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38 <strong>SENATE</strong> Thursday, 13 October 2016 The statement read as follows— Purpose of the Bill The purpose of this bill is to give force of law to the new Australia-Germany Double Taxation Agreement. Key benefits for Australia would include implementation of the G20/Organisation for Economic Cooperation and Development (OECD) Base Erosion and Profit Shifting Project recommended tax treaty integrity rules, access to reduced rates of withholding tax on dividends, interest and royalties, and new clauses allowing arbitration for unresolved tax disputes and mutual assistance in the collection of tax debts. Reasons for Urgency This treaty contains new rules applying to specified pension payments commencing from 1 January 2017. It is therefore desirable that the new treaty is in force before that date. In addition, Germany expects to complete its domestic implementation processes in September 2016 to allow the new treaty to take effect in Germany from 1 January 2017. If the bill is not passed in the 2016 Spring sittings, the treaty will not take effect for withholding tax and German income tax purposes until 1 January 2018, delaying taxpayer access to the treaty benefits for a further year. Question agreed to. Second Reading Senator RYAN (Victoria—Special Minister of State and Minister Assisting the Cabinet Secretary) (12:46): I move: That this bill be now read a second time. I seek leave to have the second reading speech incorporated in Hansard. Leave granted. The speech read as follows— This Bill will amend the International Tax Agreements Act 1953 to give the force of law to the new tax treaty signed by Australia and Germany on 12 November 2015. The tax treaty is known as the Agreement between Australia and the Federal Republic of Germany for the Elimination of Double Taxation with respect to Taxes on Income and on Capital and the Prevention of Fiscal Evasion and Avoidance, and its Protocol (the new Agreement). The Bill will further enhance the already strong economic relations between Australia and Germany. It will encourage trade and investment between Australia and Germany that will support Australian firms and our economy. International trade and investment creates opportunities for Australia through the provision of goods and services and the injection of foreign capital. As our economy transitions to broad based growth it is important that we continue to attract foreign investment. But we need the right policy environment for trade and investment in order to take advantage of these opportunities. The Government has therefore modernised its existing bilateral tax treaty with Germany to reflect changes arising from international developments. Australians are increasingly concerned about the actions of multinational companies and high wealth individuals who avoid paying their fair share of tax. This new Agreement replaces the old Agreement which was signed in 1972, bringing bilateral tax arrangements into the twenty-first century. Importantly, the new Agreement is Australia's first tax treaty that has incorporated the integrity provisions of the G20/OECD Base Erosion and Profit Shifting project, known as BEPS. These provisions are designed to minimise tax avoidance opportunities and ensure that multinational corporations pay the right amount of tax. This new Agreement includes the BEPS minimum standards for protecting against treaty shopping, to counter the channelling of investments through conduit companies to exploit treaty protections with a view to avoiding Australian tax. This is an important landmark in the fight against multinational tax avoidance and strengthens the Government's already tough tax anti-avoidance laws. In relation to fiscal evasion, the new Agreement will: strengthen the integrity of Australia's tax system and help detect and prevent evasion by authorising the revenue authorities of Australia and Germany to exchange taxpayer information on all taxes imposed in either country. enable mutual assistance in the collection of outstanding tax debts. The new Agreement will also improve tax certainty for business by introducing new anti-discrimination and arbitration rules, as well as a range of rules to prevent potential double taxation. From a trade perspective, the new Agreement will create new opportunities for Australian businesses by reducing withholding tax rates, helping to create a more favourable bilateral investment environment and making it cheaper for Australian business to access German capital and technology. The new Agreement will also expand treaty benefits for income received by Australian managed investment trusts and certain German collective investment vehicles, and establish source country taxation of pensions in limited circumstances. CHAMBER
Thursday, 13 October 2016 <strong>SENATE</strong> 39 The new Agreement will enter into force following the enactment of this Bill. Senator GALLAGHER (Australian Capital Territory—Manager of Opposition Business in the Senate) (12:46): I rise to speak in support of the International Tax Agreements Amendments Bill 2016. This bill seeks to give force of law to the tax treaty signed by the Australian and German governments on 12 November 2015 by amending the International Tax Agreements Act 1953. The intention of the treaty is to reduce barriers to bilateral trade and investment between Australia and Germany, particularly in relation to taxation issues. It seeks to achieve this by reducing source-country taxes on cross-border payments of dividends, interest and royalties. It also seeks to facilitate the exchange of information and mutual assistance in the collection of outstanding debts. Doing so will encourage a further expansion of trade and capital exchange between our two countries. As noted in Treasury's evidence to the Joint Standing Committee on Treaties, our existing tax treaty with Germany, signed in 1972 and in operation since 1975, is Australia's oldest unamended tax treaty. By all measures we now live in markedly different times. This is particularly true with regard to how Australia engages economically with the rest of the world. But it is also true that this engagement involves increasingly complex and sophisticated arrangements in international trade and taxation. For contrast, when the original treaty with Germany was signed in 1972, Australia's population had only just nudged over 13 million people and our estimated GDP was $51 billion. State-owned banks proliferated, our exchange rate and wages were set centrally and high tariffs insulated our domestic market, in an economy where agriculture and industry predominated. But in 1972 we were also seeing the foundations of a radically different Australia being laid. The recently elected Whitlam government was sweeping away the last vestiges of the White Australia policy, and, in a move that would have far-reaching consequences for our economic future, our government formally recognised the People's Republic of China. Fast-forward to 2016, and Australia's population has close to doubled, with more than 24 million people. Our economy, now dominated by services, has grown to $1.6 trillion, and the focus of our trade has shifted to the Asia-Pacific region. If one fact typifies the radically transformed nature of our economic relationship with the world since that time, it is that, since starting with virtually no two-way trade in 1972, China has grown to become our largest trading partner by a clear margin, with more than $140 billion in two-way trade in 2014. Acknowledging that we now live in a very different world, it is important that the Commonwealth is prepared to modernise our tax and trade relations with the rest of the world. This bill would give effect to that, updating and modernising the arrangements between Australia and Germany and bringing our bilateral tax arrangements into the 21st century. Germany is an important trade and investment partner for Australia. Indeed, it is one of our top 10 trading partners, with just shy of $17 billion in two-way trade in 2014, according to figures from the Department of Foreign Affairs and Trade. Germany is also a very important destination for Australian investment. It may surprise some in the chamber to learn that Germany is actually the fifth-largest destination for Australian investment abroad, with outbound Australian investment in Germany valued at $65 billion in 2014. A range of our largest Australian companies have a significant footprint in Germany. Sonic Healthcare and CSL Behring, both in the advanced medical sector, employ about 7,000 people in Germany. Australian superannuation funds and investment firms similarly have a broad range of interests in Germany, from electricity transmission and wind farms to internet start-ups. The new provisions in the treaty broadly follow the OECD's Model Tax Convention on Income and on Capital and, in doing so, broadly reflect current Australian and international tax policy settings. Importantly, in evidence to the Joint Standing Committee on Treaties, officials from Treasury stated that there was nothing within the agreement that prevents either Australia or Germany from enacting domestic laws related to tax evasion or avoidance. Labor welcomes that the agreement also establishes a framework to address international tax evasion by allowing the exchange of relevant information and enabling mutual assistance in the collection of outstanding tax debts. While the government is talking up the elements of this treaty that address multinational tax avoidance, it must be noted that the government stubbornly refuses to close tax loopholes and increase transparency in Australia. We support the modest measures contained in this bill, but we remain convinced of the need for additional action by the Australian government to crack down on multinational tax avoidance—and we certainly welcome the unprecedented support in the House yesterday for our second reading amendment calling on the government to explain why it has failed to close tax loopholes and increase transparency in Australia. Ultimately, Labor supports trade and investment between Australia and the rest of the world because, done fairly and sustainably, it helps generates economic growth, creates jobs, improves living standards and reduces CHAMBER
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