House of Representatives

Explanatory Memorandum

(Circulated by the authority of the Treasurer, the Hon S. J. Morrison MP)

Chapter 2 Statement of Compatibility with Human Rights

Prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011

2.1 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

Background

2.2 The Common Reporting Standard (CRS) is an international framework developed by the Organisation for Economic Co-operation and Development (OECD) with the G20 countries and European Union. It aims to develop a global, standardised model for the information to be reported by financial institutions and exchanged between jurisdictions as part of the international response to tax evasion.

2.3 The objective of the CRS is to establish a consistent standard of information to be exchanged between jurisdictions to combat international tax evasion. Exchanging information on foreign resident account holders will help the Australian Taxation Office (ATO) and other tax authorities to ensure that account holders are complying with their tax obligations.

Human rights implications

2.4 This Bill engages the right to protection from arbitrary or unlawful interference with privacy under Article 17 of the International Covenant on Civil and Political Rights (ICCPR).

2.5 Section 396-105 of Schedule 1 to the Taxation Administration Act 1953 (TAA 1953) requires Reporting Financial Institutions to carry out due diligence procedures to identify account holders that are foreign tax residents. Reporting Financial Institutions must then report certain personal and account information about these foreign resident account holders (including their name, address, Tax Identification Number and date of birth) to the Commissioner of Taxation (Commissioner). This information may be provided to other jurisdictions if a relevant information-sharing agreement is in place.

2.6 The United Nations Human Rights Committee has stated, in their General Comment No. 16, that:

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'unlawful means that no interference can take place except in cases envisaged by the law. Interference authorized by States can only take place on the basis of law, which must itself comply with the provisions, aims and objectives of the [ICCPR]'; and

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'the concept of arbitrariness is intended to guarantee that even interference provided for by law should be in accordance with the provisions, aims and objectives of the [ICCPR] and should be, in any event, reasonable in the particular circumstances'. ^[1]

Compatibility with human rights

Legitimate objective

2.7 This Bill's engagement with the right to privacy is in the furtherance of a legitimate objective. The principal objective of these amendments is to improve tax compliance and enhance the integrity of the Australian tax system by improving reciprocal tax information-sharing arrangements between Australia and other jurisdictions.

2.8 Globalisation and technological advances have made it easier for taxpayers to hold investments in financial institutions outside of their country of residence. The ability to exchange taxpayer information between jurisdictions' tax authorities is critical to combating tax evasion at the international level. The CRS tackles and deters cross-border tax evasion by establishing a common international standard for financial institutions to identify and report information about the financial accounts of foreign tax residents to their local tax authority and for tax authorities to exchange this information.

2.9 Australia is a long-standing supporter of international cooperation to prevent tax evasion. Currently, the ATO provides taxpayer information to more than 40 of Australia's tax treaty partners.

2.10 The CRS builds on the Foreign Account Tax Compliance Act (FATCA) reporting regime, extending these reporting obligations to reporting about financial accounts held by other foreign tax residents. On 28 April 2014 Australia concluded an intergovernmental agreement with the United States of America (US) to provide for the implementation of FATCA, based on domestic reporting and reciprocal automatic information exchange. FATCA was enacted by the US Congress in March 2010 to improve compliance with US tax laws by imposing due diligence and reporting obligations on foreign (non-US) financial institutions, including Australian institutions.

2.11 Australia introduced the Tax Laws Amendment (Implementation of the FATCA Agreement) Act 2014 to give effect to its obligations under the intergovernmental agreement. This Act requires Australian financial institutions to report information to the Commissioner about financial accounts held by US citizens and tax residents.

2.12 This Bill continues to further Australia's support for international tax transparency and cooperation between tax authorities to help prevent tax evasion and improve tax compliance. As other jurisdictions also implement the CRS and supporting tax information-sharing arrangements with these jurisdictions are made, Australia expects to improve its access to consistent information on Australian taxpayers with overseas accounts from a wide range of jurisdictions. Such improvements in the scope and quality of information available to the ATO enhance its administration of Australia's tax laws.

2.13 Improving tax compliance and enhancing the integrity of the Australian tax system are legitimate objectives.

Reasonable and necessary

2.14 This Bill's engagement of the right to privacy constitutes a reasonable and necessary measure in pursuit of its legitimate objective. To be reasonable and necessary, there must be a rational connection between the measure and the legitimate objective outlined above.

2.15 Under these amendments, certain financial institutions in Australia are required to collect information on their account holders and report personal information on foreign tax residents, such as the person's name, address, date of birth, Tax Identification Number, account number, investment income and account balance to the Commissioner.

2.16 The CRS' due diligence procedures require Reporting Financial Institutions to identify account holders who may be foreign residents for tax purposes.

2.17 Collecting and exchanging such information assists in facilitating tax compliance by enabling the ATO and other tax authorities to enhance existing data-matching programs to verify income reported by taxpayers.

Proportionate means of achieving a legitimate objective

2.18 This Bill's engagement of the right to privacy is a proportionate means of achieving its legitimate objective.

2.19 The objective of facilitating tax compliance is sufficiently important to justify this Bill's engagement of the right to privacy. Collecting personal information under this Bill would assist in effectively tackling cross-border tax evasion and represents the least intrusive means of achieving this objective.

2.20 The type of personal information that is to be reported under the CRS due diligence procedures - a person's name, address, date of birth, Tax Identification Number, account number, investment income and account balance - is relatively narrow for determining a person's potential tax obligations.

2.21 These reporting obligations are compatible with the prohibition, as they are neither arbitrary nor unlawful. Additionally, they are aimed at a legitimate objective and are an effective and proportionate means of achieving that objective.

Safeguards

2.22 This Bill relies on existing legal frameworks to ensure the confidentiality of exchanged tax information and limit its use to appropriate purposes.

2.23 In Australia, the main protection for taxpayer confidentiality is provided by a general prohibition on the disclosure of taxpayer information by ATO officers (see Subdivision 355-B of Schedule 1 to the TAA 1953). The disclosure of taxpayer information to other countries' tax authorities is allowed by section 355-50 of Schedule 1 to TAA 1953, which provides an exception to the general prohibition.

2.24 Information exchanges are subject to strict treaty confidentiality rules which are consistent with Australia's domestic tax secrecy rules. Confidentiality rules are set out in Article 22 of the Multilateral Convention on Mutual Administrative Assistance in Tax Matters (the Convention), as well as in the equivalent of the standard OECD Model Article 26 ^[2] in Australia's bilateral tax treaties. These rules limit the circumstances in which taxpayer information can be disclosed to third parties and the purposes for which it can be used. In general, this means that taxpayer information Australia shares with other countries' tax authorities 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 country's taxes.

2.25 Australia's tax authority (the ATO) and another jurisdiction's tax authority can enter into a Competent Authority Agreement (CAA) under the bilateral tax treaties and the Convention. The CAA sets out operational requirements such as the content, confidentiality and data safeguards and manner and timing of automatic information exchanges between members. Tax authorities can also enter into a Multilateral Competent Authority Agreement (MCAA). Australia signed the CRS MCAA on 3 June 2015.

2.26 Although over 70 jurisdictions, to date, have signed the CRS MCAA, Australia will not automatically exchange CRS information with another country's tax authority unless that tax authority has the legal and administrative capacity to ensure confidentiality of taxpayer information. The ATO will also be able to suspend the exchange of information with another country's tax authority if it determines that there is or has been significant non-compliance with confidentiality safeguards (see section 7 of the MCAA).

Remedies available if privacy right is infringed

2.27 Under Australia's privacy laws, a person can make a complaint about the handling of their personal information by Australian government agencies and private sector organisations covered by the Privacy Act 1988.

2.28 The Office of the Australian Information Commissioner is responsible for the enforcement of Australia's privacy laws. The Information Commissioner has the power to investigate instances of non-compliance by agencies and organisations and to prescribe remedies to redress non-compliance. Depending on the particular complaint, some possible resolutions could include compensation for financial or non-financial loss, or change to the respondent's practices.

Conclusion

2.29 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 the amendments to Australia's taxation legislation set out in this Bill) nor arbitrary. To this extent, this Bill complies with the provisions, aims and objectives of the ICCPR.

2.30 In light of the above, this Bill is compatible with human rights. To the extent that it may limit human rights, these limitations are reasonable, necessary and proportionate.