EXPLANATORY STATEMENT
Diplomatic Privileges and Immunities (Indirect Tax Concession Scheme) Amendment Determination 2005 (No. 2)
Issued by the Authority of the Minister for Foreign Affairs
Subject: Diplomatic Privileges and Immunities Act 1967
Diplomatic Privileges and Immunities (Indirect Tax Concession Scheme) Amendment Determination 2005 (No. 2)
Section 10B of the Diplomatic Privileges and Immunities Act 1967 provides that the Minister may make Determinations to provide the Commissioner of Taxation to pay the head of the mission (or a person in a class of persons determined by the Minister) an amount equal to the amount of indirect tax payable (if any) in respect of the supply of that acquisition.
The purpose of the Determination is to amend the Diplomatic Privileges and Immunities (Indirect Tax Concession Scheme) Determination 2000 to create new and amend existing Indirect Tax Concession Scheme (ITCS) packages which provide tax concessions to diplomatic missions and accredited staff. The effect of the Determination is to update the schedule of countries by amending existing entries and adding new entries that detail the ITCS package available to particular countries.
Diplomatic missions and accredited staff are exempt from paying direct taxes under the Vienna Convention on Diplomatic Relations (Articles 23, 34 and 37). In line with international practice, tax concessions on indirect taxes are also extended to Diplomatic missions and accredited staff. In Australia, indirect tax concessions are provided 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 at which 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, where we can see there is a clear benefit to Australia. As these packages are usually agreed before they come into force under Australian legislation, they need to be made retrospective.
The amendments are beneficial to Australia. In determining the scope of the economic benefit to Australia, in 1999 the then Assistant Treasurer Rod Kemp advised that the estimated net benefit to Australia in pursuing reciprocal agreements under the 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. The Treasury has advised the amendments made under this amendment determination 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.
Overview
The Diplomatic Privileges and Immunities (Indirect Tax Concession Scheme) Amendment Determination 2005 (No. 2) was enacted to address the need for updating and creating new indirect tax concession packages for diplomatic missions and accredited staff. This determination falls under the Diplomatic Privileges and Immunities Act 1967, which allows the Minister for Foreign Affairs to make such amendments. The overarching policy objective of this legislation is to align Australia's tax concessions with international practices, thereby fostering better diplomatic relations while ensuring a minimal impact on government revenue. By negotiating individual packages based on reciprocity, Australia aims to encourage diplomatic missions and accredited staff to purchase goods and services locally, thereby providing an economic benefit to the nation. The amendments made by this determination are retrospective, reflecting the negotiated commencement dates and ensuring clarity and fairness in the application of these tax concessions.
Scope and Application
The Diplomatic Privileges and Immunities (Indirect Tax Concession Scheme) Amendment Determination 2005 (No. 2) applies to diplomatic missions and their accredited staff, providing them with tax concessions on indirect taxes as per the Vienna Convention on Diplomatic Relations. This Act amends the Diplomatic Privileges and Immunities (Indirect Tax Concession Scheme) Determination 2000 to create new and revise existing Indirect Tax Concession Scheme (ITCS) packages that offer tax concessions to diplomatic missions and their staff. These packages, negotiated individually with each country, are based on reciprocity and detail the indirect tax concessions available to each country’s diplomatic missions and staff. The amendments, which include updates to the schedule of countries and their respective ITCS packages, are beneficial to Australia as they encourage diplomatic missions and their staff to purchase goods and services within Australia rather than importing them directly, thereby fostering economic benefits. The commencement dates for these packages are determined through negotiations, with some starting from the date of agreement and others being retrospective to cover already made purchases. The Treasury has indicated that the revenue impact of these amendments is negligible.
Key Provisions
The Diplomatic Privileges and Immunities (Indirect Tax Concession Scheme) Amendment Determination 2005 (No. 2) amends the Diplomatic Privileges and Immunities (Indirect Tax Concession Scheme) Determination 2000. Section 10B of the Diplomatic Privileges and Immunities Act 1967 authorises the Minister for Foreign Affairs to make such determinations. The purpose of this amendment is to update the schedule of countries by amending existing entries and adding new entries that detail the Indirect Tax Concession Scheme (ITCS) package available to particular countries. This update is intended to reflect the current tax concession arrangements with various diplomatic missions and accredited staff in line with international practice.
Under this determination, the obligations imposed on the relevant parties include the negotiation of individual tax concession packages with each country, which are based on the principle of reciprocity. The packages are designed to provide tax concessions on indirect taxes, such as GST, to diplomatic missions and accredited staff, who are already exempt from paying direct taxes under the Vienna Convention on Diplomatic Relations. The Minister for Foreign Affairs has the authority to determine the scope and commencement dates for these packages, which may be retrospective to ensure that the concessions are applicable to purchases made before the legislation comes into force.
Breach of the obligations outlined in this determination could lead to legal consequences. While the determination itself does not explicitly state the penalties for non-compliance, it is understood that failure to adhere to the tax concession agreements could result in the diplomatic missions and accredited staff being liable for the full amount of indirect tax on their acquisitions. This would not only negate the benefits provided under the ITCS but could also potentially lead to diplomatic tensions. The Treasury has advised that the amendments made under this determination will have a negligible impact on revenue, underscoring the importance of compliance to maintain the integrity of the scheme.
The Diplomatic Privileges and Immunities (Indirect Tax Concession Scheme) Amendment Determination 2005 (No. 2) is designed to foster good diplomatic relations and encourage economic activity by providing tax concessions to diplomatic missions and accredited staff. The amendments are intended to be beneficial to Australia by encouraging the purchase of goods within the country and by maintaining reciprocal agreements with other nations. The overall aim is to ensure that the tax concession scheme remains fair and equitable while supporting the broader economic interests of Australia.