Explanatory Memorandum
(Circulated by the authority of the Treasurer, the Hon J. B. Hockey MP)Chapter 3 - Statement of Compatibility with Human Rights
Prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011
International Tax Agreements Amendment Bill 2014
3.1 This Bill is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011.
Overview
3.2 The International Tax Agreements Amendment Bill 2014 (Bill) fulfils Australia's commitments under the Convention between Australia and the Swiss Confederation for the Avoidance of Double Taxation with Respect to Taxes on Income and Protocol (Swiss Convention).
3.3 The Bill will give effect to the revised obligations under the Swiss Convention in Australia. The Swiss Convention updates the existing agreement with Switzerland, the Agreement between Australia and Switzerland for the Avoidance of Double Taxation with respect to Taxes on Income and its Protocol which entered into force on 13 February 1981. The Bill proposes amending the International Tax Agreements Act 1953 to give the Swiss Convention the force of law in Australia by adding them to the list of agreements currently contained in that Act.
3.4 Negotiations to update the existing treaty were announced by the former Government, in a media release of the then Assistant Treasurer of 9 February 2011. Signature of the treaty and its details were announced in a media release of the then Assistant Treasurer's media releases of 12 May 2013 and 30 July 2013.
3.5 The Swiss Convention modernises the bilateral tax arrangements between Australia and Switzerland for the purpose of eliminating double taxation. It also seeks to prevent fiscal evasion, specifically by enabling the respective tax authorities to exchange taxpayer information on request.
Human rights implications
3.6 The Bill engages the following human rights:
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- the right to protection from arbitrary or unlawful interference with privacy under Article 17 of the International Covenant on Civil and Political Rights (ICCPR); and
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- the right to protection from discrimination under Articles 2(1) and 26 of the ICCPR and Article 2(1) of the International Convention on the Elimination of All Forms of Racial Discrimination (ICERD).
Protection from arbitrary or unlawful interference with privacy
3.7 The Bill engages the right to privacy in Article 17 of the ICCPR, as the international agreement which it seeks to give effect to, that is, the Swiss Convention obliges the revenue authorities of Australia and Switzerland to provide personal taxpayer information to each other in certain circumstances. This requirement is contained in Article 25 (Exchange of information) of the Swiss Convention.
Protection from discrimination
3.8 The Bill engages the right to equal protection of the law and non-discrimination contained in the ICCPR and ICERD. It is to be noted that discrimination under the ICCPR and ICERD comprises differential treatment (a distinction, exclusion or restriction) on the basis of a prohibited ground, which nullifies or impairs the enjoyment of human rights.
3.9 The Swiss Convention contains a number of provisions affecting the tax liability of different groups of people, in particular 'nationals' of the contracting States. Article 23 of the Swiss Convention guarantees non-discrimination in the taxation of Australian and Switzerland nationals as defined in the treaty, and Article 22 provides for relief from double taxation of certain income derived by residents of Australia and Switzerland.
3.10 Thus, in relation to this Bill, the relevant issue is whether differentiation on the basis of residency or nationality constitutes discrimination on prohibited grounds.
3.11 Article 1(2) of the ICERD provides that, 'This Convention shall not apply to distinctions, exclusions, restrictions or preferences made by a State Party to this Convention between citizens and non-citizens.' On its face, it would appear that a distinction between citizens and non-citizens would not amount to discrimination for the purposes of the ICERD.
3.12 However, the Committee on the Elimination of Racial Discrimination (ICERD Committee) in its General Recommendation No. 30, stated its view that, 'differential treatment based on citizenship or immigration status will constitute discrimination if the criteria for such differentiation, judged in the light of the objectives and purposes of the Convention, are not applied pursuant to a legitimate aim, and are not proportional to the achievement of this aim.' [1]
3.13 In other words, differential treatment would not amount to discrimination under international human rights law if the different treatment meets the proportionate test for legitimate differential treatment.
Compatibility with human rights
Legitimate objective
3.14 This Bill's engagement with the right to privacy and the right to protection from discrimination is in the furtherance of a legitimate objective.
3.15 The objective of the Swiss Convention is to avoid double taxation and prevent fiscal evasion.
Double taxation
3.16 Most countries tax income on both a 'source' and 'residence' basis. That is, a resident person is usually taxed on income from both domestic and foreign sources, whilst non-residents are only taxed on domestic source income.
3.17 Double taxation is generally due to residence-source jurisdictional conflicts. This occurs when a person who is a resident in one country derives income from another. Consider the example of a business which has a branch office in another country. The residence country (the country where the business is resident) exercises a residence jurisdiction and taxes the foreign branch income. The source country (where the branch is carrying on business) exercises its source jurisdiction and also taxes the branch income.
3.18 Double taxation can also occur where both countries classify a person as their own resident, consider income is sourced in their jurisdiction, or consider the same income is derived by different taxable entities.
Preventing fiscal evasion and improving international tax compliance
3.19 Consistent with bilateral tax treaties, another objective of the Swiss Convention is to create a framework for exchange of information and cooperation between the respective tax administrations (that is, Australia and Switzerland) as a means of combating international tax avoidance and evasion.
3.20 In this regard, while the Bill is necessary to ensure that the appropriate persons benefit from the Swiss Convention, it is also necessary to ensure effective cooperation between the two countries for tax compliance purposes.
How the Bill facilitates avoidance of double taxation and prevention of fiscal evasion
3.21 Under the Swiss Convention, Australia and Switzerland agree to restrict their respective taxing rights to avoid double taxation. Taxing rights are 'allocated' over different categories of income including business profits, dividends, interest, royalties and pensions.
3.22 Further, the Swiss Convention provides for relief from double taxation where both countries have a right to tax the income. It also establishes arrangements for the exchange of information between tax authorities, and provides for resolution of disputes where the two countries attempt to tax the same income.
3.23 In doing so, the Swiss Convention establishes greater legal and fiscal certainty within which cross-border trade and investment (between Australia and Switzerland) can be carried on and promoted.
3.24 Australia is a long-standing supporter of international cooperation to prevent tax evasion. This Bill reinforces Australia's support for international tax transparency and cooperation between revenue authorities to help prevent tax evasion and improve global tax compliance. This is consistent with ongoing international efforts, supported by the G20, to improve tax system integrity.
Reasonable and necessary
3.25 The Bill's engagement of the right to privacy and that of protection from discrimination constitutes a reasonable and necessary measure in pursuit of the Bill's legitimate objective.
3.26 In order to be reasonable and necessary, a sufficient connection must be established between the objectives of the Swiss Convention and the engagement of the rights to privacy and protection from discrimination.
3.27 An objective of the Swiss Convention is to ensure that resident and non-resident persons (being individuals or entities) of Australia and Switzerland are not taxed by both countries on the same income (double taxation).
3.28 In relation to protection against discrimination, given that double taxation is generally due to residence-source jurisdictional conflicts, the differential treatment of residents and non-residents is a necessary ingredient in ensuring that the same item of income of a person is not taxed by both countries.
3.29 In relation to privacy, the exchange of personal information between the respective tax administrations (that is, Australia and Switzerland) is necessary to combat international tax avoidance and evasion. The scope of personal information to be exchanged also extends to persons who are not residents of either country.
Proportionate means of achieving a legitimate objective
3.30 The Bill's engagement of the right to privacy and the right to protection from discrimination is a proportionate means of achieving the Bill's legitimate objective.
Safeguards and protection of taxpayer privacy
3.31 In relation to privacy, the provision of information must be 'foreseeably relevant' to the administration of taxation (Article 25).
3.32 Further, the information exchanges envisaged in the Swiss Convention are subject to strict treaty confidentiality rules. That is, any information provided by the Commissioner of Taxation can only be used by Swiss revenue authorities for the purposes permitted by the Swiss Convention. In general, this means that the information can only be used for tax administration purposes and may only be disclosed to persons (including courts and administrative bodies) concerned with the assessment, collection, administration or enforcement of, or with litigation with respect to, the taxes covered by the treaty.
3.33 The disclosure of taxpayer information by the Commissioner of Taxation is allowed by section 355-50 of Schedule 1 to the Tax Administration Act 1953, which provides an exception to the general prohibition on the disclosure of taxpayer information by ATO officers.
3.34 Further, the right to privacy in Australia is protected by the Privacy Act 1988. The Privacy Act enables an individual to make a complaint about the handling of their information, including tax information, by both specified Australian government agencies and private sector organisations.
3.35 The Office of the Australian Information Commissioner is also available to investigate and enforce Australia's privacy law where a person alleges that an agency or organisation is non-compliant. Depending on the particular complaint, some possible resolutions could include compensation for financial or non-financial loss, or change to the respondent's practices. [2]
3.36 In relation to the protection against discrimination, the differential treatment on the basis of a person's residence or nationality is a proportionate means of achieving the Bill's legitimate objective, as this approach follows the Organisation for Economic Cooperation and Development (OECD) Model Tax Convention on Income and on Capital, which has been largely adopted, with variations, by most countries.
3.37 Lastly, the Swiss Convention (Article 23) enhances the non-discrimination principle by ensuring that Australia and Switzerland are not able to treat residents of either country differently in similar situations, except where legitimate and objective justifications exist.
Conclusion
3.38 This Bill is consistent with Article 17 of the ICCPR on the basis that its engagement of the right to privacy will neither be unlawful (including by virtue of Australia's privacy laws) nor arbitrary. To this extent, the Bill complies with the provisions, aims and objectives of the ICCPR.
3.39 In addition, this Bill meets the test for legitimate differential treatment, and does not contravene international human rights law protections against discrimination on the basis of a person's nationality or citizenship.