Senate

Revised Explanatory Memorandum

(Circulated by authority of the Treasurer, the Hon Peter Costello, MP)

Chapter 11 - Amendments relating to international obligations

Outline of Chapter

11.1 Australia is party to a number of international conventions and agreements which among other things provide a range of taxation concessions to various bodies and personnel in Australia. This Chapter explains the amendments made to the following Acts to ensure that Australia continues to meet its international obligations:

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GST Act, WET Act and LCT Act ;

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TAA 1953 ;

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Consular Privileges and Immunities Act 1972 (CP & I Act);

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Diplomatic Privileges and Immunities Act 1967 (DP & I Act);

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International Organisations (Privileges and Immunities) Act 1963 (IO(P & I) Act); and

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Overseas Missions (Privileges and Immunities) Act 1995 (OM(P & I) Act).

Amendments relating to diplomatic, consular and related privileges and immunities

11.2 The taxation concessions relate to the GST, WET and LCT. The concessions will be granted by way of an exemption for goods imported by the eligible body or person and by way of a payment by the Commissioner through the 'indirect tax concession scheme' for goods purchased in Australia. This is a departure from the way in which concessions for local purchases are currently granted under the wholesale sales tax system. However, given the wider application of the GST in terms of the range of goods and services covered and the number of businesses involved, the indirect tax concession scheme is considered the most effective way of providing these concessions. The indirect tax concession scheme will maintain the integrity of the GST system and allow Australia to meet its international obligations.

11.3 The GST also presents an opportunity to maximise benefits for Australia through reciprocal agreements to provide limited tax concessions. These are in addition to our treaty obligations and are consistent with international practice. Australia's position on these limited reciprocal concessions is that we must maintain our global advantage, taking into account the value of foreign taxation exempted and Australian taxation forgone.

11.4 The range of taxation concessions to be granted for local purchases by International Organisations and Overseas Missions will be covered by the regulations which is consistent with the manner in which other concessions are currently granted for these bodies. The Minister for Foreign Affairs will determine the concessions for diplomatic and consular missions and personnel through a determination, (which is a disallowable instrument for the purposes of section 46A of the AIA 1901) rather than by the regulations. The privileges and immunities for diplomatic and consular missions and officials, are set out in the Conventions agreed to by Australia and have been enacted as part of the legislation rather than through regulations.

11.5 A number of taxation concessions that are currently provided for in the various Acts need to be amended to overcome the effect of section 177-5 of the GST Act. That section cancels the effect of a provision of another Act that would have the effect of exempting a person from liability to pay GST. The WET Act and LCT Act also contain similar provisions relating to WET and LCT. The cancellation in these Acts does not apply if:

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the provision of the other Act commences after the commencement of the sections in the GST, WET and LCT Acts; and

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refers specifically to GST, WET and LCT payable under those Acts.

11.6 The amendments to diplomatic, consular and related privileges and immunities are required for goods imported by these bodies. Without an exemption these bodies would be liable to pay GST, WET and LCT (as appropriate) on the goods imported.

11.7 In some circumstances a mission or post may make a supply for which they could be potentially liable to pay GST. This would be in breach of the Conventions. However, as diplomatic missions, consular posts, overseas missions and International Organisations are not considered to be carrying on an enterprise they will not be able to register for GST and therefore will not be subject to GST on any supplies they may make. There may be some circumstances where an International Organisation is considered to be carrying on an enterprise and the IO(P & I) Act is being amended to make it clear that in these circumstances, the organisation will not be considered to be carrying on an enterprise for the purposes of the GST Act.

Consular Privileges and Immunities

11.8 Items 1 to 7 of Schedule 7 insert definitions of 'acquisition', 'approved form', 'Commissioner', 'GST Act', 'indirect tax', 'Luxury Car Tax Act' and 'Wine Equalisation Tax Act' in subsection 3(1) of the CP & I Act.

11.9 Item 8 amends section 6 of the CP & I Act to overcome the effect of:

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section 177-5 of the GST Act;

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section 21-5 of the LCT Act; and

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section 27-25 of the WET Act.

11.10 This amendment will ensure that importations covered by paragraph 1 or paragraph 2 of Article 50, or Article 62, of the Vienna Convention on Consular Relations and section 5 of the CP & I Act are not subject to GST, WET or LCT.

11.11 Item 9 of Schedule 7 sets out the indirect tax concession scheme, the detail of which will be provided by a determination of the Minister for Foreign Affairs. The determination will cover the following:

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the countries which will benefit from the concessions;

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the types of acquisitions that will be covered;

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the types of eligible use for acquisitions; and

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the conditions, limitations, and the period and manner in relation to any amounts payable.

11.12 The indirect tax concession scheme in new section 10A of the CP & I Act provides for the Commissioner to pay to the head of the consular post an amount equal to the GST, WET and LCT payable in respect of acquisitions covered by the determination. A claim for an amount must be in the approved form, which has the meaning given in section 995-1 of the ITAA 1997.

11.13 New subparagraph 10A(1)(b)(i) refers to the official use of the consular post. Official use is use that has a direct relation with the exercise of the functions of the post in accordance with the Vienna Convention on Consular Relations or other related international agreements or arrangements.

Diplomatic Privileges and Immunities

11.14 Items 10 to 16 of Schedule 7 insert definitions of 'acquisition', 'approved form', 'Commissioner', 'GST Act', 'indirect tax', 'Luxury Car Tax Act' and 'Wine Equalisation Tax Act' in subsection 4(1) of the DP & I Act.

11.15 Item 17 of Schedule 7 amends section 8 of the DP & I Act to overcome the effect of:

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section 177-5 of the GST Act;

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section 21-5 of the LCT Act; and

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section 27-25 of the WET Act.

11.16 This amendment will ensure that importations covered by paragraph 1 of Article 36, or paragraph 1 or paragraph 2 of Article 37, of the Vienna Convention on Diplomatic Relations and section 7 of the DP & I Act are not subject to GST, WET or LCT.

11.17 Item 18 of Schedule 7 sets out the indirect tax concession scheme, the detail of which will be provided by a determination of the Minister for Foreign Affairs. The determination will cover the following:

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the countries which will benefit from the concessions;

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the types of acquisitions that will be covered;

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the types of eligible use for acquisitions; and

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the conditions, limitations, and the period and manner in relation to any amounts payable.

11.18 The indirect tax concession scheme in new section 10B of the DP & I Act provides for the Commissioner to pay to the head of the diplomatic mission an amount equal to the GST, WET and LCT payable in respect of acquisitions covered by the determination. A claim for an amount must be in an approved form, which has the meaning given in section 995-1 of ITAA 1997.

11.19 New subparagraph 10B(1)(b)(i) refers to the official use of the diplomatic mission. Official use is use that has a direct relation with the exercise of the functions of the mission in accordance with the Vienna Convention on Diplomatic Relations or other related international agreements or arrangements.

International Organisations

11.20 Items 19 to 26 of Schedule 7 insert definitions of 'acquisition', 'approved form', 'Commissioner', 'enterprise', 'GST Act', 'indirect tax', 'Luxury Car Tax Act' and 'Wine Equalisation Tax Act' in subsection 3(1) of the IO(P & I) Act.

11.21 Item 27 of Schedule 7 adds new section 11B to the IO(P & I) Act to overcome the effect of:

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section 177-5 of the GST Act;

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section 21-5 of the LCT Act; and

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section 27-25 of the WET Act.

11.22 This amendment will ensure that importations covered by an immunity from taxation conferred by the regulations are not subject to GST, WET or LCT.

11.23 Item 27 of Schedule 7 also sets out the indirect tax concession scheme, the detail of which will be covered by regulations made for the purposes of the indirect tax concession scheme. The regulations will cover the following:

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the organisations which will benefit from the concessions;

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the types of acquisitions that will be covered;

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the types of eligible use for acquisitions; and

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the conditions, limitations, and the period and manner in relation to any amounts payable.

11.24 The indirect tax concession scheme in new section 11C of the IO(P & I) Act provides for the Commissioner to pay to the organisation an amount equal to the GST, WET and LCT payable in respect of acquisitions covered by the regulations. A claim for an amount must be in an approved form, which has the meaning given in section 995-1 of the ITAA 1997.

11.25 New subparagraph 11C(1)(b)(i) refers to the official use of the international organisation. Official use is use that has a direct relation with the exercise of the functions of the organisation in accordance with the United Nations Convention on Privileges and Immunities or other related international agreements or arrangements.

11.26 Item 28 of Schedule 7 inserts new section 12B in the IO(P & I) Act which relates to registration under the GST Act. As the regulations confer the privileges and immunities for international organisations, which will be, either provided by way of exemption or by payment by the Commissioner, there will be no need for these organisations to be registered for GST purposes. New section 12B states that an international organisation will not be considered to be carrying on an enterprise for the purposes of the GST Act when acting in the capacity for which the organisation or person was granted those privileges and immunities. As such, International Organisations will not register for GST and therefore will not be liable to pay GST in respect of any supplies they may make in Australia (e.g. for providing any expert services).

Overseas Missions

11.27 Items 29 to 35 of Schedule 7 insert definitions of 'acquisition', 'approved form', 'Commissioner', 'GST Act', 'indirect tax', 'Luxury Car Tax Act' and 'Wine Equalisation Tax Act' in section 3 of the OM(P & I) Act.

11.28 Item 36 of Schedule 7 adds new subsection 9(2) to the OM(P & I) Act to overcome the effect of:

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section 177-5 of the GST Act;

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section 21-5 of the LCT Act; and

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section 27-25 of the WET Act.

11.29 This amendment will ensure that importations covered by an immunity from taxation conferred by the regulations are not subject to GST, WET or LCT.

11.30 Item 37 of Schedule 7 sets out the indirect tax concession scheme, the detail of which will be covered by regulations made for the purposes of the indirect tax concession scheme. The regulations will cover the following:

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the overseas missions which will benefit from the concessions;

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the types of acquisitions that will be covered;

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the types of eligible use for acquisitions; and

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the conditions, limitations, and the period and manner in relation to any amount payable.

11.31 The indirect tax concession scheme in new section 12A of the OM(P & I) Act provides for the Commissioner to pay to the head of a designated overseas mission an amount equal to the GST, WET and LCT payable in respect of acquisitions covered by the regulations. A claim for an amount must be in an approved form, which has the meaning given in section 995-1 of the ITAA 1997.

11.32 New subparagraph 12A(1)(b)(i) refers to the official use of the overseas mission. Official use is use that has a direct relation with the exercise of the functions of the mission in accordance with international agreements or arrangements.

Visiting forces and other international obligations

11.33 Australia is party to a number of international agreements including status of forces agreements with other countries. These agreements provide for certain taxation concessions to be granted. These amendments will ensure that Australia is able to grant these taxation concessions as required.

11.34 The taxation concessions relate to the GST, WET and LCT. The concessions will be granted by way of an exemption for goods imported by the eligible body or person and by way of a refund by the Commissioner for eligible goods purchased in Australia. This is a departure from the way in which concessions for local purchases are currently granted under the wholesale sales tax system. However, given the wider application of the GST in terms of the range of goods and services covered and the number of businesses involved, the refund mechanism is considered the most effective way of providing these concessions, while preserving the integrity of the GST system and at the same time continuing to meet Australia's international obligations.

Visiting forces

11.35 Item 53 of Schedule 1 adds items 4, 8 and 15 in Schedule 4 to the CTA 1995 to section 42-5(1) of the GST Act (non-taxable importations). These items relate to concessions for visiting forces and members of visiting forces. In addition, item 4 covers goods owned by a foreign government and brought into Australia for the official use of that government. This amendment will ensure that importations covered by these items are non-taxable. The goods covered by these items reflect the concessions provided for in the status of forces agreements.

11.36 Item 162 of Schedule 1 adds the same items in Schedule 4 of the CTA 1995 to paragraph 7-10(3)(c) of the LCT Act. Subsection 7-10(3) of the LCT Act relates to importations of luxury cars that are not taxable. These items reflect the concessions provided in the status of forces agreements.

11.37 Item 169 of Schedule 1 adds items 4 and 8 in Schedule 4 of the CTA 1995to subsection 7-15(1) of the WET Act. This subsection refers to customs dealings that are not taxable.

11.38 Item 55 repeals section 42-15 of the GST Act. This section qualifies the circumstances in which goods covered by item 15 in Schedule 4 to the CTA 1995 would be non-taxable importations. As all importations of goods covered by item 15 will now be non-taxable importations, section 42-15 is no longer required.

Other international obligations

11.39 Item 54 of Schedule 1 inserts new subsection 42-5(1C) into the GST Act. This subsection provides that an importation of goods is non-taxable if the goods are covered by:

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item 1A, 1B, 1C, 1D, 1E, 5, 6, 9, or 16 in Schedule 4 to the CTA 1995; and

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regulations made for the purposes of this subsection.

11.40 These items in the CTA 1995 relate to importations where Australia has an international obligation. Importations made under these items will only be non-taxable if they are also specified in the regulations. This will allow the regulations to specify those importations where Australia is required to provide an indirect tax concession.

Amendments to the Taxation Administration Act 1953

11.41 Item 38 of Schedule 7 inserts new section 62B into the TAA 1953. This provides for a refund scheme for defence related international obligations. This relates to refunds of GST, LCT and WET for eligible local purchases. The range of taxation concessions to be granted for local purchases by visiting forces and other bodies will be covered by a determination, (which is a disallowable instrument for the purposes of section 46A of the AIA 1901 to be made by the Defence Minister.

11.42 New section 62B sets out the areas where the Defence Minister can determine that a refund of tax is payable. These cover the bodies or persons who are entitled to the concessions, the types of acquisitions, the eligible uses of acquisitions and any conditions or limitations. The refund of tax will be made by the Commissioner within the period and manner set out in the determination.

11.43 New section 62C relates to a refund scheme for other international obligations. This allows regulations to be made providing for a refund of tax to entities covered by the regulations. The regulations will specify the kind of entities and the kind of acquisitions that are eligible. However, the regulations can only specify entities and acquisitions for which the Commonwealth is under an international obligation to grant indirect tax concessions in relation to the kind of entity and the kind of acquisition. Refunds will be payable by the Commissioner.

11.44 The types of international obligations under which indirect tax concessions may be required include:

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treaties, which are binding under international law;

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memoranda of understanding, arrangements and other documents of less than treaty status, which implement general obligations under a treaty; and

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memoranda of understandings, etc. which stand alone but which document Australia's international political and moral obligations.