4. Tax Information Exchange - Timor-Leste

Agreement between Australia and Timor-Leste on Taxation Information Exchange

Introduction

4.1
This chapter examines the Agreement between Australia and Timor-Leste on Taxation Information Exchange (the proposed Agreement). The treaty action was signed by Australia in Canberra on 28 November 2019 and signed by Timor-Leste in Dili on 20 March 2020.1 The proposed Agreement was tabled in the Parliament on 2 February 2021.
4.2
According to the National Interest Analysis (NIA), the purpose of the proposed Agreement is to allow Australia and Timor-Leste to exchange information for the purpose of administering taxes affected by, or brought into existence as a consequence of, Annex D of the Treaty between Australia and the Democratic Republic of Timor-Leste Establishing their Maritime Boundaries in the Timor Sea (the Maritime Boundaries Treaty). This includes exchanging information to ensure the avoidance of double taxation and the prevention of fiscal evasion in relation to affected petroleum activities.2
4.3
The Maritime Boundaries Treaty came into force on 30 August 2019, revoking the Timor Sea Treaty between the Government of East Timor and the Government of Australia (the Timor Sea Treaty) and establishing new maritime boundaries between the Parties. Certain oil and gas fields in the Timor Sea have now transitioned to Timor-Leste’s exclusive jurisdiction in accordance with the Maritime Boundaries Treaty.3
4.4
Mr Simon Winckler from the Department of the Treasury (Treasury) informed the Committee:
The impacted projects are those that were formerly part of the Joint Petroleum Development Area [JPDA] established under the Timor Sea Treaty as well as the Buffalo field, which was previously within Australian jurisdiction. While the affected petroleum fields are all now within the exclusive jurisdiction of Timor-Leste, the companies involved in them will continue to have Australian tax characteristics that are relevant to their past and current operations in the former JPDA and the Buffalo field.4

Reasons for Australia to take the proposed treaty action

4.5
The NIA states that the proposed Agreement ‘is necessary to implement the Parties’ obligations under the Maritime Boundaries Treaty to provide affected companies with conditions equivalent to those in place under the Timor Sea Treaty’ and ‘reflects the Parties’ interest in ensuring that transitioned petroleum operations continue with minimal uncertainty, including in relation to taxation administration.’5
4.6
It was noted by Mr Winckler from Treasury that the proposed Agreement is needed as ‘[t]here is no tax information exchange agreement built into the text of the maritime boundaries treaty, unlike the former Timor Sea treaty which it replaced.’6
4.7
Mr Winckler further advised the Committee that ‘[w]e don’t have a bilateral information exchange agreement with Timor-Leste that generally applies for tax affairs.’7
4.8
According to the NIA, the proposed Agreement would ensure that the exchange of taxation information in relation to affected petroleum activities continues in accordance with the arrangements in place prior to the Maritime Boundaries Treaty.8
4.9
The NIA also states that the proposed Agreement would help Timor-Leste to fully realise the tax revenue benefits of the resources now falling within its jurisdiction under the Maritime Boundaries Treaty, and further strengthen Australia’s bilateral relationship with Timor-Leste.9

Obligations

4.10
Article 1 of the proposed Agreement obliges the Parties to:
… exchange such information as is necessary for carrying out the provisions of Annex D of the Maritime Boundaries Treaty or of the domestic law of the Parties as in force from time to time concerning the administration of taxes affected by, or brought into existence as a consequence of, Annex D of the Maritime Boundaries Treaty … in particular for the prevention of avoidance or evasion of such taxes.10
4.11
However, Article 2 of the proposed Agreement provides that a Party is not required to carry out administrative measures or obtain and supply information that would be contrary to the domestic laws, administrative practice or public policy of that Party.11
4.12
Article 1 further requires the Parties to treat any information received under the proposed Agreement as secret, in the same manner as information obtained its domestic laws. Information may also only be disclosed where permitted by the proposed Agreement.12
4.13
Pursuant to Article 4 of the proposed Agreement, Australia’s obligations would be limited to tax information relating to the Joint Petroleum Development Area activities 03-12, 03-13, 06-105 and 11-106, and permit area WA-523-P.13
4.14
The proposed Agreement would terminate on the commercial depletion of the oil and gas fields to which the proposed Agreement applies or by agreement between the Parties.14

Implementation

4.15
According to the NIA, no changes to Australian legislation would be required to implement the proposed Agreement. The NIA notes that the Commissioner of Taxation or an authorised representative is already permitted by law to collect and disclose information on taxation matters with a foreign country under an international agreement.15
4.16
The Committee was informed by Mr Winckler from Treasury that most of the projects to which the proposed Agreement would apply are already underway and ‘not held up by the commencement of this information exchange agreement.’16
4.17
In relation to the domestic processes Timor-Leste need to complete to bring the proposed Agreement into force, the Department of Foreign Affairs and Trade informed the Committee that:
On 27 August 2019 the Government of Timor-Leste published Resolution 22/2019 in the Jornal da Republica approving the Taxation Information Exchange Agreement. Our Embassy in Dili is awaiting information from Timor-Leste on what domestic processes, if any, Timor-Leste has left to complete in order to be in a position to bring the Agreement into force.17

Costs

4.18
The NIA states that no financial or regulatory costs would be incurred by Australia in relation to the proposed Agreement.18

Conclusion

4.19
The Committee notes that the proposed Agreement would ensure Australia satisfies its obligation under the Maritime Boundaries Treaty by enabling petroleum activities entered into under the terms of the revoked Timor Sea Treaty to continue under equivalent conditions.
4.20
The Committee also acknowledges the benefits of the proposed Agreement in ensuring the avoidance of double taxation and preventing fiscal evasion in relation to affected petroleum activities.
4.21
The Committee supports the proposed Agreement and recommends that binding treaty action be taken.

Recommendation 3

4.22
The Committee supports the Agreement between Australia and Timor-Leste on Taxation Information Exchange and recommends that binding treaty action be taken.
4.23
Mr Dave Sharma MP
4.24
Chair
4.25
10 May 2021

  • 1
    National Interest Analysis [2020] ATNIA 12 with attachment on consultation, Agreement between Australia and Timor-Leste on Taxation Information Exchange [2020] ATNIF 15, hereafter the NIA,
    para 1.
  • 2
    NIA, para 3.
  • 3
    NIA, para 4.
  • 4
    Mr Simon Winckler, Director, Special Tax Regimes, Corporate and International Tax Division, Department of the Treasury (Treasury), Committee Hansard, Canberra, 22 February 2021, p. 10.
  • 5
    NIA, para 9.
  • 6
    Mr Winckler, Treasury, Committee Hansard, Canberra, 22 February 2021, p. 10.
  • 7
    Mr Winckler, Treasury, Committee Hansard, Canberra, 22 February 2021, p. 11.
  • 8
    NIA, para 6.
  • 9
    NIA, para 8.
  • 10
    Agreement between Australia and Timor-Leste on Taxation Information Exchange [2020] ATNIF 15, hereafter the proposed Agreement, Article 1.
  • 11
    NIA, para 12.
  • 12
    NIA, para 13.
  • 13
    NIA, para 14.
  • 14
    NIA, para 19.
  • 15
    NIA, para 15.
  • 16
    Mr Winckler, Treasury, Committee Hansard, Canberra, 22 February 2021, p. 11.
  • 17
    Department of Foreign Affairs and Trade, Submission 1, p. 1.
  • 18
    NIA, paras 16 and 17.

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