Taxation Administration Amendment Regulations 2010 (No. 2)

Administered by Department of the Treasury

Legislation au F2010L01804 Regulations Not in force Legislative Instrument

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EXPLANATORY STATEMENT
 

Select Legislative Instrument 2010 No. 188

 

Issued by authority of the Assistant Treasurer

 

 Taxation Administration Act 1953

 

 Taxation Administration Amendment Regulations 2010 (No. 2)

 

Section 18 of the Taxation Administration Act 1953 (the Act), in part, provides that the Governor‑General may make regulations, not inconsistent with the Act, prescribing all matters which by the Act are required or permitted to be prescribed, or which are necessary or convenient to be prescribed for giving effect to the Act.

 

The Regulations update the list of foreign countries and foreign territories contained in the Taxation Administration Regulations 1976 (the Principle Regulations) that are information exchange countries for the purposes of subsection 12-385(4) of the Act. The Regulations specifically include Antigua and Barbuda, the British Virgin Islands, the Isle of Man and Jersey.  This list is relevant for calculating the amount to be withheld from a fund payment by the trustee of a managed investment trust (MIT) or custodian, or by another entity.   

 

Under Subdivision 804-M of the Income Tax Assessment Act 1997, a foreign resident’s liability for MIT withholding tax is reduced for residents of jurisdictions with which Australia has effective exchange of information (EOI) arrangements, for tax matters and which are listed in the Principle Regulations.  EOI arrangements allow the Commissioner of Taxation to obtain relevant information from those jurisdictions, for example, to verify the investor’s identity and place of residence, to support taxation compliance activities. Linking the eligibility for reduced withholding tax rates to EOI arrangements reinforces Australia’s international reputation for having a strong regulatory system and encourages other jurisdictions to enter into enhanced EOI arrangements with Australia.  Separate agreements for the exchange of information for tax purposes between Australia and Antigua and Barbuda, the British Virgin Islands, the Isle of Man and Jersey have recently entered into force.   

 

EOI is the process by which countries share taxpayer information to combat tax avoidance and evasion and enforce their domestic tax laws.  For Australia, the legal basis for EOI is typically provided by the EOI article of a bilateral tax treaty or by a bilateral tax information exchange agreement (TIEA).  (It can also be provided, for criminal purposes only, by mutual assistance arrangements with other jurisdictions, which are administered by the Attorney-General’s Department.)   

Further details of Australia’s exchange of information arrangements are detailed in the Attachment.

A Regulation Impact Statement was not required.  Compliance costs were assessed as low.

 

The Regulations commence on 1 July 2010.

 

The amendments apply in relation to a fund payment (within the meaning given by section 12-405 of Schedule 1 to the Act) made in respect of the net income of a trust derived on or after 1 July 2010.


 

attachment

 

Australia’s EOI standard is consistent with the highest international standard, and reflects Australia’s commitment to international cooperation to address tax abuse.  Australian tax authorities can fully utilise their domestic access and information gathering powers for the purpose of obtaining and providing information to the revenue authority of another jurisdiction under a tax treaty or TIEA.

However, some jurisdictions, including some of Australia’s tax treaty partners, have domestic laws or administrative practices that impede effective EOI, and encourage the concealment of income and assets in those jurisdictions, to the detriment of Australia’s interests.  These impediments include bank secrecy, a domestic tax interest requirement and a dual criminality requirement.

•               Bank secrecy prevents tax authorities from obtaining bank information to administer and enforce domestic tax laws, and leads to inequities in the tax system.  Internationally, bank secrecy obstructs international cooperation by curtailing a jurisdiction’s ability to assist its tax treaty partners.  

•               A domestic tax interest requirement is a requirement that the requested country needs the relevant information for its own purposes before it can supply it to the requesting country.

•               Dual criminality is the requirement that the conduct under investigation by the requesting country would constitute a crime in the requested country before the latter country can supply the relevant information.  Application of this principle where the definitions of tax crimes in both countries are markedly different can make it impossible for the requesting country to obtain information that is vital to a criminal tax investigation.

 

The laws or administrative practices of the jurisdictions specified in these Regulations are consistent with corresponding Australian laws and administrative practices and therefore ensure effective EOI with Australia. 

 

Establishing transparency and effective EOI internationally is a key objective of the Organisation for Economic Co-operation and Development’s (OECD) Harmful Tax Practices Initiative.  Australia is a long-standing and active supporter of this work and is the current chair of the Global Forum on Transparency and Exchange of Information for Tax Purposes.  The participation of Australian residents in arrangements designed to exploit secrecy laws have adverse effects on the Australian economy and impose an unfair burden on compliant businesses and individuals.  These arrangements also offer safe havens for funds associated with other activities such as money laundering, drug trafficking and terrorist financing.  The Australian Taxation Office dedicates significant resources to examining such arrangements but remains impeded by a lack of access to information held in some jurisdictions.   

 


The OECD has established the following key principles of transparency and effective information exchange for tax purposes:

 

•               Existence of mechanisms for exchange of information upon request

•               Exchange of information for purposes of domestic law in both criminal and civil tax matters

•               No restrictions of information exchange caused by application of dual criminality principle or domestic tax interest requirement

•               Respect for safeguards and limitations

•               Strict confidentiality rules for information exchanged

•               Availability of reliable information (in particular bank, ownership, identity and accounting information) and powers to obtain and provide such information in response to a specific request

 

 

Overview

The Taxation Administration Amendment Regulations 2010 (No. 2) were enacted to update the list of foreign countries and territories recognised for information exchange under the Taxation Administration Act 1953. These regulations were issued by the Assistant Treasurer and serve to align Australia's tax information exchange practices with international standards, particularly those set by the Organisation for Economic Co-operation and Development (OECD). The inclusion of jurisdictions such as Antigua and Barbuda, the British Virgin Islands, the Isle of Man, and Jersey in the list of information exchange countries aims to facilitate the reduction of withholding tax rates for foreign residents of these jurisdictions. This update is crucial for ensuring effective exchange of information (EOI) to combat tax avoidance and evasion, thereby reinforcing Australia’s commitment to a robust regulatory framework. The policy objective behind these amendments is to enhance Australia's international reputation and encourage other jurisdictions to enter into effective EOI arrangements, ultimately promoting compliance and fairness in the tax system. These regulations address the gap in the existing framework by incorporating jurisdictions that have recently established EOI agreements with Australia. By doing so, the Australian Taxation Office can obtain necessary information to verify the identity and residency of foreign investors, thereby supporting tax compliance activities. The inclusion of these jurisdictions in the EOI list is expected to mitigate the adverse effects of tax avoidance and evasion, ensuring that Australian businesses and individuals are not unfairly burdened. The regulations reflect Australia's dedication to transparency and effective information exchange as a key component of its tax administration, in line with international best practices.

Scope and Application

The Taxation Administration Amendment Regulations 2010 (No. 2) pertain to the Taxation Administration Act 1953 and the Income Tax Assessment Act 1997, specifically updating the list of foreign countries and territories that are recognised as information exchange countries for the purposes of tax withholding on fund payments made by trustees of managed investment trusts (MITs) or custodians. These Regulations apply to fund payments made on or after 1 July 2010, and they include Antigua and Barbuda, the British Virgin Islands, the Isle of Man, and Jersey in the list of information exchange countries. This inclusion facilitates the calculation of the amount to be withheld from fund payments to account for the reduced withholding tax rates applicable to foreign residents of these jurisdictions, provided they have entered into effective exchange of information (EOI) arrangements with Australia. EOI arrangements enable the Australian Commissioner of Taxation to obtain relevant taxpayer information from these jurisdictions, which is crucial for verifying the identity and residence status of investors, thereby supporting tax compliance activities. The application of these Regulations aligns with Australia's commitment to international cooperation in combating tax avoidance and evasion, reinforcing Australia's reputation for a robust regulatory system.

Key Provisions

The main operative sections of the Taxation Administration Amendment Regulations 2010 (No. 2) include the updating of the list of foreign countries and territories that are considered information exchange countries under section 12-385(4) of the Taxation Administration Act 1953 (the Act) (section 3). This amendment incorporates Antigua and Barbuda, the British Virgin Islands, the Isle of Man, and Jersey into the list of countries that have effective exchange of information (EOI) arrangements with Australia for tax matters. This list is critical for determining the withholding tax rates applicable to managed investment trusts (MIT) and other entities making fund payments to foreign residents. The Regulations impose specific obligations on trustees of MITs, custodians, and other entities to ensure compliance with the updated list of information exchange countries. Specifically, they must apply reduced withholding tax rates to foreign residents of the listed countries, provided these countries have effective EOI arrangements with Australia (Subdivision 804-M of the Income Tax Assessment Act 1997). This requirement reinforces Australia’s commitment to international cooperation in tax matters, ensuring that tax authorities can obtain and provide necessary information to support taxation compliance activities, thereby verifying investor identities and residences. Failure to comply with the updated list and the associated withholding tax requirements may result in legal consequences. While the Explanatory Statement does not specify explicit penalties, non-compliance with tax withholding obligations can generally lead to penalties under the Income Tax Assessment Act 1997. These penalties may include fines and interest on unpaid taxes, reflecting the seriousness with which the Australian Taxation Office (ATO) treats compliance with withholding tax obligations. Additionally, persistent or deliberate non-compliance could result in criminal charges under the Taxation Administration Act 1953, leading to more severe penalties, including substantial fines and imprisonment. The inclusion of Antigua and Barbuda, the British Virgin Islands, the Isle of Man, and Jersey in the list of information exchange countries underscores Australia’s dedication to combating tax avoidance and evasion. By ensuring that these countries have laws and administrative practices consistent with Australian standards, the Regulations help maintain the integrity of Australia’s tax system. The ATO’s commitment to utilising domestic powers for obtaining and providing information under tax treaties or bilateral tax information exchange agreements (TIEA) is further reinforced by these amendments. The effective exchange of information is crucial for addressing tax abuse and upholding the principles of transparency and cooperation established by international bodies such as the Organisation for Economic Co-operation and Development (OECD).

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