Download this document in either:
PDF 53KB; or
RTF 179KB
THE TAXATION INSTITUTE OF AUSTRALIA
INTERNATIONAL MASTERCLASS
FIRST CLASS TICKET TO CROSS BORDER TAXATION
MONDAY, 14 OCTOBER 2002
SYDNEY
DRIVING THE "REVIEW OF INTERNATIONAL TAXATION ARRANGEMENTS"
PRESENTATION BY MR CHRIS JORDAN
MEMBER OF THE BOARD OF TAXATION
8:30AM - 9:00AM, 14 OCTOBER 2002
Thank you.
Good morning ladies and gentlemen. I would like to thank the Taxation Institute of Australia for inviting me to its 2002 Annual Masterclass Conference to talk to you today.
Last month, I was invited to the Institute at the 2002 Victorian Convention held in Melbourne and talked about the update on current issues before the Board.
Needless to say, I am once again very pleased to be invited by the Institute and with its ongoing interest in the Board and Board's work.
As I have recently outlined the update on Board's previous and current activities in Melbourne (and given the length of my talk this morning), I thought it would be opportune for me to focus more on Board's current consultation processes on the Review of International Taxation Arrangements (RITA).
I understand that the Institute makes Board's speeches available on its Website. So, if you wish to find more about Board's past activities in detail, the information can be obtained from Institute's Website.
As most of you here would be aware, the Treasurer foreshadowed in his press release (on 2 May 2002) that the Department of Treasury was preparing a paper on four principle areas of international tax arrangements for public release to serve as a basis for consultations.
Four principle areas foreshadowed by the Treasurer are: (1) dividend imputation system, (2) controlled foreign corporation and foreign investment fund, (3) conduit taxation rules, and (4) treaty policy and processes.
The Treasurer also asked the Board to undertake public consultation processes on the paper and prepare a report to the Government by the end of this year.
The Treasury submitted its consultation paper on the `Review of International Taxation Arrangements' to the Government in late June this year, and the Treasurer released the paper to the public on 22 August 2002.
The Board formed a special team of Working Group and has immediately embarked on its consultation by calling for submissions widely from the public. The consultation paper together with its consultation plan is available from Board's Website.
In the context of Board's consultation processes, I will discuss the following three aspects as they relate to the review of international taxation arrangements:
1. The role of the Board of Taxation;
2. The proposed consultation timetable;
3. The role of the Board of Taxation's Advisory Panel.
At the end, I will flag some emerging issues arising from the consultation paper before moving on to invite questions; although I must say that it is a little early to expect any critical issues emerging from consultation, given that the public submissions are not due until the end of this month.
Before I discuss the Board's consultation processes for reviewing international taxation arrangements, I wish to briefly share with you some of the Board's major works that have been carried out since its inception in 2000.
The Board's main focuses were:
• Developing effective consultation processes that can deliver better tax law
In March 2002, the Board prepared a Report on `Government Consultation with the Community on the Development of Taxation Legislation' to the Treasurer and the Minister for Revenue and Assistant Treasurer.
The Board's recommendation has been reflected in the Government decision, and since May 2002 the Treasury has been responsible for the design of legislation, in addition to its traditional role of providing advice on policy issues.
• Evaluation of the Tax Value Method (TVM) and its recommendations to the Government
As you know, the recent announcement by the Treasurer on 28 Aug 02 not to proceed with the TVM has effectively brought official closure to the recommendation of the Ralph Review of Business Taxation on TVM.
The Treasurer announced, however, that while the TVM concept will not be pursued, the Government will develop, in consultation with the business community, a systematic tax treatment of rights and blackhole expenditures, with a view to implementing these changes within the current legislative framework by July 2005.
• Inspector General of Taxation
On 16 September 2002, the Minister for Revenue and Assistant Treasurer published the Government's response to the Board's report.
Most recommendations submitted by the Board have been agreed by the Government, and the Inspector-General of Taxation Bill 2002 was introduced into the Parliament on 18 September 2002.
• Advisory Panel
The Board has established a high level advisory panel to assist it in the general performance of its role. The Panel draws together 22 leading Australian professionals who will provide a very important additional source of advice to the Board.
The Panel will also assist the Board in maintaining on-going effective links into the community for the purpose of understanding taxpayer concerns and priorities.
The first major role the Panel will play is to assist the Board in its consultation processes for the RITA, which I will discuss later in more detail.
• Entity Taxation
With the assistance of the Treasury, the ATO and a number of external advisers and experts in the field, the Board has explored what the essential issues are on this issue. The Board has finalised its position and will submit its advice containing several options to the Treasurer soon.
Having briefly covered the Board's major works to date, I now turn to the Board's current focus - the consultation processes for the RITA.
REVIEW OF INTERNATIONAL TAXATION ARRANGEMENTS
As I prefaced in my opening, the Government released the consultation paper prepared by the Treasury on the RITA in late August.
This consultation paper represents the first stage in fulfilling the Government's commitment announced in Securing Australia's Prosperity to review aspects of Australia's international taxation arrangements - by far, the most significant area of unfinished business flowing from the Ralph Review.
The consultation paper states that its broad object is to identify the possible impediments to Australian companies expanding offshore, attracting domestic and foreign equity, and affecting holding companies and conduit holdings from locating in Australia.
The consultation paper further states that to maintain Australia's status as an attractive place for business and investment, the tax system needs to continually adapt to the increasingly integrated global business environment.
As part of the consultative processes associated with other remaining business tax reform measures, the Treasurer asked the Board to consult extensively on the paper, consider the views put forward, and provide its recommendations to the Government together with a report on the outcome of the consultations.
The reference of such a significant project demonstrates the high level of confidence held by the Government in the Board.
The role of the Board of Taxation
It might be useful at this point to briefly recast some general background to the Board of Taxation for the benefit of those who may be unfamiliar with the Board's history.
The Board has now been in operation for just over two years, and its operations are governed by its Charter, which is also available on its Website.
Broadly speaking, the Board's role is to contribute community input into the development and implementation of tax laws.
Its seven non-government members, including myself, are appointed part-time. It has three further ex-officio members, being the heads of the Treasury, the ATO and the Office of Parliamentary Counsel. The Board generally meets once a month.
The Board receives a modest budget of $2 million annually, and is serviced by a small team of Secretariat within the Treasury.
It is important to recognise that the Board is purely an advisory (rather than statutory) body to advise the Treasurer and the Government on the development and implementation of tax legislation and the on-going operation of tax system.
It has no mandate to determine, or indeed to lead public debate on, taxation policy matters unless otherwise authorised by the Treasurer. Nor does it have any power of direction over the Commissioner of Taxation, who has an absolute discretion in the day to day administration of the tax law.
Working Group
In terms of RITA consultation, the Board decided that its work on the review would follow two major themes. First, the Board will be passing on to the Government public comments/ submissions on the consultation paper. Second, the Board will be making its own recommendations to the Government.
With this intention, the Board established a special Working Group comprising three of its members - Messrs Tony D'Aloisio as Chair, Brett Heading and myself - to oversee its work on the review and to have day-to-day carriage of the Board's work on this project.
The Working Group agreed that Board's task is to prepare a report to the Government that:
(a) fairly conveys the issues or ideas held by stakeholders in relation to Australia's international taxation arrangements, particularly those mentioned in the consultation paper ("the consultation project"); and
(b) makes the Board's own recommendations in response to the issues raised by the consultation paper and stakeholders ("the recommendations project").
While the two projects are inherently inter-related, in that the issues and ideas raised by stakeholders will inform the Board's own thinking, the Working Group agrees that they will require a separate focus. In particular, the Board may need to commission its own sources of advice, independent of stakeholders, in arriving at its recommendations.
The Working Group considers that it will be important to ensure that, in managing these consultations, the Board complies with its own recommendations on consultation arrangements to the extent they are relevant or implied.
The more important recommendations are those relating to:
(a) ensuring that the policy intent of each new tax measure is clearly established and articulated at the time of public announcement;
[To address this, the Board should provide clear recommendations that will assist the Government in deciding upon and articulating its policy intent following its consideration of the Board's report]
(b) publishing a consultation plan outlining the objectives of the consultations, the processes to be employed and the indicative timeframes;
[The Working Group has proposed that the consultation plan be published on the Board's Website and advertised in the press]
(c) providing feedback to external participants to the extent possible. The Board could meet this by:
- including in its report to the Treasurer a section synthesising submissions received on the consultation paper;
- in making its own recommendations, discussing its attitude towards views put in submissions; and
- providing an opportunity for feedback to interested individuals and organisations following the public release of its report;
(d) establishing clear accountabilities for the consultation process.
[The Board has addressed this by establishing a Working Group to have day-to-day management of the Board's work on the review]
The Working Group has also identified the following classes of stakeholders for the Board to engage as part of the consultation process:
(a) residents engaged in international business, or who would engage in international business under more favourable taxation arrangements;
(b) non-residents who invest in Australia, or who might invest under more favourable taxation arrangements;
(c) providers of capital to these two classes of companies;
(d) providers of professional services to these three groups;
(e) organisations that represent industry groups; and
(f) the administrators of the taxation system.
The Board has ensured and continues to ensure that representatives from each of these groups are included in the consultations.
Finally, the Working Group has proposed that the consultations should follow four broad phases designed:
(a) to increase awareness of the issues that the consultation paper seeks to raise, and also the consultation process and timetable ("the awareness phase");
(b) to draw out from stakeholders their informed views on the issues raised by the consultation paper, and to provide an opportunity for them to raise other issues ("the issue identification phase");
(c) to provide an opportunity for consensus building among stakeholders where the initial indications are that there may be differences of opinion ("the consensus building phase"); and
(d) to allow time to write up the consultations for inclusion in the Board's report to the Treasurer ("the reporting phase").
The proposed consultation timetable
The consultation paper was published in August 2002, and the public submissions are due by 31 October 2002.
The Treasurer has asked the Board to report to the Government by 31 December 2002. As you can appreciate, the Board has a very tight timeframe to consider the options canvassed in the consultation paper.
Pre-closing date consultation
Since the Government release of the consultation paper, the Board has contacted a number of organisations and individuals who have expressed an interest in the paper. The Board also contacted those whom it considered may have an interest in the paper having regard to the classes of stakeholders as I mentioned to you before.
The Working Group first met with a few key stakeholders on 2 September 2002 to discuss and distil some critical issues from the options contained in the consultation paper. The purpose of the meeting was to:
(a) identify the key issues with industry expertise (the issues that will really matter to advance Australia's international competitiveness);
(b) identify the less important issues; and
(c) prepare for the consultative briefing seminar planned for 30 September 2002.
To facilitate the preparation of submissions, the Board held a consultative briefing seminar on the consultation paper on 30 September 2002 in Sydney.
The purpose of seminar was to provide an opportunity for stakeholders to learn about and workshop and distil critical issues from the options raised in the consultation paper. The Board wanted to ensure that all participants understand the key issues to focus on moving forward.
To this seminar, the Board invited representative stakeholders, groups or organisations as identified by the Working Group from business, industry and professional bodies.
It also invited experts from the Department of the Treasury and the ATO to assist stakeholders to gain a better understanding of the consultation paper, and to share views from a tax administration perspective.
These briefing sessions were followed by five concurrent workshop sessions where over 120 representatives participated in harnessing the range of opinions on the options in a systematic way.
I believe the workshops successfully distilled some critical issues, and the Board has been impressed by the quality of the views put forward by those representatives.
Post-closing date consultation
About a week after the closing date for submissions (31 October 2002), all public submissions will be made available to the public through the Board's Website (subject to confidentiality expressed in submissions).
Shortly after 31 October 2002, the Board will hold a further round of consultations to assist it in synthesising the comments made on the consultation paper and in framing its own recommendations to the Government.
The Board plans two separate post-closing date consultative sessions in mid-November: one in Melbourne and another in Sydney.
The Working Group will meet with selected stakeholders to discuss their submissions, with an emphasis on exploring issues where stakeholders have reached different positions with a view to gather consensus views.
Participants in these consultations will principally be drawn from those who give the Board substantive comments on the consultation paper.
The Treasury will be invited to participate in these meetings, in order to clarify any issues that might arise in relation to the consultation paper and also to inform its understanding of the issues raised by stakeholders.
When the public consultation is completed, the Board will prepare the report to the Government containing a synthesis of the comments it receives from the public on the consultation paper (together with a copy of those comments), and its own recommendations to the Government.
The Board hopes that it will be in a position to submit its final report to the Government by the end of this year as requested by the Treasurer.
The role of the Board of Taxation's Advisory Panel
The Board established its Advisory Panel in early July this year. The Board has an expectation of the Panel to provide a standing, ready source of high level expert advice on which the Board could quickly draw in the course of considering all manner of taxation issues likely to come before it.
The Panel members have indeed provided valuable assistance to the Board in RITA consultation processes so far, and the Board hopes that they would continue assisting the Board in evaluating the issues raised in submissions from stakeholders on the consultation paper.
Currently, the Working Group is considering setting up technical groups on key issues distilled from RITA consultation, such as controlled foreign corporations and foreign investment funds.
The Board expects that it will continue with its current practice of hiring consultants to undertake specific research and other tasks for it. The assignment of such commercially remunerated work is subject to Commonwealth Government tendering guidelines.
It is possible, therefore, those persons serving on the Advisory Panel could also be employed as consultants to the Board, provided they qualify under those tendering guidelines. Such opportunities, however, would not be restricted to Panel members.
The Board, therefore, is in the process of engaging expert consultants from the Advisory Panel and other expert sources who will be able to assist the Board on the issues raised by the consultation paper.
Clearly, the Board, in engaging the appropriate experts as consultants, will ensure that due considerations under the Commonwealth Government tendering guidelines are met with regard to relevant expertise offered, conflict of interest, costs, and their availability for timely advise.
Emerging issues
As I mentioned previously, it is a little too early to provide a detailed list of emerging issues at this stage. However, my sense so far is that some of the critical issues will eventually be drawn from the following topics that were discussed in the last consultation. I simply list these topics without any judgment value expressed in the consultation session.
Chapter 2
- The long-term solution?
Chapter 3
- Attribution rules
- Tainted services income
- Broadly comparable listed countries
- Conduit provision
- Headquarters in Australia
- Recent US treaty model
- Corporate residency
Chapter 4
- Managed funds
Chapter 5
- Foreign expatriates (CGT, employee share options)
- Marginal income tax rate
During the term of first two years, the Board of Taxation has been very active (and extremely busy) in pursuing its Charter to enhance community input to the processes, in particular, for TVM, Inspector General of Taxation, and now for RITA.
The Board's immediate task is to complete the consultation processes for the RITA, which I discussed in some detail.
The Board is conscious of its responsibility in RITA consultation processes to make balanced recommendations that benefit the community as a whole. For example, a change may be very desirable in increasing Australia's competitiveness but may have an associate revenue impact. At the same time, revenue impacts are important to governments and the community seeking to maintain vital services.
There are also international trends to consider and we must be aware of global taxation developments. The balanced approach is pivotal to formulating the appropriate recommendations by the Board.
As to other issues at hand, the Board is yet to finalise its report to the Government on discretionary trusts.
The Treasurer's recent announcement on an exposure draft of the legislation regarding the definition of charity will also take some of Board's time in its wide consultation with the charitable sector, which I expect in early to mid next year.
These tasks are likely to consume a large part of the Board's available resources over the next six to nine months, but there will still be some scope to take on additional work.
The Board is currently formulating its forward work program for the next year.
The Board will continue to play a valuable role to ensure that taxation laws are developed in such a fashion that they meet policy objectives, are more targeted and have fewer unintended consequences.
We will be continuing to meet with community stakeholder groups to maintain and expand our links into the community.
To this end, the Board will continue to look to and to appreciate the support of the tax professionals, and of the TIA in particular, as we continue to strive for better outcomes for Australia's tax law and its system.
