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2008-2009-2010
THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA
HOUSE OF REPRESENTATIVES
INTERNATIONAL TAX AGREEMENTS AMENDMENT BILL (No. 2) 2010
EXPLANATORY MEMORANDUM
(Circulated by the authority of the
Treasurer, the Hon Wayne Swan MP)
Table of contents
Glossary 1
General outline and financial impact 3
Chapter 1 The Second Protocol with Singapore 5
Glossary
The following abbreviations and acronyms are used throughout this
explanatory memorandum.
|Abbreviation |Definition |
|Agreements Act 1953 |International Tax Agreements |
| |Act 1953 |
|Commissioner |Commissioner of Taxation |
|EOI Article |Exchange of Information |
| |Article |
|existing Agreement |the Agreement between the |
| |Government of the |
| |Commonwealth of Australia and|
| |the Government of the |
| |Republic of Singapore for the|
| |Avoidance of Double Taxation |
| |and the Prevention of Fiscal |
| |Evasion with respect to Taxes|
| |on Income signed at Canberra |
| |on 11 February 1969 as |
| |amended by the Protocol |
| |signed at Canberra on |
| |16 October 1989 |
|OECD |Organisation for Economic |
| |Co-operation and Development |
|OECD Model |OECD Model Tax Convention on |
| |Income and on Capital |
|Second Protocol |Second Protocol amending the |
| |Agreement between the |
| |Government of the |
| |Commonwealth of Australia and|
| |the Government of the |
| |Republic of Singapore for the|
| |Avoidance of Double Taxation |
| |and the Prevention of Fiscal |
| |Evasion with respect to Taxes|
| |on Income signed at Canberra |
| |on 11 February 1969 as |
| |amended by the Protocol |
| |signed at Canberra on 16 |
| |October 1989 |
General outline and financial impact
The Second Protocol with Singapore
This Bill amends the International Tax Agreements Act 1953
(Agreements Act 1953) to give the force of law in Australia to a
Second Protocol amending the Agreement between the Government of
the Commonwealth of Australia and the Government of the Republic of
Singapore for the Avoidance of Double Taxation and the Prevention
of Fiscal Evasion with respect to Taxes on Income signed at
Canberra on 11 February 1969 as amended by the Protocol signed at
Canberra on 16 October 1989 (Second Protocol), which amends the
existing tax treaty with Singapore - the Agreement between the
Government of the Commonwealth of Australia and the Government of
the Republic of Singapore for the Avoidance of Double Taxation and
the Prevention of Fiscal Evasion with respect to Taxes on Income
signed at Canberra on 11 February 1969 as amended by the Protocol
signed at Canberra on 16 October 1989 (existing Agreement).
Date of effect: On the date of entry into force of the Second
Protocol. For entry into force, Australia and Singapore are
required to provide notification on the completion of the necessary
domestic procedures.
Proposal announced: This measure was announced in the Assistant
Treasurer's Media Release No. 047 of 8 September 2009.
Financial impact: Treasury has estimated the revenue impact of the
Second Protocol, which upgrades the Exchange of Information Article
in the Tax Treaty, as unquantifiable. However, since the Article
seeks to expand the scope of taxpayer information available to the
Commissioner of Taxation, the proposal is expected to improve
taxpayer compliance and increase tax revenue.
Compliance cost impact: In terms of the compliance costs, this
proposal is expected to result in a low overall compliance cost
impact, comprised of a low implementation impact and no change in
ongoing compliance costs relative to the affected group.
Chapter 1
The Second Protocol with Singapore
Outline of chapter
1. This Bill amends the International Tax Agreements Act 1953
(Agreements Act 1953). This chapter explains the rules that apply
in the Second Protocol amending the Agreement between the
Government of the Commonwealth of Australia and the Government of
the Republic of Singapore for the Avoidance of Double Taxation and
the Prevention of Fiscal Evasion with respect to Taxes on Income
signed at Canberra on 11 February 1969 as amended by the Protocol
signed at Canberra on 16 October 1989 (Second Protocol), which
amends the existing tax treaty with Singapore - the Agreement
between the Government of the Commonwealth of Australia and the
Government of the Republic of Singapore for the Avoidance of Double
Taxation and the Prevention of Fiscal Evasion with respect to Taxes
on Income signed at Canberra on 11 February 1969 as amended by the
Protocol signed at Canberra on 16 October 1989 (existing
Agreement).
Context of amendments
2. This Second Protocol was signed in Canberra on 8 September 2009.
3. The Second Protocol was negotiated in the context of recent
international progress in improving tax transparency and exchange
of taxpayer information between countries.
4. Once in force, the Second Protocol will replace the Exchange of
Information (EOI) Article in the existing tax treaty with a new
Article that meets the international standard on tax information
exchange developed by the Organisation for Economic Co-operation
and Development (OECD).
Summary of new law
5. The main changes to the EOI Article of the existing Agreement (as
revised by the Second Protocol) are as follows:
. neither tax administration can refuse to provide
information solely because they do not have a domestic
interest in such information, or because the information
is held by a bank or similar institution [New Article 19,
paragraphs 4 and 5]; and
. the Article now expands the scope of the EOI Article, as
it will now allow tax administrations to request taxpayer
information with regard to all federal taxes and not just
taxes to which the treaty applies [New Article 19,
paragraph 1].
Comparison of key features of new law and current law
|New law |Current law |
|Closely aligns Article 19|The existing rules apply |
|to the current OECD |to a narrower range of |
|standard. The effect of |taxes and do not require |
|the change is to expand |the exchange of |
|the range of taxes to |information that is not |
|which the Article applies|obtainable by the tax |
|and to clarify that |administration under |
|neither bank secrecy laws|domestic law. |
|nor any requirement of a |The information received |
|domestic tax law interest|can only be used for tax |
|in the information limits|purposes. |
|the exchange of | |
|information. | |
|The information received | |
|can only be used for tax | |
|purposes. | |
Detailed explanation of new law
Article I
Substitutes new Article 19 into the existing Agreement
6. This Second Protocol aligns the information exchange provisions to
the current OECD standard by replacing Article 19 of the existing
Agreement. The new Article 19 continues to provide for the
exchange of tax information by the tax administrations of the two
countries, but differs from the previous approach in the following
ways:
. the scope is expanded to a wider ranges of taxes;
. the new provision clarifies that the Commissioner of
Taxation (Commissioner) is obliged to obtain information
for Singaporean tax authorities regardless of whether
Australia has a domestic tax interest in the information
sought or whether the information concerns a resident of
either country; and
. bank secrecy laws do not limit the exchange of
information.
Foreseeably relevant information
7. Article 19 authorises and limits the exchange of information by the
two competent authorities to information foreseeably relevant to
the administration or enforcement of the relevant taxes. The
exchange of information is not restricted by Article 1 of the
existing Agreement, and may therefore cover persons who are not
residents of Australia or Singapore.
8. The standard of foreseeable relevance is intended to ensure that
information may be exchanged to the widest possible extent.
However, competent authorities are not entitled to request
information from the other country which is unlikely to be relevant
to the tax affairs of a taxpayer, or to the administration and
enforcement of tax laws. [New Article 19, paragraph 1]
9. The change in wording from 'necessary' used in the previous version
of the Article to a 'foreseeably relevant' standard reflects the
wording in Article 26 (Exchange of Information) of the OECD Model
Tax Convention on Income and on Capital (OECD Model) and no
difference in effect is intended.
Taxes to which this Article applies
10. Under the corresponding Article in the existing Agreement, the
information that could be requested and obtained between the two
countries was limited to information in relation to taxes to which
that Agreement applied (generally income taxes).
11. Under the new Article 19, the range of taxes for which information
may be exchanged has been expanded. The Australian competent
authority can now request and obtain information concerning all
federal taxes from the Singaporean competent authority. This
means, for example, that information concerning Australian indirect
taxes (that is, the goods and services tax) may be requested and
obtained from Singapore. [New Article 19, paragraph 1]
12. Similarly, in the case of Singapore, the Singaporean competent
authority can now request and obtain information concerning all
federal taxes from the Australian competent authority.
Use of exchanged information
13. The purposes for which the exchanged information may be used and
the persons to whom it may be disclosed are restricted in a manner
which is consistent with the approach taken in the OECD Model. Any
information received by a country must be treated as secret in the
same manner as information obtained under the domestic law of that
country, and can only be disclosed to the persons identified in
paragraph 2 of the Article. [New Article 19, paragraph 2]
No domestic tax interest required
14. When requested, a country is required to obtain information under
the new Article in the same manner as if it were administering its
domestic tax system, notwithstanding that the country may not
require the information for its own purposes. Australia would
recognise this obligation to obtain relevant information for treaty
partner countries, even in the absence of an explicit provision to
this effect. [New Article 19, paragraph 4]
Limitations
15. The country requested to provide information under this new Article
19 is not obliged to do so where:
. it would be required to carry out administrative measures
at variance with the law and administrative practice of
either Australia or Singapore; or
. such information is not obtainable under the domestic law
or in the normal course of administration.
[New Article 19, subparagraphs 3a) and b)]
16. Also, in no case is the country receiving the request obliged to
supply information under new Article 19 that would:
. disclose any trade, business, industrial, commercial or
professional secret or trade process; or
. be contrary to public policy.
[New Article 19, subparagraph 3c)]
Information held by banks, other financial institutions, trusts,
foundations, nominees etc
17. Paragraph 5 ensures that paragraph 3 of this new Article 19 cannot
be used to prevent the supply of information solely because the
information is held by banks, other financial institutions, trusts,
foundations, nominees etc. The addition of this paragraph will not
have any practical application for Australia, since Australian
domestic tax law already permits the Commissioner to obtain
information from banks and financial institutions in order to meet
obligations under EOI Articles in tax treaties or Tax Information
Exchange Agreements. [New Article 19, paragraph 5]
Information that exists prior to the entry into force of the Second
Protocol
18. The following notes reflect the understanding reached during
negotiations with regard to when the new exchange of information
provisions would have effect, and their application to information
existing prior to entry into force of this Second Protocol:
'The two delegations noted that nothing in the Agreement, as
amended by the second Protocol, prevents the application of
the provisions of the new Article 19 to the exchange of
information that existed prior to the entry into force of
the second Protocol, as long as the assistance with respect
to this information is provided after the second Protocol
has entered into force and the provisions of the new Article
19 have become effective.'
19. This agreed approach confirms the international practice contained
in paragraph 10.3 of The OECD Commentary on Article 26 concerning
the exchange of information.
Article II
Date of entry into force of the Second Protocol
20. Article II provides for the entry into force of the Second
Protocol. The Second Protocol will enter into force on the
thirtieth day after the date on which diplomatic notes are
exchanged notifying that the domestic processes to give the Second
Protocol the force of law in the respective countries have been
completed. Once the Second Protocol enters into force the new
Article 19 will have effect. In Australia, enactment of the
legislation giving the force of law in Australia to the Second
Protocol, along with tabling of the Second Protocol in Parliament,
are prerequisites to the exchange of diplomatic notes. [Article II
of the Second Protocol]
Article III
Second Protocol part of the existing Agreement
21. Article III provides that the Second Protocol shall form an
integral part of the existing Agreement and will remain in force
and apply as long as the Agreement is in force and applicable.
[Article III of the Second Protocol]