Explanatory Statement
Diplomatic Privileges and Immunities (Indirect Tax Concession Scheme) Amendment (Bhutan) Determination 2022
Issued by the Authority of the Minister for Foreign Affairs (the Minister)
Subject: Diplomatic Privileges and Immunities Act 1967
Diplomatic Privileges and Immunities (Indirect Tax Concession Scheme) Amendment (Bhutan) Determination 2022 (“Amendment”).
Section 10B of the Diplomatic Privileges and Immunities Act 1967 provides that the Minister may make Determinations for the Commissioner of Taxation to pay the head of a mission (or a person in a class of persons determined by the Minister) an amount equal to the indirect tax payable (if any) in respect of an acquisition covered by the Minister’s Determination.
The purpose of the Amendment is to amend the Diplomatic Privileges and Immunities (Indirect Tax Concession Scheme) Determination 2000 (“Determination”) to create a new Indirect Tax Concession Scheme (ITCS) package for Bhutan for the benefit of diplomatic missions and accredited staff. The effect of the Amendment is to add items to Schedule 1 of the Determination, which lists the ITCS packages available to particular diplomatic missions.
Diplomatic missions and accredited staff are exempt from paying direct taxes under the Vienna Convention on Diplomatic Relations 1961 (Articles 23, 34, 36 and 37). In line with international practice, indirect tax concessions are also extended to diplomatic missions and accredited staff. In Australia, indirect tax concessions are provided for under the ITCS. Individual packages are negotiated with each country, and the level of concessions provided is broadly based on reciprocity.
Commencement dates for individual packages form part of the negotiations for tax concessions. In some cases, the commencement date reflects the date when the agreement was reached. In other cases, the commencement date allows access to concessions for purchases of goods and services already made, including by our overseas missions. As concession packages are usually agreed before they come into force under Australian legislation, they need to be made retrospective. This retrospectivity is not to the detriment of any person or organisation; rather it extends concessions to missions and accredited staff from either the date the mission opened or a date agreed during negotiations. Reciprocity in terms of the date of effect means that relevant Australian diplomatic missions overseas will also have access to the same or similar benefits in the relevant overseas country.
The ITCS and its extension to new and existing diplomatic missions in Australia by way of periodic amendments to Schedule 1 of the Determination (such as this Amendment), are beneficial to Australia. In determining the scope of the economic benefit to Australia, the Department of Treasury confirmed that the estimated net benefit to Australia in pursuing reciprocal agreements covering GST would be several million dollars, and that the most practical means of assessing the financial benefit to Australia would be to take a global approach, rather than an approach based on individual agreements. In the current instance, Treasury has advised the concessions covered by the Amendment will have a negligible impact on revenue. In addition, the provision of tax concessions encourages diplomatic missions and accredited staff to purchase goods in Australia rather than directly importing them, which further assists the Australian economy.
The Office of Best Practice Regulation has confirmed that amendments to Schedule 1 of the Determination are not likely to have regulatory impacts on business, individuals or community organisations, and do not require the preparation of a Regulation Impact Statement.
The Amendment does not alter the way the ITCS works, but extends tax concessions to specific diplomatic missions. The Amendment was therefore judged to be of a minor nature where consultation is unnecessary under the Legislation Act 2003.
This Amendment is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011.
Overview
The Diplomatic Privileges and Immunities (Indirect Tax Concession Scheme) Amendment (Bhutan) Determination 2022 was enacted to address the need for extending indirect tax concessions to the diplomatic missions of Bhutan in Australia. This amendment, made under the Diplomatic Privileges and Immunities Act 1967, was introduced to create a new Indirect Tax Concession Scheme (ITCS) package specifically for Bhutan, thereby ensuring reciprocity in tax benefits between Australia and Bhutan. This initiative is consistent with international practices of providing indirect tax concessions to diplomatic missions and accredited staff. The policy objective is to facilitate economic interactions between diplomatic missions and the Australian economy while maintaining the integrity of tax exemptions as per the Vienna Convention on Diplomatic Relations 1961. The Minister for Foreign Affairs issued this determination, which adds Bhutan to the list of countries eligible for ITCS packages, thus providing a retrospective application of concessions to align with the agreements reached during negotiations.
Scope and Application
The Diplomatic Privileges and Immunities (Indirect Tax Concession Scheme) Amendment (Bhutan) Determination 2022 applies to diplomatic missions and accredited staff of the Kingdom of Bhutan operating in Australia. This amendment extends the Indirect Tax Concession Scheme (ITCS) to provide these entities with tax concessions on indirect taxes, aligning with international practice and reciprocity principles. The amendment updates the Diplomatic Privileges and Immunities (Indirect Tax Concession Scheme) Determination 2000 by adding Bhutan to Schedule 1, which lists the ITCS packages available to specific diplomatic missions. The scheme operates within the framework of the Diplomatic Privileges and Immunities Act 1967 and is administered by the Minister for Foreign Affairs. The determination is a Commonwealth instrument and applies nationally within Australia. The Amendment does not introduce new regulatory requirements or impacts, as confirmed by the Office of Best Practice Regulation. Additionally, the Amendment ensures that the ITCS remains consistent with Australia’s international obligations under the Vienna Convention on Diplomatic Relations 1961, particularly regarding the tax exemptions of diplomatic missions and accredited staff.
Key Provisions
The Diplomatic Privileges and Immunities (Indirect Tax Concession Scheme) Amendment (Bhutan) Determination 2022 (the Amendment) primarily operates under section 10B of the Diplomatic Privileges and Immunities Act 1967, which allows the Minister for Foreign Affairs to determine that the Commissioner of Taxation pay an amount equivalent to indirect tax payable to the head of a mission or to a class of persons determined by the Minister. The Amendment modifies the Diplomatic Privileges and Immunities (Indirect Tax Concession Scheme) Determination 2000 by adding Bhutan to Schedule 1, which lists the ITCS packages available to specific diplomatic missions. This addition essentially extends indirect tax concessions to the diplomatic missions and accredited staff from Bhutan, aligning with the practice of offering indirect tax concessions in line with the Vienna Convention on Diplomatic Relations 1961, which exempts diplomatic missions and accredited staff from paying direct taxes.
Entities and individuals affected by the Amendment, specifically diplomatic missions and accredited staff from Bhutan, are now eligible for indirect tax concessions under the ITCS. These concessions mean that such missions and staff can claim refunds or exemptions on indirect taxes for goods and services acquired in Australia. The level of concessions provided is based on reciprocity, meaning that Australia's diplomatic missions in other countries would also benefit from similar arrangements. This reciprocity ensures that the concessions are not a one-sided benefit but part of a mutual agreement, enhancing diplomatic relations and cooperation.
The Amendment does not introduce new obligations for the parties involved; rather, it extends existing provisions of the ITCS to include Bhutan. However, the Diplomatic Privileges and Immunities Act 1967 and the ITCS impose obligations on the Commissioner of Taxation to process and pay the determined amounts to the appropriate diplomatic entities. The reciprocal nature of the concessions ensures that Australian diplomatic missions abroad are also beneficiaries of similar tax concessions in their host countries, furthering diplomatic goodwill and cooperation.
There are no explicit offences, penalties, or civil/criminal consequences outlined in the Amendment itself for breaches of the ITCS or its provisions. The penalties for non-compliance with the Diplomatic Privileges and Immunities Act 1967 or related tax laws generally would apply. However, as the Amendment is a minor regulatory change, it does not significantly alter the existing framework and thus does not introduce new penalties. The focus remains on the administrative processes for determining and processing tax concessions under the ITCS, with the potential for standard tax law enforcement actions in cases of non-compliance.