The Taxation Administration Amendment (Updating the List of Exchange of Information Countries) Regulations 2018 (the Updating Regulations) were registered on 23.11.18 and have effect from the following day (24th Nov 2018).
- Albania, Andorra, Austria, Azerbaijan, Bahrain, Barbados, Brazil, Brunei, Bulgaria, Cameroon, Chile, Colombia, Costa Rica, Croatia, Cyprus, Dominica, Estonia, Faroe Islands, Georgia, Ghana, Greece, Greenland, Grenada, Guatemala, Iceland, Israel, Kazakhstan, Kenya, Latvia, Liberia, Liechtenstein, Lithuania, Luxembourg, Marshall Islands, Moldova, Montserrat, Nigeria, Niue, Philippines, Portugal, Saint Lucia, Samoa, Saudi Arabia, Senegal, Seychelles, Sint Maarten, Slovenia, Switzerland, Tunisia, Turkey, Uganda, Ukraine, Uruguay and Vanuatu
to the list of foreign countries and foreign territories contained in r34(2) of the Taxation Administration Regulations 2017 as ‘information exchange countries’. There were 60 countries and this regulation adds a further 54 (making a total of 114).
The countries in this list are made under s12-385(4) of the TAA53.
- This list of foreign countries is used for calculating the amount to be withheld by the trustee of a managed investment trust (MIT) or custodian, or by another entity, from a ‘fund payment’ to a foreign resident.
- A ‘fund payment’ is, broadly, a component of a payment made by a MIT, that represents a distribution of Australian source net income (other than dividends, interest and royalties) of the trust.
- The MIT withholding rate is the primary taxing point for passive income, such as rent, generated in a MIT.
- The Regulations ensure that, if a fund payment is made to a tax resident of a country, added by the regulations, as an ‘information exchange country’, the lower MIT income withholding tax rate of 15 per cent, under Subdivision 840-M of the Income Tax Assessment Act 1997, would apply to those payments.
- Otherwise, the fund payment is subject to the default withholding tax rate of 30 per cent.
Establishing transparency and effective exchange of information (EOI) internationally is a key objective of the Global Forum on Transparency and Exchange of Information for Tax Purposes (the Global Forum), which is organised and supported by the Organisation for Economic Co-operation and Development’s (OECD).
There has been an improvement in effective EOI around the world, over the last few years.
- EOI is the process by which countries share taxpayer information to help enforce their domestic tax laws.
- For Australia, the legal basis for EOI is provided by:
- the EOI article of bilateral tax treaties,
- by a bilateral tax information exchange agreement, or
- through participation in the OECD’s multilateral Convention on Mutual Administrative Assistance in Tax Matters (and Amending Protocol) (the Multilateral Convention).
- The majority of jurisdictions included in the Regulations have established effective EOI arrangements with Australia through the Multilateral Convention.
EOI arrangements also allow the Commissioner of Taxation to obtain relevant information from those jurisdictions, for example, to verify the investor’s identity and place of residence or to support taxation compliance activities.
- Effective EOI requires a jurisdiction to have the legal capacity to obtain and provide information to Australia that is relevant to tax matters in Australia.
- Linking the eligibility for reduced withholding tax rates to EOI arrangements reinforces Australia’s international reputation for having a strong regulatory system and encourages other jurisdictions to enter into multilateral EOI arrangements, consistent with Australia’s tax transparency policy.
CPD questions (answers available)
- Do these regulations include 54 new countries as ‘Exchange of Information’ countries (making the total 114)?
- Do they include tax haven or similar countries, like you might expect to see, such as Brunei, Marshall Islands, Seychelles and Vanuatu?
- Do they include relatively developed countries one might have expected to have already seen on this list, such as Austria, Brazil, Greece, Israel, Phillipines, Portugal, Switzerland and Turkey?
- How did the majority of these countries come to be on this list?
- Is the list in reg 34(2), under s12-385 of the TAA53, for the purposes of determining the rate of withholding tax that an MIT must impose on distributions?
- What is the withholding tax rate if the distribution is to an EOI country?
- What is the rate, if it is not on this list?
- Does the lower MIT withholding rate, act as an incentive for countries to join the Multilateral EOI arrangements (and support Australia’s policy of transparency)?