Australian Federal Budget 2019-2020: International Tax

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This analysis was written by Amanda Kazacos and Reina Chan

There have been minimal changes in the international area with most changes previously introduced with the tax changes for multinationals (Multinational Anti Avoidance Laws and Diverted Profits Tax).

Information Exchange Agreements

The Government has proposed to update the list of countries whose residents are eligible to access a reduced withholding tax rate of 15 per cent (rather than the default rate of 30 per cent) on certain distributions from Australian Managed Investment Trusts (MITs).

The criteria to be listed, requires countries to have a tax information sharing agreement with Australia. The following countries will accordingly be added (to the 114 other jurisdictions already on the list):

  • Curaçao;
  • Lebanon;
  • Nauru;
  • Pakistan;
  • Panama;
  • Peru;
  • Qatar; and

The updated list will be effective from 1 January 2020.

This measure supports the operation of the MIT withholding tax system to ensure that the beneficial reduced withholding tax rate is received by residents of countries that enter into effective information sharing agreements with Australia.

Hybrid Mismatch Rules

The Government will increase the integrity of the tax system by making a number of minor amendments to Australia's hybrid mismatch rules to clarify their operation.

The hybrid mismatch rules prevent multinational corporations from exploiting differences in the tax treatment of an entity or instrument under the laws of two or more tax jurisdictions. Certain amendments will be made to Division 832 of the Tax Act to;

  • impact how the rules apply to MEC groups and trusts,
  • limit the meaning of foreign tax, and
  • specify that the integrity rule can apply where other provisions have applied will give greater certainty to taxpayers in complying with the rules.

This measure will be applicable for income years commencing on or after 1 January 2019, with the exception of the amendments to the integrity rule, which will apply to income years commencing on or after 2 April 2019. This measure is estimated to have a negligible revenue impact.

Export Grants

From 2019-20, the Government will provide $61.0 million over three years to support Australian businesses to export Australian goods and services to overseas markets, comprising of:

  • $60.0 million over three years in increased funding for the Export Market Development Grants scheme to boost reimbursement levels of eligible export marketing expenditure for small and medium enterprise exporters; and
  • $1.0 million to further promote Australian export industries to overseas markets.

Australia / Israel Double Tax Agreement

On 28 March 2019, the Government signed the Convention between the Government of Australia and the Government of the State of Israel for the Elimination of Double Taxation with Respect to Taxes on Income and the Prevention of Tax Evasion and Avoidance. The Convention relieves double taxation, lowers withholding tax rates (on interest, dividend and royalty payments) and improves certainty for taxpayers in both countries. To give the treaty the force of law in Australia, the Government will also introduce amendments to the International Tax Agreements Act 1953 to give the treaty force of law in Australia. That Act will also be amended to provide that certain income covered by a tax treaty is deemed to have an Australian source.

Withholding Tax

The Government has ignored calls to reform non-resident withholding tax for managed funds in the Asia Region Funds Passport. This may have impacts on Australia's competitiveness with respect to its Asian counterparts.