Criminal Code Amendment (Bribery of Foreign Public Officials) Bill 1999

The Committee dealt with this bill in Alert Digest No. 4 of 1999, in which it made various comments. The Minister for Justice and Customs has responded to those comments in a letter dated 30 March 1999. A copy of the letter is attached to this report. An extract from the Alert Digest and relevant parts of the Minister's response are discussed below.

Extract from Alert Digest No. 4 of 1999

This bill was introduced into the Senate on 10 March 1999 by the Parliamentary Secretary to the Minister for Communications, Information Technology and the Arts. [Portfolio responsibility: Justice and Customs]

The bill proposes to give effect to the OECD Convention on Combating Bribery of Foreign Officials in International Business Transactions by amending the Criminal Code Act 1995 to:

• prohibit providing or offering a benefit which is not legitimately due to another person with the intention of influencing a foreign public official in the exercise of their duties in order to obtain or retain business or business advantage that is not legitimately due to the recipient or intended recipient;
• apply the prohibition to conduct within and outside Australia and when the conduct occurs wholly outside Australia, the person is an Australian citizen or the company is a company incorporated in Australia; and
• ensure that the ancillary offences of attempt, complicity, incitement and conspiracy which occur within and outside Australia apply where they relate to conduct involved in the primary offence.

Reversal of the onus of proof

Proposed sections 70.3 and 70.4

This bill proposes to amend the Criminal Code Act 1995 by inserting Division 70 as part of a new Chapter 4 into the Criminal Code. Proposed new section 70.2 sets out the elements of the offence of bribing a foreign public official.

Proposed new sections 70.3 and 70.4 provide relevant defences. Section 70.3 sets out the terms of the defence of conduct lawful in the country of the foreign public official. Section 70.4 provides a defence where a payment is a “facilitation payment made to expedite or secure the performance of a routine government action of a minor nature”. Each of these sections imposes an evidential burden on defendants, requiring them to prove certain matters if they wish to avoid a finding of guilt.

Proposed new section 70.5 also sets out various matters akin to a defence. In general terms, this section provides that a person does not commit an offence under section 70.2 unless the conduct constituting the offence occurs in Australia, or (if it occurs outside Australia) the offender is an Australian citizen or corporation. In this instance, however, the prosecution bears the onus of showing that the terms of this section have been complied with.

The Committee, therefore, seeks the Minister's advice as to why proposed sections 70.3 and 70.4 impose an evidential burden on defendants, and whether those sections may be phrased in similar terms to proposed section 70.5, thereby leaving the burden of proof of the matters under those sections on the prosecution.

Pending the Minister's advice, the Committee draws Senators' attention to these provisions, as they may be considered to trespass unduly on personal rights and liberties in breach of principle 1(a)(i) of the Committee's terms of reference.

Relevant extract from the response from the Minister

The Committee has sought my advice as to why proposed sections 70.3 and 70.4 impose an evidential burden on defendants and whether those sections should be phrased in similar terms to proposed section 70.5 thereby leaving the burden of proof of the matters under those sections on the prosecution.

I write to reassure you that the imposition of an evidential burden on a defendant does not put a legal burden of proof on a defendant and is consistent with the common law and with the Criminal Code.

When a defendant wishes to take advantage of a defence it is always the case at common law and under the Criminal Code (which codifies the common law on this and other points) that the defendant has the light burden of merely adducing or pointing to some evidence that suggests a reasonable possibility that the matter exists or does not exist. When the defendant discharges this light burden the prosecution then has a legal burden of proof to disprove the matter beyond reasonable doubt.

On occasions where a defendant raises proposed section 70.5 as a defence the same evidential burden will fall on the defendant and, when the evidential burden has been discharged, the prosecution will then acquire a legal burden of proof in relation to the matter and be required to disprove it beyond reasonable doubt.

I conclude by confirming that proposed sections 70.3, 70.4 and 70.5 are all consistent with one another, with the Criminal Code and with the common law.

The Committee thanks the Minister for this response.

Taxation Laws Amendment Bill (No. 2) 1999

(previous citation: Taxation Laws Amendment Bill (No. 4) 1998)

Introduction

The Committee dealt with this bill in Alert Digest No. 1 of 1999, in which it made various comments. The Assistant Treasurer has responded to those comments in two letters dated 6 April 1999 and a separate letter received on 22 March 1999. Copies of the letters are attached to this report. An extract from the Alert Digest and relevant parts of the Assistant Treasurer's responses are discussed below.

Extract from Alert Digest No. 1 of 1999

This bill was introduced into the House of Representatives on 3 December 1998 by the Minister for Financial Services and Regulation. [Portfolio responsibility: Treasury] The bill was first introduced into Parliament on 2 July 1998 as Schedule 3 to the Taxation Laws Amendment Bill (No 5) 1998, but lapsed when Parliament was prorogued for the election.

The bill proposes to amend the following Acts:

Income Tax Assessment Act 1936 to:

• widen the interest withholding tax (IWT) exemption provided by removing, for debentures issued by companies, the present requirements that they be issued outside Australia and that the interest be paid outside Australia;
• allow the issue of debentures or interests in debentures to Australia residents and allow the IWT exemption;
• extend the definition of company to include a company acting in the capacity of a resident trustee, provided the trust is not a charitable trust and the beneficiaries of the trust are companies;
• make a consequential amendment relating to the issue of bearer debentures to residents operating a business offshore;
• extend the range of entities eligible to register as offshore banking units;
• provide a tax exemption for income and capital gains of overseas charitable institutions managed by an offshore banking unit;
• extend the range of eligible offshore banking unit activities;
• remove an anti-avoidance measure preventing Australia being used as a conduit to channel loans to other countries;
• reduce the capital gains tax liability where non-residents dispose of interests in offshore banking unit offshore investment trusts;
• provide a foreign tax credit for foreign tax paid by Australian resident offshore banking units regardless of whether a double tax agreement applies;
• remove the requirement that offshore banking units maintain separate nostro and vostro accounts for transactions;
• reduce the rate of offshore banking unit withholding penalty tax for breaches of the IWT concession from 300 per cent to 75 per cent;
• enable Australian subsidiaries of a foreign bank to raise certain ITW exempt funds and on-lend those funds to a related Australian branch without affecting the subsidiary's thin capitalisation position;
• provide an exemption from the foreign investment fund (FIF) measures for interests in certain US;
• change the calculation method in FIF measures; and
• make consequential amendments to provisions relating to taxing trusts;
• require that the forgiven amount of a debt be applied, where relevant, to reduce unrecouped net capital losses in respect of all years of income before the forgiveness year of income, rather than the immediately preceding year of income;
• require that where a taxpayer incurs a net capital loss in a year of income earlier than the forgiveness year of income, and the loss is reduced by the operation of the debt forgiveness provisions, the loss will also be reduced for the purposes of the capital gains tax provisions;
• prevent franking credit trading and misuse of the intercorporate dividend rebate by denying the franking benefit or intercorporate dividend rate from a dividend where the taxpayer does not satisfy certain rules;
• limit the source of franking credits available for trading by introducing a new rule; and
• prevent franking credit trading and misuse of the intercorporate dividend rebate by denying the franking benefit or intercorporate dividend rate from a trust or partnership distribution attributable to a dividend where the distribution is equivalent to interest;

Income Tax Assessment Act 1997 to:

• set a common base for the depreciation deductions for plant that can be claimed by exempt entities which become taxable and by taxable entities which purchase plant from an exempt entity in connection with the acquisition of a business; and
• allow deductions for gifts of $2 or more made to the Menzies Research Centre Public Fund.

Retrospective effect

Subclause 2(2) and Schedule 4, item 24

By virtue of subclause 2(2), item 24 of Schedule 4 is to commence retrospectively on 16 April 1998. This item modifies the definition of a family trust in Schedule 2F to the Income Tax Assessment Act 1936 “to include a category of trust where the only group able to benefit under the trust are family members” (whether or not they are able to control the trustee). The Explanatory Memorandum gives no indication of the reason for retrospectivity in this instance. The Committee, therefore, seeks the Treasurer's advice as to the reasons for retrospectivity in this instance.

Pending the Minister's advice, the Committee draws Senators' attention to this provision, as it may be considered to trespass unduly on personal rights and liberties in breach of principle 1(a)(i) of the Committee's terms of reference.

Relevant extract from the response from the Assistant Treasurer

The amendment in question is retrospective but provides a concession sought by taxpayers. It will not operate to the detriment of any person.

Schedule 4 sets out the 45 day rule, which is a measure targeting franking credit trading. As an anti-avoidance measure, taxpayers who hold interests in shares under a trust will be required under the 45 day rule to have a sufficient interest in the trust holding to expose them to at least 30% of the risks of loss or opportunities for gain in respect of the shares included in the trust estate in order to qualify for franking benefits.

Consequently, beneficiaries of discretionary trusts will generally not be entitled to franking benefits because they do not have a fixed interest in the trust holding. As a concession, however, the requirement will not apply to family trusts (as defined in the trust loss provisions), deceased estate trusts and employee share scheme trusts.

A trust is a family trust under the trust loss provisions if it makes `a family trust election'. A trust cannot make a family trust election unless it is controlled by the relevant family from the time the election comes into effect. This generally requires control of the application of income or capital of the trust by family members. The trust loss provisions are set out in Schedule 2F to the Income Tax Assessment Act 1936. The relevant rules relating to family trust elections are set out in sections 272-80 and 272-87.

The proposed amendment will amend the trust loss provisions relating to family trust elections to allow a family trust election to be made if persons in the family group are the only persons who can obtain the beneficial enjoyment of the income and capital of the trust. This involves an amendment to subsection 272-87(2). The amendment will be effective on and from 16 April 1998 because this is when the trust loss provisions commenced.

This concession was sought by taxpayers. Under the current rules relating to family trust elections, a trust would be precluded from making a family trust election in these circumstances unless the beneficiaries were able to control the trustee. The amendment will enable, for example, a damages trust administered for the benefit of a disabled accident victim to make a family trust election.

The proposed amendment will add another, alternative ground for family groups to pass the family control test and therefore be eligible to make a family trust election and remain entitled to franking benefits. The amendment will not change the position of any family group that is currently able to make a family trust election under the trust loss provisions. It will not operate to the detriment of any person or family group in any circumstances.

The Committee thanks the Assistant Treasurer for this response.

Retrospective effect

Schedule 6

Schedule 6 to the bill, which amends the Act to allow income tax deductions for gifts of $2 or more made to the Menzies Research Centre Public Fund, will apply from 2 April 1998. The Explanatory Memorandum states that this was the date after which this measure was intended to operate when it was first introduced into the previous Parliament. Elsewhere, the Explanatory Memorandum notes that this proposal was first announced by the Treasurer's in his Press Release No 102, dated 10 October 1996.

The measure included in Schedule 6 is clearly beneficial to taxpayers, and would not normally be the subject of further comment from the Committee. However, the significant lapse of time between the date of announcement and the date of effect of this measure prompts the Committee to seek the Treasurer's advice as to whether proposed changes to the tax laws which are beneficial to taxpayers ought not to be applied from the date of their announcement in the same manner as occurs with changes to the taxation laws which seek to increase revenue.

While seeking the Treasurer's advice, the Committee makes no further comment on this provision.

Relevant extract from the response from the Assistant Treasurer

In its comments, the Committee noted that Schedule 6 of the Bill, which was introduced into the Parliament on 3 December 1998, allows income tax deductions for gifts made to the Menzies Research Centre Public Fund after 2 April 1998. The Committee also noted that there was a significant lapse of time between the date when the proposal was first announced by the Treasurer in his Press Release No. 102 dated 10 October 1996 and the date from which gifts would be deductible.

The Committee has sought the Treasurer's advice as to whether proposed changes to the taxation law which are beneficial to taxpayers ought not apply from the date of their announcement, as occurs with changes to the taxation law which seek to increase revenue.

As a general rule, the Government will announce that a proposed change to the income tax law is intended to have effect from the date of the announcement in a budgetary context, or because it is necessary to protect the revenue in circumstances where, for example, there is evidence of taxpayers being involved in tax avoidance arrangements. Other changes to the tax law generally are not intended to come into operation from the date of the announcement, and instead have later commencement dates.

In relation to the Menzies Research Centre in particular, the Treasurer issued a press release on 10 October 1996 announcing the Government's decision to amend the law to allow deductions made to the Centre. The press release also stated that, after the Centre satisfies the usual public fund requirements, the Government would issue a separate press release specifying the date from which gifts to the Centre would be tax deductible. Clearly, the obligation to satisfy the public fund requirements prior to securing gift deductibility status allows donors, and taxpayers in general, to be confident that the integrity of the tax provisions are not being undermined.

The Fund subsequently established by the Menzies Research Centre did satisfy the public fund requirements. The introduction of the measure in Taxation Laws Amendment Bill (No. 4) 1998 on 2 April 1998, (which subsequently lapsed on 31 August 1998) announced the date after which gifts would be tax deductible, so there was no need for a separate press release to be issued.

I trust that this advice will be of assistance to the Committee.

The Committee thanks the Assistant Treasurer for this response.

Legislation by press release

Schedules 3, 4 and 7

By virtue of subitem 33(1), Schedule 3 to the bill (which deals with the way in which depreciation is to be calculated on plant owned by a previously exempt entity) will, in general terms apply from 4 August 1997. This date has been chosen as the date on which the Treasurer issued a Press Release on the matters covered by this Schedule.

By virtue of item 25, Schedule 4 to the bill (which seeks to prevent franking credit trading and misuse of the intercorporate dividend rebate) will, in general terms, apply from 1 July 1997. Some provisions are to apply from 13 May 1997 (the night of the 1997 Budget) and others from 31 December 1997 (being the date on which the Assistant Treasurer issued an amending Press Release).

Schedule 7 to the bill (which seeks to ensure that certain trust or partnership distributions which consist of dividends, but which are effectively in the nature of interest, do not carry franking benefits or receive the intercorporate dividend rebate) will also commence on 13 May 1997 – the night of the 1997 Budget.

In each case the legislation may effectively be regarded as `legislation by press release'. In each case, the application date is well outside the 6 months referred to in the Senate resolution of 8 November 1988. The Committee, therefore, seeks the Treasurer's advice as to why it has taken between 16 and 19 months from the date of the Treasurer's announcements for the introduction of legislation giving effect to those announcements.

Pending the Minister's advice, the Committee draws Senators' attention to these provisions, as they may be considered to trespass unduly on personal rights and liberties in breach of principle 1(a)(i) of the Committee's terms of reference.

Relevant extract from the response from the Assistant Treasurer

Schedule 3

Schedule 3 of the Bill will change the way that depreciation is calculated on plant previously owned by an exempt entity when that plant enters the tax net. This measure was announced by the Treasurer on 4 August 1997 in his Press Release No. 84 to apply from that date. Technical corrections to the proposed legislation were announced on 30 November 1998 in my Press Release No. AT/045 to apply from 4 August 1997. Following extensive consultations with State and Territory Governments, further details about the measures were announced by the Treasurer on 14 January 1998 in his Press Release No. 2 of 1998.

The Treasurer released draft legislation for the measures on 10 February 1998 in his Press Release No. 9 of 1998 (the 6 month period expired on 3 February 1998). The delay in releasing the draft legislation arose from the redrafting required to give effect to the consultations with State and Territory Governments. Draft legislation was introduced to the previous Parliament on 2 April 1998 in Schedule 10 to the former Taxation Laws Amendment Bill (No. 4) 1998. That Bill lapsed when the previous Parliament was prorogued. The proposed legislation was reintroduced to Parliament on 3 December 1998 in Schedule 3 to Taxation Laws Amendment Bill (No. 4) 1998.

Schedule 4: 45 day rule

Schedule 4 contains the 45 day rule and the related payments rule, which are franking credit trading measures. The 45 day rule requires taxpayers to hold shares at risk for a certain period to qualify for franking credits, the franking rebate or the intercorporate dividend rebate. The 45 day rule was announced in the 1997/98 Budget on 13 May 1997. Draft legislation for the measure was released on 31 December 1997, 6 months after its commencement date of 1 July 1997, so that the 6 month rule would therefore seem to be satisfied. Draft legislation was subsequently introduced into Parliament on 2 July 1998 in Schedule 6 to Taxation Laws Amendment (No. 5) Bill 1998.

Schedule 4: related payments rule

The related payments rule is closely connected to the 45 day rule, essentially consisting of an addition to the 45 day rule where a dividend-equivalent is passed to another party. The measure was announced in the 1997/98 Budget on 13 May 1997 and details were set out in Treasurer's Press Release No. 47 of 1997 released at the same time.

The related payments rule will apply to arrangements entered into after 7.30pm AEST on 13 May 1997 (including arrangements in respect of shares or interests in shares acquired before that time). Draft legislation for this measure was introduced into Parliament on 2 July 1998 in Schedule 7 to Taxation Laws Amendment (No. 5) Bill 1998.

The delay in introducing draft legislation for the related payments rule into Parliament was caused by the need to give priority to other franking credit trading measures which affected a far greater number of taxpayers: namely, the 45 day rule and the anti-streaming and general anti-avoidance rules. (The Anti-streaming and general anti-avoidance rules were included in Taxation Laws Amendment Act (No. 3) 1998.) The implementation of these other measures involved an extensive consultation process, which prevented resources being devoted to the related payments rule. However, the results of the consultation process, especially taxpayer suggestions for the measurement of risk reduction, were incorporated in the related payments rule. It is unlikely that any taxpayers have been disadvantaged by the delay in introducing provisions for the related payments rule because there has been little uncertainty about this measure.

Schedule 7: amendments to section 45Z

Schedule 7 contains another franking credit trading measure involving amendments to section 45Z and other provisions to prevent trust or partnership distributions which are equivalent to the payment of interest on a loan from providing an entitlement to franking benefits.

This measure announced in the 1997/98 Budget on 13 May 1997, and are explained in Treasurer's Press Release No. 46 of 1997 released at the same time. The measure will apply to interests created or acquired, and finance arrangements entered into, after 7.30pm AEST on 13 May 1997, and to existing arrangements extended after that time.

Draft legislation for the amendments to section 45Z was introduced into Parliament on 2 July 1998 in Schedule 7 to Taxation Laws Amendment (No. 5) Bill 1998. Draft legislation for this measure was delayed for the same reasons that draft legislation for the related payments rule was delayed.

The Committee thanks the Assistant Treasurer for this response, which addresses the concerns raised in the Digest. The Committee notes that, along with a number of other organisations, it has received some additional correspondence on this bill from Mallesons Stephen Jaques, which it has made available to the Assistant Treasurer's office. The Committee looks forward to the Assistant Treasurer's further advice on this correspondence in due course.

Barney Cooney

Chairman