task. The network of the commercial arrangements between Australia and other countries is very extensive and complex. It is important to the commercial wellbeing of Australian enterprises, and, indeed, the individuals of both Australia and the countries with whom we have very close relations, that we have effective double taxation arrangements. Therefore, I am sure that I speak for the whole House in extending thanks to the officers of the Australian Taxation Office and others who were involved in the very arduous work involved in negotiating the agreements.

The second and rather more general thing that I would like to say something about, because we are dealing with the taxation relations between Australia and other countries, is to draw the House's attention to the fact that the Minister for Finance (Mr Dawkins) has recently foreshadowed or, should I say, has recently remarked-I do not know whether he foreshadowed it-that the Government has under consideration the introduction of a foreign tax credit system. That particular line of approach was canvassed by the former Government. In fact, as Treasurer in that former Government I announced in, I think, 1978 that the Government would introduce a foreign tax credit system. There were believed to be anti-avoidance advantages involved in introducing such a system and undoubtedly there still are. We received widespread representations not only from people who were interested in tax avoidance but also from most reputable Australian companies. If anybody on the Opposition side disbelieves me, I point out that just about every company that was represented at the National Economic Summit Conference was amongst those which made representations to us, warning about the introduction of a foreign tax credit system.

I do not know what the Government intends to do in this area. I will naturally be interested to see what it decides to do. I hope that we can react in a constructive fashion to what is proposed. I do not deny that a foreign tax credit system would reduce some areas of tax avoidance. But a strong case can also be made that a foreign tax credit system would hamper the legitimate business operations of many Australian companies operating overseas, particularly in the South East Asian area. If we are concerned as a country about thriving, bustling commercial relations between this country and those countries in South East Asia whose goodwill in the future we desire, we should think very carefully before enacting legislation along the lines that were proposed by the former Government. I recognise that there is a strong argument in terms of efficiency of taxation administration. I can remember having very long and intense discussions with the Commissioner of Taxation about this issue. I do not deny for a moment that a very strong case can be made on those grounds for a foreign tax credit system.

I am sure the Government will listen very carefully to those arguments. I hope also that before it makes any decision in this area it will listen very carefully to the legitimate, certainly self-interested-there is nothing wrong with legitimate self-interest-protestations of those in the commercial community who believe that their commercial operations, particularly in South East Asian countries, would be affected. I hope in a very constructive way that the Government bears in mind those considerations. But that is beyond the province of this particular legislation. I thank the House and you, Mr Deputy Speaker, for allowing me the indulgence to stray into that not entirely disconnected but only tenuously related area. The legislation now before the House will have a speedy passage as far as the Opposition is concerned. I join with the Minister for Housing and Construction and Minister Assisting the Treasurer (Mr Hurford) in commending it to the House.