Chapter 3 Taxation Agreements with Jersey
Introduction
3.1
This chapter considers two treaties:
n an Agreement
between the Government of Australia and the Government of Jersey for the
Exchange of Information with Respect to Taxes; and
n an Agreement
between the Government of Australia and the Government of Jersey for the
Allocation of Taxing Rights with Respect to Certain Income of Individuals and
to Establish a Mutual Agreement Procedure in Respect of Transfer Pricing
Adjustments.
3.2
The first Agreement, the Tax Information Exchange Agreement (TIEA),
establishes the legal basis for the exchange of tax information between
Australia and Jersey.[1]
3.3
The second Agreement, the Taxing Rights Agreement (TRA), is part of a package
of benefits that have been offered to Jersey to encourage it to conclude the
above mentioned TIEA. This Agreement provides for the allocation of taxing
rights of certain cross-border income derived by the residents of both
countries, and establishes a mechanism to help resolve disputes arising from transfer
pricing adjustments.[2]
3.4
Jersey is a British Crown Dependency, located in the English Channel. It
has a low-tax structure and is an internationally recognised offshore financial
centre. Detailed information on the level and type of economic activity between
Australia and Jersey is not available. However data held by the Australian
Transaction Reports and Analysis Centre (AUSTRAC) indicates that a significant
amount of funds flow between Australia and Jersey.[3]
Reasons to take treaty action
3.5
The TIEA is the sixth Agreement of this kind for Australia and is part
of Australia’s efforts to conclude tax information exchange agreements with
countries committed to working with the OECD to improve transparency and
establish effective procedures for the exchange of tax information. Other
Agreements are in place with Bermuda, Antigua and Barbuda, the Netherlands
Antilles, the British Virgin Islands and the Isle of Man.[4]
The Agreements for the British Virgin Islands and the Isle of Man were
considered by the Committee earlier this year.[5]
3.6
Treasury told the Committee that the TIEA will strengthen the ability of
Australia to administer and enforce its tax laws by enabling the Commissioner
of Taxation to ‘seek relevant taxpayer information from the authorities in
Jersey for both civil and criminal tax purposes’.[6]
The Agreement will override domestic bank secrecy laws and compel each country
to supply relevant information even if it does not require the information
itself.
3.7
Treasury submitted that the second Agreement, the Taxing Rights Agreement,
will encourage Jersey to conclude the TIEA by offering a package of additional
benefits. The Agreement will help to prevent double taxation for individuals
who are residents of either country and derive cross-border income from Australia
or Jersey.[7]
3.8
Treasury considers the additional benefits being offered to various
jurisdictions through the taxing rights agreements an important incentive to
sign TIEAs. Not all jurisdictions take the offer up but those that do receive:
n recognition that they
are no longer operating as a tax haven;
n technical assistance
and training; and
n the benefits of the
taxing rights agreement which avoids double taxation for its citizens.[8]
Progress on taxation evasion measures
3.9
As the Committee has examined a number of TIEAs and taxation exchange
agreements recently, it sought an update on progress in negotiating similar
agreements with relevant jurisdictions. Treasury confirmed that progress had
accelerated considerably with four agreements signed in the past year, compared
to only three such agreements being signed in the past three to four years.[9]
3.10
The Committee asked whether the implementation of these agreements was
having a noticeable affect on tax evasion. Treasury is confident that ‘the
noose is definitely tightening’ on tax evasion world wide with approximately 50
countries signing these types of agreements since the G20 meeting in
March-April 2009.[10]
3.11
The ATO identified the technical assistance being offered by Australia to
various jurisdictions through the taxation exchange agreements as an important
contributor to negotiations. In particular, smaller jurisdictions were said to benefit
from practical assistance in the form of resources and training. Australia has
valuable expertise in a wide range of areas and has facilitated the exchange of
information on issues such as VAT, GST and compliance models.[11]
The ATO explained that in many cases the assistance required can be very basic:
For many of the smaller countries, actually having the
resources in place to accept those requests, store them safely, and send the
information back, can get down to levels such as providing sufficient filing
cabinets of a secure standard and computer facilities to go with that.[12]
Agreement between the Government of Australia and the Government of Jersey
for the Exchange of Information with Respect to Taxes
Obligations
3.12
Article 4(1) obliges both Parties to exchange information where the
information is relevant to the administration and enforcement of the Party’s
domestic tax laws.[13]
3.13
Article 4(2) obliges the requested Party to collect requested
information even if it is not required for its own domestic tax purposes.
Parties must ensure that their competent authority has the power to obtain
requested information from banks, other financial institutions, any person
acting in an agency or fiduciary capacity, and information regarding the legal
and beneficial ownership of companies and partnerships as well as persons
involved with trusts and foundations (Article 4(4)).[14]
3.14
Information must be provided without delay (Article 4(7)) and access
provided to individuals and records (Article 5). However, information may be
refused if requests do not conform to the Agreement or if the requesting Party
would be unable to obtain the requested information under its own laws (Article
6).[15]
3.15
Information provided must be kept confidential (Article 7) and costs are
divided between the Parties: direct costs are borne by the requesting Party and
indirect costs by the requested Party (Article 8).[16]
3.16
Under Article 9 neither Party may impose punitive measures on residents
or nationals of the other Party because that Party has failed to provide
relevant information. Both Parties are obliged to use whatever dispute
resolution methods may be necessary to resolve any disagreements over the
application or interpretation of this Agreement (Article 10).[17]
Costs and implementation
3.17
Treasury advised the Committee that implementation of the Agreement will
have a small administrative and financial impact on the ATO as it is likely
that most requests for information will originate from Australia. A Memorandum
of Understanding will be concluded between the two countries to clarify costs
that will be borne by the ATO.[18]
3.18
No further legislation or regulation is required to implement the
Agreement. The implementation will not affect the existing roles of the
Commonwealth or the States and Territories in tax matters.[19]
Agreement between the Government of Australia and the Government of Jersey
for the Allocation of Taxing Rights with Respect to Certain Income of
Individuals and to Establish a Mutual Agreement Procedure in Respect of
Transfer Pricing Adjustments
Obligations
3.19
Under Article 5, Australia cannot tax Australian-source pensions and
retirement annuities paid to residents of Jersey. Article 5 permits Australia
to tax Jersey-source pensions and retirement annuities paid to Australian
residents.[20]
3.20
Under Article 6, Australia cannot tax the salaries of government
employees of Jersey working in Australia in government service for
non-commercial purposes. Australia and Jersey will therefore have sole taxing
rights over the salaries that they pay to individuals undertaking government
functions.[21]
3.21
Under Article 7, Australia cannot tax maintenance, education or training
payments received by students or business apprentices from Jersey who are
temporarily studying in Australia, where those payments are made from outside
Australia. Other income will remain liable to Australian tax.[22]
3.22
Article 8 establishes a mechanism to assist in the resolution of
disputes arising from transfer pricing adjustments made by either country and
provides an avenue for affected taxpayers to present their case to the relevant
authority.[23]
3.23
Article 9 obliges the Parties to exchange information that is
foreseeably relevant for the purposes of carrying out the Agreement.[24]
Costs and implementation
3.24
Treasury advised the Committee that the Agreement will have a financial
impact on the Australian Taxation Office (ATO), however this is expected to be
minimal given the small number of taxpayers likely to be affected by the
Agreement.[25]
3.25
Minor amendments will be required to the International Tax Agreements
Act 1953 to give effect to the Agreement. Treasury informed the Committee
that this legislation is expected to be introduced into Parliament in late
2009. The implementation of the Agreement will not affect the existing roles of
the Commonwealth or the States and Territories in tax matters.[26]
Consultation
3.26
Relevant Commonwealth Ministers, the ATO and State/Territory Governments
have been consulted in development of the Agreements. No public consultation took
place as the negotiations for the Agreement were not public.[27]
Conclusions and recommendations
3.27
The Committee recognises the importance of international efforts to
combat offshore tax evasion and to establish consistent standards of tax
governance between Australia and countries such as Jersey. The Committee also
recognises the domestic tax benefits arising from taxation Agreements that
discourage the use of certain countries as tax havens. The Committee therefore
recommends that binding treaty action be taken for both Agreements.
Recommendation 2 |
|
The Committee supports the Agreement between the
Government of Australia and the Government of Jersey for the Exchange of
Information with Respect to Taxes and recommends that binding treaty
action be taken.
|
Recommendation 3 |
|
The Committee supports the Agreement between the
Government of Australia and the Government of Jersey for the Allocation of
Taxing Rights with Respect to Certain Income of Individuals and to Establish
a Mutual Agreement Procedure in Respect of Transfer Pricing Adjustments and
recommends that binding treaty action be taken.
|