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Tuesday, 26 November 1974
Page: 2742

The PRESIDENT -Is leave granted? There being no dissent, leave is granted. (The document read as follows)-

The Banking Bill has 4 main purposes. The first purpose is to take full advantage of the constitutional powers of the Australian Government in relation to exchange control regulation of the financial aspects of overseas transactions. Secondly, the Bill provides for the extra-territorial application of the Banking (Foreign Exchange) Regulations. Thirdly, the Bill includes provisions that validate, for the purpose of any civil proceedings, acts or transactions already entered into, or which might be entered into in future, without the proper exchange control authority. The right of the Government to prosecute persons for breaches of the Banking (Foreign Exchange) Regulations will not be affected. The fourth purpose of the Bill is to provide a more comprehensive legislative basis for tax screening arrangements enabling exchange control approval to be withheld to proposed transactions with overseas tax havens that involve evasion or avoidance of Australian tax. Amendments to the Taxation Administration Act 1 953- 1 973 will also be introduced into the Senate for this purpose.

The present section 39 of the Banking Bill has been on the statute books for about 30 years and only minor amendments have been made to it during that time. Since the section was drafted it has been recognised that, in order to be able to give full effect to economic and financial management policies which it may be desirable to pursue in the national interests, governments need to have full legal powers to control financial aspects of all the various types of transactions which may be entered into between residents of Australia and residents of overseas countries. Under the present section 39 exchange control regulations may be made for the purposes of the protection of the currency or of the public credit of Australia or to conserve, in the national interest, Australia's foreign exchange resources. The wording of this section and the way it is drafted have given rise to some uncertainty as to whether the section gives power to make regulations with respect to all types of overseas transactions. The proposed amendments to section 39 should ensure that regulations may be made to control the financial aspects of all overseas transactions entered into in modern economies.

The absence of a specific power over extraterritorial transactions in the existing legislation could enable avoidance of the requirement to seek exchange control approval in respect of contracts and so on with non-residents entered into outside Australia. Such contracts could be concluded contrary to Government policies. The proposed new section 39A specifically provides for financial acts and transactions of Australian residents which take place overseas to be brought within the ambit of exchange control regulations. The present Banking Act contains no provision for the granting of retrospective exchange control authorisations. In the absence of the proper exchange control authority, not only could a transaction between a resident of Australia and an overseas resident be illegal and subject to penalty under the Banking Act, it could also be null and void. In most cases where exchange control authority is not obtained the persons involved would be unaware of the need to obtain approval and, in many cases, the absence of exchange control approval would not present a problem to the parties concerned. However the fact that such contracts could be invalid could lead to people using the alleged invalidity of such transactions to renege on their debts or other obligations. This would clearly be undesirable.

Clause 5 of the Bill contains provisions which will validate- for civil purposes- acts or transactions which have been entered into without exchange control approval prior to the commencement of the Act. Section 39(6) makes provision for regulations to be made to validate transactions and so on which will be entered into in future without the appropriate approval. Validation would, however, in no way prevent a person being convicted of an offence against the Banking (Foreign Exchange) Regulations because the person failed to obtain exchange control approval. Honourable senators will recall that last December the Parliament approved amendments to the Banking Act 1959-1973 which were intended to provide a firm legal basis for arrangements which the Treasurer (Mr Crean) had earlier announced in October 1973 for the screening of exchange control applications in relation to transactions with tax havens. The amendment made at that time was drafted to deal with the situation in a short form, but experience indicates that it is necessary to set out the relevant rules in a more comprehensive way. It is also necessary to make clear in the legislation, as had been intended since the tax screening procedures were put into operation, that the effective work of considering whether there are tax avoidance or evasion implications in proposed transactions with tax havens falls on the Commissioner of Taxation, not on the Reserve Bank.

Under existing section 39(3) and (4) the Reserve Bank, which is responsible for the administration of exchange control, has the power to reject applications for exchange control approval on the ground that the transaction involves, assists in or is associated with the avoidance or evasion of Australian tax. The Bank, is, however, not authorised to refuse exchange control approval on tax grounds if the applicant produces to the Bank a statement by the Commissioner of Taxation to the effect that, in the opinion of the Commissioner, no tax avoidance or evasion is involved. The proposed new section 39B in the Banking Bill allows or, in certain cases, requires the Bank to refuse applications for exchange control approval unless the applicant produces a tax clearance certificate from the Commissioner of Taxation to the effect that the transaction is not associated with tax avoidance or evasion. In other words, the formal power in relation to tax implications of proposed transactions is to be transferred from the Reserve Bank to the Commissioner. The Taxation Administration Bill provides, inter alia, rules associated with the giving of these tax clearance certificates.

Honourable senators will be aware from comments that have been made on more than one occasion how the Government feels about tax havens and the resort that people and companies make to them. This type of activity is clearly inequitable and strikes at the foundation of the society that this Government is building in Australia. There are indications that the tax screening procedures, so far as they extend, are making a significant contribution to countering tax haven resort by Australians in the New Hebrides and other places. I ask the Senate to give a rapid passage to these measures. I commend this Bill to the Senate.

Debate (on motion by Senator Durack) adjourned.

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