Taxation Administration Amendment Regulations 2010 (No. 4)

EXPLANATORY STATEMENT
 

Select Legislative Instrument 2010 No. 335

Issued by authority of the Assistant Treasurer

 Taxation Administration Act 1953

 Taxation Administration Amendment Regulations 2010 (No. 4)

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.

These amending Regulations add Gibraltar and Guernsey to the list of foreign countries and foreign territories contained in the Taxation Administration Regulations 1976 (the Principal Regulations) that are information exchange countries for the purposes of subsection 12-385(4) of Schedule 1 of the Act. 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 with Gibraltar and Guernsey 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.

It was thought unnecessary to consult on this measure as consultation with industry and the Australian Taxation Office was undertaken in the initial development of both the legislation and the regulations for the list of countries considered ‘effective exchange of information countries’ in June 2008.  At the time, a Regulation Impact Statement was not required as compliance costs were assessed as against criteria in accordance with the Best Practice Regulation Handbook to have no/low impact on businesses and individuals or on the economy.  The Office of Best Practice Regulation confirmed this conclusion.  

The Regulations commence on 1 January 2011.

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 January 2011.

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