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Implementation of the FATCA Agreement
ongratulate the Treasurer, Joe Hockey, on so quickly coming to the aid of Australian financial institutions and concluding the FATCA agreement. The unilateral decision by the United States has meant that Australian financial institutions with any presence in the United States could be subject to a withholding tax rate of 30 per cent. In announcing the signing of the agreement, the Treasurer highlighted the importance of this change in reducing the burden on Australian financial institutions and in particular that due diligence that would be required from Australian institutions in managing each of the accounts that may or may not be relevant to the FATCA requirements. In order to comply with the relevant reporting obligations, Australian financial institutions would have been required to undertake a range of procedures in identifying all relevant accounts. Broadly, FATCA requires foreign financial institutions to provide the US Internal Revenue Service with information on US citizens living abroad who have more than $50,000 in their accounts. So it is a wide-ranging and significant compliance burden on Australian financial institutions.
The commencement of the regime is looming on 1 July 2014, as the member for Fraser said, and it will obviously have a huge impact on Australian financial services. One of the reasons that Australia has had to enter into the agreement with the United States which is now the subject of this bill is that Australian privacy laws generally prevent compliance with these US based regulations and some Australian state and territory antidiscrimination laws could also prevent the interrogation of customer accounts based on US citizenship. In recognition of the fact that many of these domestic laws would otherwise prevent foreign financial institutions from fully complying with FATCA, the US developed an intergovernmental agreement approach to manage these legal impediments, simplify practical implementation and reduce compliance costs for relevant financial institutions. That is why I congratulate the Treasurer, Joe Hockey, for moving so quickly to sign the intergovernmental with the US in April.
As always, this government has its eye on the ball when it comes to making sure that our businesses are not weighed down with red tape and unnecessary administrative costs. Unfortunately, that was not the case when those opposite were in government. Treasurer Joe Hockey was advised soon after last year’s election that 96 tax and superannuation announcements, with one dating back as far as March 2001, had not been legislated. One of those announcements related to FATCA. The former Treasurer announced his intention to negotiate an intergovernmental agreement with US on FATCA in November 2012, but it was not signed by the former government. This slack approach was not fair on Australian businesses or consumers and it created uncertainty, particularly with the likelihood of a withholding tax applying to Australian financial institutions. That approach has changed and we have ended the uncertainty with the subject of this bill. We are listening to businesses and consumers.
Importantly, the Australian Bankers Association welcomed the signing of the intergovernmental agreement. Steven Munchenberg, chief executive of the ABA, said:
We congratulate the Australian government in securing this agreement. It will enable Australian investors and savers to more easily access the US economy without suffering a prohibitive 30 per cent withholding tax cost.
This is an essential development in facilitating capital flows into and out of Australia while having best practice regulation.
The current and previous governments’ work in this area will ensure Australia continues to have one of the world’s most competitive financial services sectors, a major factor in economic growth.
Again, I want to congratulate the Treasurer for ensuring that the uncertainty that applied with the possible application of a withholding tax in the United States is not an issue that Australian financial institutions have to worry about any further.
There are of course compliance costs associated with this measure. As a government, we are proud that the approach we have adopted ensures that the compliance costs are the lowest of all the available options. Again, it is to ensure that capital that flows in and out of Australia can be as free as possible and not subject to interest withholding tax. I again congratulate the Treasurer.