Problems relating to Trade and Investment on Australia
14. Taxation Systems |
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Issue |
Issue details |
Requests |
Reference |
| (1) Insufficiency of Dispute Settlement Mechanism under the Mutual Agreement Procedure Provisions of the Tax Treaty | - One of the purposes of ratifying the tax treaty (the Convention) is to avoid double taxation and for this purpose, mutual agreement procedure (MAP) provision is included in the going convention. Thanks to this provision, through mutual consultation, avoidance of double taxation has been achieved. However, the MAP remains within the constriction of the "endeavour" provision and does not guarantee agreement between the both authorities, although such provision is deemed unavoidable, judging from the nature of the convention. Prospectively, the failure to reach agreement under MAP results in levy of double taxation on enterprises (particularly in the context of transfer pricing taxation issues.) Furthermore, even if the double taxation is avoided through MAP, enterprises face imposition of additions to tax under the domestic law (such as interest on delayed payment and penalty) in excess of the original tax amount.) | - It is requested that both GOA and GOJ: -- incorporate into the convention arbitration clause that can be triggered upon collapse of MAP or in the event mutual agreement cannot be reached after the lapse of certain period, -- establish mediation mechanism such as OECD for referral if arbitration fails, and -- include provisions for imposition of additions to tax in the matters for MAP with the view to heighten the predictability in promoting investment both ways between Japan and Australia. |
- Article 19 of the Japan-Australia Tax Convention (Mutual Consultation) |
| (2) Introduction of Various Taxes on Development of Resources | - Federal and state governments' heavier tax levy upon the natural resources fields (mineral resource tax and carbon tax have been repealed while royalty tax continues.) - The carbon tax pricing scheme (CTPS), Federal Government of Australia (GOA) has introduced since July 2012, compels about 500 enterprises (including Toyota, GM Holden, and Ford) with high volume of carbon emission) payment of A$23 (about 2,000 Japanese yen) levy for each tone of CO2 emissions, which is high in the international perspective. After initial three years of the fixed carbon tax levy, it will shift to an emissions trading scheme (ETS). The CTPS does not apply to industrial products imported from overseas (excepting refrigerant for car air-conditioner). Therefore, it means an extra heavy handicap to the enterprises engaged in the local manufacturing operation in Australia. On the other hand, GOA will set aside investment subsidy of A$800 million (about 70 billion Japanese yen) to enterprises, including those that consume huge volume of electricity, gas, etc., directly affected by the CTPS, by creation of clean energy programme, in order to assure improvement in energy consumption in the manufacturing sectors, and to assist technical/capital investment for higher efficiency in energy consumption and reduction of the global warming gas emission. However, it is highly likely that the amount of subsidy allocated to large manufacturers will be reduced to a minimal level, in light of the diversity and multiplicity of the enterprises and the business units eligible for such subsidy. In sum, the CTPS will most probably end up by the debilitation of the locally manufactured products in price competitiveness against imports. |
- It is requested that GOA creates a stable unbiased taxation system unbiased to any specific business fields. - It is requested that GOA: -- gives due consideration to the local industries and business bodies exposed to international competition in allocating investment subsidies, and -- designs ETS so that the international competitiveness is assured of the enterprises locally manufacturing products in Australia, when the time comes for shift to ETS. |
- Now under deliberation. - The Mineral Resource Rent Tax - the Carbon Tax, etc. |
| (Action) - By election on 26 June 2013, the change of the Labour Party took place from Julia Gillard to Kevin Rudd (Premier). The new Premier announced repeal of the Carbon Tax, which was simultaneously enforced with MRRT. |
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| (Improvement) - On l7 July 2014, the Senate of the Federal Parliament (SFP) approved the Bill to repeal the Carbon Tax Scheme submitted by The Abbott Conservative Coalition Administration. In addition, on 2 September, SFP passed the Bill to repeal Minerals Resource Rent Tax. - On 2nd September 2014, the Bill to repeal The Mineral Resource Rent Tax Act (MRRTA) passed the senate of parliament. The mineral resource rent tax is a scheme to levy 30% tax on profits gained from mining iron ore and coal (including the related products, in part). It met with deep-seated opposition of enterprises because of its excessive heavy burden. Along with the conservative coalition party's election campaign pledge on repeal of carbon tax scheme (decided on 17 July), MRRT has become a dead law. |
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| (3) Repeal of Tax Exemption Measures on the Living-Away-From -Home Allowance and Benefits | - The proposed reform on the Living Away From Home Allowance (LAFHA) scheme for temporary residents in Australia has come into force since 1 October 2012, so that various allowances for expatriates, including in particular, housing cost allowance, have become taxable. Foreign investment is indispensable for the Australian economic growth. Heavier tax burden upon the expatriates reduces foreign investment into Australia, inducing relocation of quality human resources to other metropolitan cities in the Asia-Pacific Region. (Australian tax rates for private income tax (PIT 45% maximum) and fringe benefits tax (FBT 49% maximum) are, by far, higher than other countries in this region. The impact upon foreign funded enterprises (FFEs) is too serious). - By amendment of LAFHA (Living Away From Home Allowance) tax scheme, FBTs for of expatriates have become taxable, such as house rent allowance, meal allowance, and children's educational allowance, increasing the cost of MFS (Member Firm's Subsidiary) operation cost in Australia. In addition, the costs incurred for expatriates are generally expensive, obstructing despatch of expatriates from Japan. - The FBT burden upon expatriates is quite substantial so that it has become one of the substantial factors that kick up operational costs. |
- It is requested that GOA sets up a reasonable tax exemption threshold in tax levy. (Australian tax rates for PIT and FBT are far higher than other countries in this region.) - It is requested that GOA considers providing: -- a transitional period (as tax rate in excess of 40%, gives a substantial impact on MFS's P&L), and -- some kind of incentive measures. - It is requested that GOA takes step to reduce the FBT burden levied upon expatriates from overseas. |
- Fringe Benefits Tax Assessment Act 1986 - MT 2030 Fringe Benefits Tax, Living-Away-From-Home Allowance Benefits - LAFHA - Budget Measures 2012-13 - Budget Paper No_ 2 - Part 1 Revenue Measures - Treasury - Fringe Benefits Tax - Australian Tax Laws |
| (4) Absorption of Withholding Tax on Accrued Interest on the Borrowing from Overseas Related Companies | - GOA levies 5% withholding tax on interests paid for the borrowing made by MFS in Singapore from its parent in Japan, its branch(es) in Singapore, etc. Absorption of withholding tax is not insignificant on accrued interest paid for the borrowing from headquarters / branches of the Japanese financial institutions that rely upon their headquarters, etc. for fund procurement. |
- It is requested that GOJ develops discussion with GOA to alleviate the tax burden described in the left column. | - Part·B, the Income Tax Assessment Act 1936 |
| (5) Complex Stamp Duty Scheme | - Relative to sales and purchase of shares of a company that owned a land property, there was a case where high amount of stamp duty (of a small percentage) was levied. It necessitated incorporation of an investment company or a land tenure company (including selection of the state of incorporation) to consider the measures to minimise the tax liability. All of these points to more complications in the investment form. Stamp duty provisions are complicated; moreover, it varies from state to state, defying comprehension. | - It is requested that GOA streamlines the stamp duty scheme for promoting investment into Australia. | |
| (Action) - Each of the State and Special Territorial Governments (ESSTG) levies stamp duty concerning transactions on the loan setup, a partial transfer of marketable securities, transfer of assets or real estate, under the individually different laws and duty rates by the respective states and territories. In Australia transactions in shares of legal entity collects as stamp duty, share transfer tax, land ownership tax or both. ESSTG levies and collects stamp duty also in the case a Non-Australian purchases Non-Australian business body, resulting in change of ownership in the Australian assets. |
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| (6) Lack of Consistency between Corporate Income Tax Law and Oil Tax Law | - In regard to petroleum and gas business, GOA collects The Petroleum Resource Rent Tax (PRRT), apart from corporate income tax. Under both tax laws, treatment on certain business activities differs between the two tax laws (especially as regards mineral exploration activity), giving extra large amount of workload, while needing the help of tax experts to file tax returns. | - It is requested that GOA takes step to harmonise and to streamline the process of filing tax returns, in as much as it is illogical to have different treatments of a business activity by the difference between the tax schemes. | |
| (7) Irrational Application of the Excise Duty Rates on Alcohol Products | - Excise duty (corresponding to the liquor tax of Japan) on alcoholic drinks today differs substantially by category. It has driven consumers into inadequate drinking habits, while causing imbalance between dealers, hence giving the negative impact to the society as a whole. Particularly problematic is sales of light (ad valorem) tax levy upon cheap wine at extremely low prices. | - It is requested that GOA: -- introduces volume metric tax (so called ad valorem tax based on net alcoholic content), -- repeals wine tax, and applies excise tax to wine. |
- Excise Tax - Wine Equalization Tax |
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