House of Representatives

Explanatory Memorandum

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

Chapter 2 Exchange of information

Outline of chapter

2.1 Schedule 2 to this Bill amends the International Tax Agreements Act 1953 and the Taxation Administration Act 1953 (TAA 1953). This chapter explains the legislative framework giving effect to Australia's current and future treaty obligations to exchange information on tax matters with other jurisdictions.

Context of amendments

2.2 Exchange of information generally operates to allow the tax administration of one country to request taxpayer information from the treaty partner for the purposes of carrying out the tax treaty or for administering the country's domestic tax laws.

2.3 Australia's previous treaty practice has been to exchange information only in relation to the taxes covered by a treaty (generally income tax including petroleum resource rent tax, fringe benefits tax and any identical or substantially similar taxes imposed under the federal law of Australia).

2.4 Consistent with the Organisation for Economic Co-operation and Development ( OECD) Model Tax Convention on Income and on Capital (OECD Model), the New Zealand Protocol provides for the exchange of information on an expanded range of taxes.

2.5 Therefore, this Bill provides a statutory legal basis for giving effect to Australia's obligations to gather and exchange tax information under future international agreements. In addition, this Bill codifies current practice in relation to existing international agreements.

Summary of new law

2.6 Schedule 2 to this Bill provides the legislative framework to facilitate the gathering and exchange of tax information under an obligation in an international agreement. That legislative framework will:

•

allow the Commissioner of Taxation (Commissioner) to utilise existing information gathering provisions to meet those obligations. For example, domestic information gathering powers are contained in sections 263 and 264 of the Income Tax Assessment Act 1936 (ITAA 1936);

•

ensure that the exchange of information in accordance with the terms of an international agreement will not constitute a breach of a secrecy provision of a taxation law prohibiting the Commissioner or an officer from making a record of, or disclosing, information; and

•

codify the Commissioner's ability to gather and exchange information regardless of whether such information is required by the Commissioner for domestic tax purposes.

Comparison of key features of new law and current law

Detailed explanation of new law

Use of information gathering provisions

2.7 The Commissioner or an authorised representative may use the information gathering provisions contained in the various laws administered by the Commissioner for the purpose of gathering information to be exchanged pursuant to an international agreement. [ Schedule 2, subsection 23(1 )]

2.8 The law is not intended to create a separate information gathering power in itself. Rather, it provides an express link to existing information gathering provisions to allow the Commissioner to exchange information to the widest possible extent in accordance with an obligation the Commissioner has pursuant to an international agreement.

Example 2.1

The Commissioner, in accordance with an international agreement, receives a request for information and documents concerning a property developer's claim for input tax credits on the purchase of commercial residential property. Where the Commissioner is not in possession of the requested material (eg, a tax invoice recording the transaction), it may be gathered through the use of the Commissioner's powers contained in sections 353-10 and/or 353-15 of the TAA 1953.

Example 2.2

The Commissioner, in accordance with an international agreement, receives a request for information and documents concerning a tax which is levied by another jurisdiction but has no Australian equivalent. In these circumstances, it may be gathered through the use of any of the information gathering provisions at the Commissioner's disposal.

Gathering and disclosing information is not a breach of taxation secrecy law

2.9 To date, exchange of information in Australia's international agreements generally extended to income tax only. Secrecy provisions preventing the disclosure of information relating to income tax are contained in section 16 of the ITAA 1936.

2.10 Section 16 of the ITAA 1936 is overridden for the purpose of Exchange of information Articles in Australia's international agreements by virtue of section 4 of the International Tax Agreements Act 1953 . Section 4 incorporates the Assessment Acts ( Income Tax Assessment Act 1936 (ITAA 1936) and Income Tax Assessment Act 1997 (ITAA 1997)) into the International Tax Agreements Act 1953 and requires the latter Act to override the former Acts to the extent of any inconsistency between the two. As a result, treaties contained in the International Tax Agreements Act 1953 override section 16 of the ITAA 1936 and information can be exchanged in relation to income tax.

2.11 The incorporation of the ITAA 1936 and the ITAA 1997 into the International Tax Agreements Act 1953 ensures that the disclosure of information, when discharged by the Commissioner or a duly authorised officer thereof, in accordance with the international agreement is not a breach of the secrecy provisions in the ITAA 1936.

2.12 Similar secrecy provisions preventing the disclosure of information exist in the various other tax Acts administered by the Commissioner. For example:

•

section 45 of the Superannuation Guarantee (Administration) Act 1992 ; and

•

sections 3C and 355-5 of the TAA 1953.

2.13 In addition, subsection 23(2) of this Bill ensures that the gathering and disclosure of information by a duly authorised officer of the Commissioner, falls within the performance of that officer's duties as an officer. In these circumstances, there is no breach of a secrecy provision of a taxation law covered by an international agreement. [ Schedule 2, subsection 23(2 )]

A domestic tax interest is not required

2.14 Section 23 codifies expressly the Commissioner's power to gather and exchange information regardless of whether or not there is a domestic interest in the information sought. [ Schedule 2, subsection 23(3 )]

2.15 This is consistent with OECD standards on the exchange of information.

2.16 In most instances, a domestic tax interest will also exist because the provision of information to a foreign revenue authority may result in information relevant to the taxpayer's Australian tax position (even if it merely confirms the accuracy of the assessment). There are cases, however, where this is not the case and the exchange is purely for the purpose of the other revenue authority.

The meaning of an 'information gathering provision'

2.17 An information gathering provision encompasses the various powers to access and powers to obtain information and evidence conferred under Acts administered by the Commissioner. For example, the powers available in respect of indirect tax matters contained in sections 353-10 and 353-15 of the TAA 1953 are information gathering provisions for these purposes. [ Schedule 2, subsection 23(4 )]

The meaning of an 'international agreement'

2.18 For the purposes of this provision an international agreement encompasses:

•

an agreement given the force of law under the International Tax Agreements Act 1953 ; or

•

some other agreement which allows for the exchange of information on taxation matters to which Australia and any of the following:

•

another country or a constituent part of a foreign country; or

•

an overseas territory,

are a party.

[ Schedule 2, subsection 23(4 )]

2.19 For example, an agreement falling within the second category would be a tax information exchange agreement which is not a Schedule to the International Tax Agreements Act 1953 .