The Asian Century White Paper acknowledges the need for
Australia to be an attractive destination for globally mobile
capital. A key to achieving this will be refocusing Australia's
bilateral tax treaty network towards Asia.
Australia's bilateral tax treaty network sets out
Australia's tax arrangements with other countries to avoid or
reduce double taxation, by specifying in what circumstances, and to
what extent, Australia can impose tax on residents of our treaty
By limiting Australia's right to impose tax, Australia's
tax treaty network with Asia can have a significant impact on the
attractiveness of Australia as an investment destination for our
RESETTING OUR TREATY PRIORITIES
Australia already has a substantial number of treaties,
including with many Asian countries. However, most of the treaties
with Asian nations are now quite old – e.g. Australia's
treaty with China is over 20 years old - despite the growing
importance of investment from Asia to Australia.
By contrast, Australia has more recently renegotiated its
treaties with the United States, the United Kingdom and Canada. It
appears Australia's tax treaty network remains unduly geared
towards attracting investment from "old world" trading
and investment partners as illustrated by the following table of
dividend, interest and royalty withholding tax rates:
Parent resident in:
While the top withholding rates are similar across
jurisdictions, substantial concessions are available to investors
from the US and the UK, including a zero withholding tax rate on
unfranked dividends which may be available where the investor
beneficially holds an 80% or greater stake in an Australian
company, and no withholding tax on interest paid to US and UK
resident financial institutions.
Also, although Australia has a tax treaty with China, this does
not extend to cover Hong Kong. Countries such as the UK and New
Zealand have stolen a march on us and entered tax treaties with
Hong Kong, with effect from the 2011/12 and 2012/13 tax years
The idea of prioritising treaty negotiations with key trading
partners is not new, having been recommended in the Board of
Taxation's 2003 Review of International Taxation Arrangements.
However, the pace of change needs to speed up if we are to achieve
our Asian Century objectives.
BECOMING A COMPETITIVE REGIONAL HUB
Once the resources boom comes to an end, Australia will actively
need to compete with other countries in the region for investment.
Ideally, Australia would become a hub for investments from Asia
into other regions and countries. While we have some advantages in
terms of our skill base, e.g. see
Investing in Africa via Australia - Why it makes sense, the
current state of Australia's tax regime and treaty network
means other trading and financial hubs such as Singapore and Hong
Kong are generally far more attractive than Australia.
Hong Kong imposes a flat rate of corporate tax of 15% (50% of
Australia's corporate tax rate), does not impose dividend or
interest withholding tax and (as noted above) is building a treaty
network with other countries.
The fact that Singapore does not impose tax on dividends paid,
combined with a low headline corporate tax rate of 17% and an
extensive treaty network with over 15 Asian countries, provides a
clear incentive to invest through Singapore.
As the recent
Business Tax Working Group Final Report has shown, gaining
consensus on measures to facilitate a reduction in Australia's
corporate tax rate may be difficult in these financially lean
times; however much more could be done on the international tax
front to improve our competitiveness with our regional competitors.
For instance, unlike Australia, Singapore has treaties with
Mongolia, Myanmar and Brunei (amongst others), facilitating
investment through Singapore into those countries.
If we are to maximise the opportunities that the Asian Century
presents, urgent attention needs to be given to the refocusing of
our tax treaty network towards Asia.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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Exemptions or concessions on stamp duty could apply when contemplating the purchase or transfer of NSW real estate.
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