2013-2014
THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA
HOUSE OF REPRESENTATIVES
TAX LAWS AMENDMENT (IMPLEMENTATION OF THE FATCA
AGREEMENT) BILL 2014
EXPLANATORY MEMORANDUM
(Circulated by the authority of the
Treasurer, the Hon J. B. Hockey MP)
Table of contents
Glossary ................................................................................................. 1
General outline and financial impact....................................................... 3
Chapter 1
FATCA .......................................................................... 5
Chapter 2
Statement of Compatibility with Human Rights ............21
Chapter 3
Regulation impact statement ........................................31
Index......................................................................................................93
Glossary
The following abbreviations and acronyms are used throughout this
explanatory memorandum.
Abbreviation
Definition
ABA
Australian Bankers’ Association
ABS
Australian Bureau of Statistics
ADI
Authorised Deposit-taking Institution
ATO
Australian Taxation Office
COBA
Customer Owned Banking Association
Commissioner
Commissioner of Taxation
CRS
Common Reporting Standard
FATCA
Foreign Account Tax Compliance Act
FATCA Agreement
Agreement between the Government of
Australia and the Government of the United
States of America to Improve International
Tax Compliance and to Implement FATCA
FFI
Foreign Financial Institution
FHSA
First Home Saver Account
FSC
Financial Services Council
ICERD
International Convention on the Elimination
of All Forms of Racial Discrimination
ICESCR
International Covenant on Economic, Social
and Cultural Rights
ICCPR
International Covenant on Civil and Political
Rights
IGA
Agreement between the Government of
Australia and the Government of the United
States of America to Improve International
Tax Compliance and to Implement FATCA
IRC
Internal Revenue Code
IRS
Internal Revenue Service
OAIC
Office of the Australian Information
Commissioner
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Tax Laws Amendment (Implementation of the FATCA Agreement) Bill 2014
2
OECD
Organisation for Economic Co-operation and
Development
OVDP
Offshore Voluntary Disclosure Program
Privacy Act
Privacy Act 1988
RIS
Regulation Impact Statement
TAA 1953
Taxation Administration Act 1953
US
United States of America
USD
US Dollars
General outline and financial impact
FATCA
Schedule 1 to this Bill amends Schedule 1 to the Taxation Administration
Act 1953 to require Australian financial institutions to collect information
about their customers that are likely to be taxpayers in the United States of
America (US) and to provide that information to the Commissioner of
Taxation (Commissioner) who will, in turn, provide that information to
the US Internal Revenue Service.
These amendments give effect to the Australian Government’s
commitments as set out in the Agreement between the Government of
Australia and the Government of the United States of America to Improve
International Tax Compliance and to Implement FATCA, which was
signed in Canberra on 28 April 2014.
Date of effect: 1 July 2014
Proposal announced: On 6 November 2013, the Government announced
its intention to work towards signing and enacting a treaty-status
intergovernmental agreement with the US to enable the financial sector to
comply with Foreign Account Tax Compliance Act (FATCA) reporting
rules (Treasurer’s Media Release No. 17 of 6 November 2013).
This followed an earlier announcement on 7 November 2012 by the then
Treasurer that Australia had commenced formal discussions with the US
for an intergovernmental agreement on FATCA (Treasurer’s Media
Release No. 110 of 7 November 2012).
Financial impact: Nil
Human rights implications: This Bill does not raise any human rights
issues. See Statement of Compatibility with Human Rights — Chapter 2,
paragraphs 2.1 to 2.54.
Compliance cost impact: High. Australian financial institutions will
need to collect information about their customers that are likely to be
taxpayers in the US and to provide that information to the Commissioner.
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Tax Laws Amendment (Implementation of the FATCA Agreement) Bill 2014
Summary of regulation impact statement
Regulation impact on business
Impact: These amendments will affect Australian financial institutions
that have customers that may be taxpayers in the US.
Main points:
• FATCA will commence on 1 July 2014, irrespective of any
action taken by Australia.
• There are three options for responding to FATCA:
– option one — conclude a Model 1 Intergovernmental
Agreement with the US;
– option two — conclude a Model 2 Intergovernmental
Agreement with the US; or
– option 3 — maintain the status quo (that is, no
Government intervention).
• All three options impose compliance costs on the Australian
financial sector. Each option is estimated to impose the
following compliance costs over ten years:
– option one — $482.68 million;
– option two — $565.44 million; or
– option three — $1,065.92 million.
• Option one enables Australian financial institutions to
comply with FATCA with the lowest level of compliance
costs. This option is also consistent with the Government’s
long standing support for international cooperation to prevent
tax evasion.
4
Chapter 1
FATCA
Outline of chapter
1.1
Schedule 1 to this Bill amends Schedule 1 to the Taxation
Administration Act 1953 (TAA 1953) to require Australian financial
institutions to collect information about their customers that are likely to
be taxpayers in the United States of America (US) and to provide that
information to the Commissioner of Taxation (Commissioner) who will,
in turn, provide that information to the US Internal Revenue Service
(IRS).
1.2
These amendments give effect to the Australian Government’s
commitments as set out in the Agreement between the Government of
Australia and the Government of the United States of America to Improve
International Tax Compliance and to Implement FATCA (the FATCA
Agreement).
Context of amendments
The Foreign Account Tax Compliance Act
1.3
The Foreign Account Tax Compliance Act (FATCA) is a
unilateral anti-tax evasion regime enacted by the US Congress as part of
the US Hiring Incentives to Restore Employment Act 2010. FATCA is
aimed at detecting US taxpayers who use accounts with offshore financial
institutions to conceal income and assets from the IRS. The relevant
provisions are contained in the US Internal Revenue Code (IRC) 1986 and
are supplemented by extensive US Treasury Regulations that were issued
on 17 January 2013 (and have been subject to subsequent amendment).
1.4
The substantive FATCA requirements for financial institutions
generally start on 1 July 2014.
1.5
From that date, FATCA will require all foreign (that is, non-US)
financial institutions, including custodial institutions, depository
institutions, investment entities and specified insurance companies, to
conclude individual agreements with the IRS under which they will
periodically report certain information about their account holders who
are US citizens or US resident individuals (or individuals who fail to rebut
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Tax Laws Amendment (Implementation of the FATCA Agreement) Bill 2014
a presumption of being a US citizen or US resident individual) or
specified entities established in the US or controlled by US persons.
1.6
In order to comply with their reporting obligations, these
financial institutions will need to follow specific due diligence procedures
in identifying all relevant accounts.
• The level of due diligence required depends on whether the
account is held by an individual or an entity and whether or
not the account was opened prior to 1 July 2014.
• For example, the due diligence requirements generally do not
apply to accounts held by individuals unless the aggregated
account balances exceed USD 50,000.
1.7
Financial institutions that do not comply with FATCA will be
subject to a 30 per cent US withholding tax on their US source income.
1.8
A broad range of Australian financial institutions, including
banks, some building societies, some credit unions, specified life
insurance companies, private equity funds, managed funds, exchange
traded funds and some brokers (generally those brokers maintaining
Custodial Accounts) will be subject to FATCA. As most major Australian
financial institutions operate or otherwise invest in the US, the US
withholding tax creates a strong commercial incentive for these entities to
comply with FATCA.
1.9
This means that those Australian financial institutions that
intend to comply with FATCA would need to commence relevant due
diligence procedures from 1 July 2014 in anticipation of reporting to the
IRS. However, Australian privacy laws generally prevent compliance
with these US-based obligations and some Australian State and Territory
anti-discrimination laws could also prevent the interrogation of customer
accounts based on US citizenship.
1.10
In recognition of the fact that many countries’ domestic laws
would otherwise prevent foreign financial institutions from fully
complying with FATCA, the US has developed an intergovernmental
agreement approach to manage these legal impediments, simplify
practical implementation, and reduce compliance costs for relevant
financial institutions. The US has signed a number of intergovernmental
agreements with a range of jurisdictions including Austria, Belgium,
Bermuda, Canada, the Cayman Islands, Chile, Costa Rica, Denmark,
Estonia, Finland, France, Germany, Gibraltar, Guernsey, Honduras,
Hungary, Ireland, the Isle of Man, Italy, Jamaica, Japan, Jersey,
Luxembourg, Malta, Mauritius, Mexico, the Netherlands, Norway, Spain,
Switzerland and the United Kingdom of Great Britain. A complete list of
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FATCA
countries with intergovernmental agreements with the US is available on
the US Department of the Treasury’s website.
Signing an intergovernmental agreement with the US
1.11
On 28 April 2014 the Treasurer, on behalf of the Australian
Government, and the US Ambassador to Australia, on behalf of the US
Government, signed the FATCA Agreement.
1.12
The text of the FATCA Agreement is set out in the Australian
Treaty Series (currently [2014] ATNIF 5) which is accessible through the
Australian Treaties Library on the AustLII website (www.austlii.edu.au).
A copy of the FATCA Agreement is also available online on the
Australian Department of Foreign Affairs and Trade’s Australian Treaties
Database and on the Australian Treasury’s website.
Summary of new law
1.13
These amendments insert a new Division, ‘Division 396 —
FATCA’, into ‘Part 5-25 — Record-keeping and other obligations of
taxpayers’ in Schedule 1 to the TAA 1953.
1.14
To ensure consistency with the FATCA Agreement, these
amendments adopt meanings and concepts used in that agreement.
• This means the substantive amendments apply to ‘Reporting
Australian Financial Institutions’ that maintain at least one
‘U.S. Reportable Account’ in a calendar year.
• In addition, transitional obligations apply to ‘Reporting
Australian Financial Institutions’ that make payments to
‘Nonparticipating Financial Institutions’ in 2015 and 2016.
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Tax Laws Amendment (Implementation of the FATCA Agreement) Bill 2014
Comparison of key features of new law and current law
New law
Current law
Reporting Australian Financial
Institutions that maintain U.S.
Reportable Accounts will need to
follow specific due diligence
procedures and provide information
about those accounts as specified in
the FATCA Agreement to the
Commissioner.
No equivalent.
Reporting Australian Financial
Institutions that make payments to
account holders that are
Nonparticipating Financial
Institutions in 2015 and 2016 will
need to follow specific due diligence
procedures and provide information
about those payments as specified in
the FATCA Agreement to the
Commissioner.
No equivalent.
Reporting Australian Financial
Institutions that report information to
the Commissioner will need to keep
records for five years that explain the
procedures used for determining the
information reported.
No equivalent.
Detailed explanation of new law
The FATCA Agreement with the US
1.15
The FATCA Agreement establishes a framework for reporting
by Australian and US financial institutions of some financial account
information to their respective tax authorities (the Australian Taxation
Office (ATO) and the IRS). Article 25 (Exchange of Information) of the
Convention between the Government of Australia and the Government of
the United States of America for the Avoidance of Double Taxation and
Prevention of Fiscal Evasion with respect to Taxes on Income (which has
the force of law under subsection 5(1) of the International Tax
Agreements Act 1953) requires each country’s tax authorities to
automatically exchange that information.
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FATCA
1.16
The FATCA Agreement consists of four parts.
• (1) The Agreement that:
– defines specific concepts used in the Agreement —
per Article 1;
– requires Australia to obtain information about ‘Reportable
Accounts’ — per Article 2;
– sets out the process for exchanging information with the
US — per Article 3;
– specifies how ‘Reporting Australian Financial
Institutions’ will be treated under FATCA —
per Article 4;
– provides for compliance and enforcement mechanisms —
per Article 5;
– articulates a mutual commitment between Australia and
the US to enhance the effectiveness of information
exchange and transparency — per Article 6;
– grants Australia the benefit of more favourable terms
under Article 4 or Annex I provided by the US to other
jurisdictions — per Article 7;
– allows for consultation and amendment of the agreement
and specifies the terms of the agreement — per Articles 8
and 10; and
– incorporates Annex I and Annex II as integral parts of the
agreement — per Article 9.
• (2) Annex I that requires Reporting Australian Financial
Institutions to apply specific due diligence procedures in
identifying ‘U.S. Reportable Accounts’ and accounts held by
‘Nonparticipating Financial Institutions’.
• (3) Annex II that deems specific Australian ‘Entities’ to be
complying with or exempt from FATCA or specific
Australian accounts to be excluded from the definition of
‘Financial Accounts’ for the purposes of FATCA.
• (4) The Memorandum of Understanding to the Agreement.
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Tax Laws Amendment (Implementation of the FATCA Agreement) Bill 2014
1.17
Paragraph 4 of Article 5 of the FATCA Agreement requires
Australia to implement measures, as necessary, to prevent financial
institutions from adopting practices designed to circumvent the relevant
reporting obligations. Although the Australian Government does not
propose to introduce a specific anti-avoidance rule at this stage, it has
given an undertaking to the US that it will do so if it becomes apparent
that Reporting Australian Financial Institutions are adopting practices
designed to circumvent their reporting obligations.
1.18
It is important to note that a Reporting Australian Financial
Institution that complies with all of its reporting obligations under these
amendments will still need to comply with additional obligations directly
imposed by the IRS to avoid becoming subject to a 30 per cent US
withholding tax on its US source income. These additional obligations are
contained in subparagraphs (1)(c), (d) and (e) of Article 4 of the FATCA
Agreement.
1.19
How each Reporting Australian Financial Institution chooses to
comply with these additional obligations will be a matter for that
institution and the IRS. Although the ATO has a role in acting as an
intermediary between Reporting Australian Financial Institutions and the
IRS, the formal obligations on the ATO under Article 5 of the FATCA
Agreement are limited to applying Australia’s domestic taxation laws,
where applicable, to resolve any non-compliance. Accordingly, these
obligations on the ATO will only apply in situations where the
non-compliance has led to a contravention of Australia’s domestic
taxation laws.
1.20
The FATCA Agreement permits Australia to allow Australian
Financial Institutions to elect to apply alternative definitions as well as
alternative procedures specified in the Agreement. The Government has
prepared these amendments so that Australian Financial Institutions are
permitted to make any of the elections contemplated by the FATCA
Agreement.
The reporting obligation — U.S. Reportable Accounts
1.21
Reporting Australian Financial Institutions that maintain one or
more U.S. Reportable Accounts at any time during a calendar year will
need to give a statement to the Commissioner in relation to each of those
accounts. This statement must contain all of the necessary information
about those accounts that would allow the Australian Government to fulfil
its obligations under the FATCA Agreement. [Schedule 1, item 2,
subsections 396-5(1) and (2) of Schedule 1 to the TAA 1953]
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FATCA
1.22
Implicit in this obligation is the requirement that such a
Reporting Australian Financial Institution will need to collect the relevant
information. Of note, an entity subject to the Australian Privacy
Principles in the Privacy Act 1988 that collects personal information about
an individual must, under Australian Privacy Principle 5, take reasonable
steps either to notify the individual about a range of matters relating to
this personal information or otherwise ensure the individual is aware of
these matters. These matters are set out in Australian Privacy
Principle 5.2.
1.23
A Reporting Australian Financial Institution that does not
maintain any U.S. Reportable Accounts in a calendar year does not need
to provide such a statement to the Commissioner.
1.24
The concepts of Reporting Australian Financial Institutions and
U.S. Reportable Accounts are defined in Article 1 of the FATCA
Agreement. However, generally speaking:
• banks, some building societies, some credit unions, specified
life insurance companies, private equity funds, managed
funds, exchange traded funds and some brokers (generally
those brokers maintaining Custodial Accounts) will typically
be Reporting Australian Financial Institutions; and
• U.S. Reportable Accounts will typically include cheque and
transaction accounts, savings accounts, term deposits, debt
interests and equity interests (including derivatives), and
certain annuity contracts.
1.25
Australian retirement funds, including superannuation entities
(which includes self-managed superannuation funds), public sector
superannuation schemes, constitutionally protected funds or pooled
superannuation trusts, will generally not be Reporting Australian
Financial Institutions as they are treated as Non-Reporting Australian
Financial Institutions and as exempt beneficial owners for the purposes of
sections 1471 and 1472 of the US IRC under Section II of Annex II of the
FATCA Agreement. Government entities will also generally not be
Reporting Australian Financial Institutions under Section I of Annex II of
the FATCA Agreement.
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Tax Laws Amendment (Implementation of the FATCA Agreement) Bill 2014
1.26
Article 2 of the FATCA Agreement sets out Australia’s
obligations in relation to the collection of information about U.S.
Reportable Accounts. This includes collecting the following information,
for example, in relation to each U.S. Reportable Account:
• the name, address and U.S. Tax Identification Number of
each Specified U.S. Person that is an Account Holder (or
each Specified U.S. Person that is a Controlling Person, as
well as the name, address and U.S. Tax Identification
Number of the controlled Non-US Entity);
• the account number or equivalent;
• the name and identifying number of the Reporting Australian
Financial Institution;
• the account balance or value at the end of the calendar year
or other appropriate reporting period (or, if the account was
closed during the year, immediately before its closure);
• the total amount of income generated by the account (such as
interest or dividends) and paid into the account (or with
respect to the account) — but only with respect to 2015 and
subsequent years; and
• in some cases, the total gross proceeds from the sale or
redemption of property paid or credited to the account during
the calendar year — but only with respect to 2016 and
subsequent years.
1.27
Further to paragraph 1.20, paragraph 7 of Article 4 of the
FATCA Agreement allows Australia to permit Australian Financial
Institutions to use a definition in the relevant US Treasury Regulations in
lieu of a corresponding definition in the FATCA Agreement where the
application of such a definition would not frustrate the purposes of the
Agreement.
1.28
In complying with this reporting obligation, an Australian
Financial Institution may elect to use such an alternative definition as it is
within the meaning of the FATCA Agreement and its use allows the
Australian Government to fulfil its obligations under the Agreement.
• Copies of US Treasury Regulations are available on the US
Treasury website.
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FATCA
• In addition, the US Department of the Treasury typically
publishes binding notices in anticipation of US Treasury
Regulations.
[Schedule 1, item 2, section 396-20 of Schedule 1 to the TAA 1953]
1.29
An entity must have made any relevant elections by the time it
gives the statement to the Commissioner. The way the entity has prepared
the statement provides sufficient evidence of any elections it may have
made. There is no need to provide the Commissioner with an additional,
specific notification of any elections made.
• However, an entity that provides a statement to the
Commissioner has an obligation to keep necessary records
about the procedures used in determining the information
given to the Commissioner (including any elections made).
• Paragraphs 1.50 to 1.53 provide further information about
this obligation.
1.30
The statement to the Commissioner must be given in the
‘approved form’. The concept of approved forms is used in the taxation
laws to provide the Commissioner with administrative flexibility to
specify the precise form of information required and the manner of
providing it. [Schedule 1, item 2, subsection 396-5(4) of Schedule 1 to the TAA 1953]
1.31
Section 388-50 of Schedule 1 to the TAA 1953 provides the
legislative basis for the use of approved forms. Subsection 388-50(2)
allows the Commissioner to combine more than one statement in the one
approved form and paragraph 388-50(1)(c) allows the Commissioner to
require any necessary additional information. [Schedule 1, item 2,
subsection 396-5(5) of Schedule 1 to the TAA 1953]
1.32
Each statement is due to the Commissioner by 31 July of the
following year to which the information relates.
• However, section 388-55 of Schedule 1 to the TAA 1953
allows the Commissioner to defer the time that entities must
lodge a statement in the approved form.
• This means Reporting Australian Financial Institutions may
lodge these statements by a later date where that has been
approved by the Commissioner.
[Schedule 1, item 2, subsection 396-5(6) of Schedule 1 to the TAA 1953]
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Tax Laws Amendment (Implementation of the FATCA Agreement) Bill 2014
1.33
The ATO has published a range of information and guidance
about how the Commissioner administers the approved form provisions.
In particular, practice statement PS LA 2005/19 provides information
about the processes for approving an approved form and practice
statement PS LA 2011/15 provides information about general lodgement
obligations and the process for seeking to defer these obligations.
The requirement to follow specific due diligence procedures
1.34
In effect, complying with this reporting obligation will require
all Reporting Australian Financial Institutions that maintain Financial
Accounts (within the meaning of the FATCA Agreement) to determine if
they maintain any U.S. Reportable Accounts. This requires applying the
due diligence procedures specified in the FATCA Agreement to determine
the information to be reported. [Schedule 1, item 2, subsection 396-5(3) of
Schedule 1 to the TAA 1953]
1.35
Annex I to the FATCA Agreement specifies these due diligence
procedures, including circumstances where Australia may permit a
Reporting Australian Financial Institution to elect to apply alternative due
diligence procedures. These include:
• Section I.C of Annex I which allows Reporting Australian
Financial Institutions to rely on the procedures described in
relevant US Treasury Regulations to establish whether an
account is a US Reportable Account or an account held by a
Nonparticipating Financial Institution;
• Sections II.A, III.A, IV.A and V.A of Annex I which allow
Reporting Australian Financial Institutions to make elections
in relation to different types of Accounts; and
• Section VI.F of Annex I which allows Reporting Australian
Financial Institutions to rely on the due diligence procedures
performed by third parties to the extent provided in relevant
US Treasury Regulations.
1.36
Further to paragraph 1.20, a Reporting Australian Financial
Institution may elect to use any of the alternative procedures allowed by
the FATCA Agreement in complying with the due diligence obligations
required under the Agreement. [Schedule 1, item 2, section 396-20 of Schedule 1
to the TAA 1953]
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FATCA
Consequences of not complying
1.37
Australia’s domestic taxation laws contain a range of sanctions
for entities that do not comply with their reporting obligations.
Specifically:
• Division 284 of Schedule 1 to the TAA 1953 sets out the
penalties that apply to entities that make false or misleading
statements about tax-related matters; and
• Division 286 of Schedule 1 to the TAA 1953 sets out the
penalties that apply to entities that fail to lodge statements on
tax-related matters in time.
1.38
This means, for example, that:
• a Reporting Australian Financial Institution that makes a
false or misleading statement because of an intentional
disregard of the taxation laws may be liable to an
administrative penalty of 60 penalty units —
per table item 3A of subsection 284-90(1) of Schedule 1 to
the TAA 1953;
• a Reporting Australian Financial Institution that makes a
false or misleading statement through recklessness as to the
operation of the taxation laws may be liable to an
administrative penalty of 40 penalty units —
per table item 3B of subsection 284-90(1); or
• a Reporting Australian Financial Institution that makes a
false or misleading statement because of a failure to take
reasonable care to comply with the taxation laws may be
liable to a penalty of 20 penalty units — per table item 3C of
subsection 284-90(1).
1.39
Similarly, a Reporting Australian Financial Institution that fails
to provide a statement on time, or in the approved form, may be liable
under subsection 286-80(2) of Schedule 1 to the TAA 1953 to a base
administrative penalty of one penalty unit for each period of up to 28 days
from when the document was due, up to a maximum of five penalty units
(subsections 286-80(3) and (4) of Schedule 1 to the TAA 1953 increase
these penalty amounts for some entities). This could include a Reporting
Australia Financial Institution that fails to identify any U.S. Reportable
Accounts that it maintains and lodge a statement with the Commissioner.
1.40
Section 4AA of the Crimes Act 1914 provides the value of a
penalty unit. The current value is $170.
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Tax Laws Amendment (Implementation of the FATCA Agreement) Bill 2014
1.41
Division 298 of Schedule 1 to the TAA 1953 contains a range of
machinery provisions relating to this penalty framework. This includes
section 298-20 which allows the Commissioner to remit all, or part, of an
administrative penalty and section 298-30 which allows entities to object
to the Commissioner’s penalty assessment.
1.42
The ATO has also published a wide range of information and
guidance about the operation of this penalty regime. Relevant practice
statements include PS LA 2012/4 which relates to false and misleading
statements and PS LA 2011/19 which relates to failing to lodge.
1.43
It is important to note that a Reporting Australian Financial
Institution that fails to comply with this reporting obligation may also be
deemed by the IRS to be a Nonparticipating Financial Institution under
subparagraph 2(b) of Article 5 of the FATCA Agreement regardless of
any compliance action undertaken by the ATO using Australia’s domestic
taxation laws.
The reporting obligation — payments to Nonparticipating Financial
Institutions
1.44
Reporting Australian Financial Institutions that make payments
to Nonparticipating Financial Institutions in 2015 and 2016 will also need
to provide information about these payments to the Commissioner.
1.45
Specifically, a Reporting Australian Financial Institution that
makes a payment to a Nonparticipating Financial Institution holding
financial accounts with the Reporting Australian Financial Institution in
2015 and 2016 will need to give a statement to the Commissioner in
relation to each of these payments. Each statement must contain all of the
necessary information about those payments that would allow the
Australian Government to fulfil its obligations under the FATCA
Agreement. [Schedule 1, item 2, subsections 396-10(1) and (2) of Schedule 1 to the
TAA 1953]
1.46
Similar to paragraphs 1.27, 1.28 and 1.29, an Australian
Financial Institution may elect to use any alternative definition in the
relevant US Treasury Regulations in complying with this reporting
obligation, provided the use of that definition does not frustrate the
purposes of the FATCA Agreement. [Schedule 1, item 2, section 396-20 of
Schedule 1 to the TAA 1953]
1.47
This statement is due to the Commissioner by 31 July of the year
following the year to which the information relates and must be given in
the approved form. Paragraphs 1.30 to 1.33 provide further information
about approved forms. [Schedule 1, item 2, subsections 396-10(4), (5) and (6) of
Schedule 1 to the TAA 1953]
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FATCA
1.48
Reporting Australian Financial Institutions that provide such a
statement will need to apply the due diligence procedures required under
the FATCA Agreement in determining the information to be contained in
that statement. As noted in paragraphs 1.35 and 1.36 a Reporting
Australian Financial Institution may elect to use any of the alternative
procedures allowed by the FATCA Agreement in complying with this
obligation. [Schedule 1, item 2, subsection 396-10(3) of Schedule 1 to the TAA 1953]
1.49
A Reporting Australian Financial Institution that does not
comply with this obligation may be subject to specific sanctions under
Australia’s domestic taxation laws and may also be deemed by the IRS to
be a Nonparticipating Financial Institution. Paragraphs 1.37 to 1.43
provide further details about these different sanctions.
The requirement to keep records of relevant procedures
1.50
Similar to Australia’s income tax regime and the lodgement of
income tax returns, the reporting obligations on Reporting Australian
Financial Institutions will operate on a self-assessment basis. Under
self-assessment, taxpayers typically perform certain functions and
exercise some responsibilities that might otherwise be undertaken by the
revenue authority. One consequence of a self-assessment approach is that
whilst the Commissioner may initially accept an entity’s statement at face
value, the Commissioner may subsequently seek to verify the accuracy of
that statement, particularly if there are potential compliance risks.
1.51
Accordingly, reporting entities will need to keep adequate
records about the procedures they used in preparing the relevant statement
to ensure the Commissioner can properly assess whether they have, in
fact, complied with their reporting obligations. This record-keeping
obligation is similar to other record keeping provisions in Australia’s
domestic taxation laws.
1.52
Specifically, a Reporting Australian Financial Institution that
provides a statement to the Commissioner needs to keep records for five
years (from the date of providing that statement to the Commissioner)
that:
• correctly record the procedures by which it determined what
information to include in the statement; and
• are in English, or are readily accessible and easily convertible
into English.
[Schedule 1, item 2, section 396-25 of Schedule 1 to the TAA 1953]
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Tax Laws Amendment (Implementation of the FATCA Agreement) Bill 2014
1.53
This record-keeping obligation particularly applies in relation to
the due diligence procedures followed by the Reporting Australian
Financial Institution in identifying relevant accounts or payments as well
as any elections made by the institution in relation to terms used in, or
procedures required under, the FATCA Agreement. However, entities
need not create specific records just to comply with this obligation.
Internal guidelines or similar documents about the procedures relevant
staff should follow, for example, may be sufficient, particularly if there is
also evidence that staff do, in fact, routinely follow these guidelines.
Consequences of not complying
1.54
Section 288-25 of Schedule 1 to the TAA 1953 provides that an
entity that fails to keep or retain records as required by the taxation laws is
liable to an administrative penalty of 20 penalty units.
1.55
The ATO has published a practice statement, PS LA 2005/2,
which provides further information about these record keeping
obligations.
1.56
In addition, a Reporting Australian Financial Institution that
fails to keep adequate records may be exposed to the possibility of being
deemed by the IRS to be a Nonparticipating Financial Institution.
Consequential amendments
1.57
These amendments define the FATCA Agreement as the
Agreement between the Government of Australia and the Government of
the United States of America to Improve International Tax Compliance
and to Implement FATCA. [Schedule 1, item 2, section 396-15 of Schedule 1 to the
TAA 1953]
1.58
In addition, these amendments amend the definitions in
section 995-1 of the Income Tax Assessment Act 1997 to incorporate a
reference to the FATCA Agreement. [Schedule 1, item 1, subsection 995-1(1) of
the ITAA 1997]
1.59
These amendments also insert relevant guide material for
Division 396. [Schedule 1, item 2, section 396-1 of Schedule 1 to the TAA 1953]
Application and transitional provisions
1.60
18
These amendments commence on Royal Assent.
FATCA
1.61
These amendments apply in relation to:
• all U.S. Reportable Accounts maintained by Reporting
Australian Financial Institutions on or after 1 July 2014
[Schedule 1, item 3, paragraphs (1) and (3)]; and
• any payments made in 2015 or 2016 by Reporting Australian
Financial Institutions to Nonparticipating Financial
Institutions [Schedule 1, item 3, paragraphs (2) and (3)].
19
Chapter 2
Statement of Compatibility with Human
Rights
Prepared in accordance with Part 3 of the Human Rights
(Parliamentary Scrutiny) Act 2011
Tax Laws Amendment (Implementation of the FATCA Agreement) Bill
2014
2.1
This Bill is compatible with the human rights and freedoms
recognised or declared in the international instruments listed in section 3
of the Human Rights (Parliamentary Scrutiny) Act 2011.
Overview
Background
2.2
The United States of America (US) Foreign Account Tax
Compliance Act (FATCA) is a unilateral anti-tax evasion regime enacted
by the US in March 2010 and is aimed at detecting US taxpayers who use
accounts with offshore financial institutions to conceal income and assets
from the US Internal Revenue Service (IRS). FATCA requires foreign
(that is, non-US) financial institutions to periodically report details of
accounts held by US taxpayers or by foreign entities controlled by US
taxpayers to the IRS. Non-complying financial institutions face
significant penalties, notably a 30 per cent withholding tax on US income.
2.3
Under the Convention between the Government of Australia and
the Government of the United States of America for the Avoidance of
Double Taxation and the Prevention of Fiscal Evasion with respect to
Taxes on Income the US’s taxing rights over income derived by US
citizens is preserved.
The Bill
2.4
This Bill amends Schedule 1 to the Taxation Administration
Act 1953 and the Income Tax Assessment Act 1997 to give effect to
Australia’s obligations under the treaty-status Agreement between the
Government of Australia and the Government of the United States of
21
Tax Laws Amendment (Implementation of the FATCA Agreement) Bill 2014
America to Improve International Tax Compliance and to Implement
FATCA (the FATCA Agreement), which was signed on 28 April 2014.
2.5
This Bill requires Reporting Australian Financial Institutions to
give the Commissioner of Taxation (Commissioner) certain information
about U.S. Reportable Accounts that the Australian Government is
required to obtain in order for the Government to fulfil its obligations
under the FATCA Agreement in respect of U.S. Reportable Accounts.
Under the FATCA Agreement, the Commissioner will transmit the
information regarding U.S. Reportable Accounts to the IRS. The Bill also
establishes ancillary record-keeping and due diligence obligations for
reporting entities as well as transitional reporting obligations in relation to
payments made to Nonparticipating Financial Institutions.
Human rights implications
2.6
The Bill engages the following rights and freedoms:
• the right to protection from arbitrary or unlawful interference
with privacy under Article 17 of the International Covenant
on Civil and Political Rights (ICCPR); and
• the right to protection from discrimination under Article 2(1)
of the International Convention on the Elimination of All
Forms of Racial Discrimination (ICERD), Articles 2(1) and
26 of the ICCPR, and Article 2(2) of the International
Covenant on Economic, Social and Cultural Rights
(ICESCR).
Prohibition against unlawful or arbitrary interference with privacy
2.7
The Bill engages Article 17 of the ICCPR, as it will interfere
with the privacy of individuals.
2.8
Section 396-5 requires Reporting Australian Financial
Institutions to report customer information to the Commissioner and
section 396-20 requires reporting entities to conduct certain due diligence
procedures on their financial accounts in order to identify those account
holders that are likely to be US citizens or US taxpayers. To comply with
these sections, Reporting Australian Financial Institutions will be required
to collect certain personal information (such as a person’s name, address,
U.S. Tax Identification Number, the account number, the income credited
to the account and the account balance) and provide the information to the
Commissioner for onward transmission to the IRS.
2.9
Article 17 of the ICCPR provides that individuals shall not be
subject to unlawful or arbitrary interference with their privacy.
22
Statement of Compatibility with Human Rights
2.10
In relation to privacy, the United Nations Human Rights
Committee has made the following points.
• The term ‘unlawful’ means that no interference can take
place except in cases envisaged by the law. Interference
authorised by States can only take place on the basis of law,
which itself must comply with the provisions, aims and
objectives of the Covenant.
• The expression ‘arbitrary interference’ is also relevant to the
protection of the right provided for in Article 17. In the
Committee’s view the expression arbitrary interference can
also extend to interference provided for under the law. The
introduction of the concept of arbitrariness is intended to
guarantee that even interference provided for by law should
be in accordance with the provisions, aims and objectives of
the Covenant and should be, in any event, reasonable in the
particular circumstances.1
Discrimination on prohibited grounds
2.11
The Bill engages the right to protection from discrimination
under international human rights law, on the grounds that it requires
Reporting Australian Financial Institutions to report on accounts that are
likely to be held by US citizens or US taxpayers based on the presence of
specified US indicia in those institutions’ records.
2.12
Article 2(1) of the ICERD imposes an obligation on State parties
to undertake to pursue a policy of eliminating racial discrimination. The
ICERD defines racial discrimination, in Article 1(1) as, ‘any distinction,
exclusion, restriction or preference based on race, colour, descent, or
national or ethnic origin which has the purpose or effect of nullifying or
impairing the recognition, enjoyment or exercise, on an equal footing, of
human rights and fundamental freedoms in the political, economic, social,
cultural or any other field of public life’.
2.13
Article 2(1) of the ICCPR prohibits discrimination in the
exercise of rights under that treaty on a number of prohibited grounds,
while Article 26 of the ICCPR is a stand-alone right which would be
breached if a person did not enjoy equality before the law or equal
protection of the law with others, on the basis of discrimination on a
1
United Nations Human Rights Committee, CCPR General Comment No. 16: Article 17 (Right
to Privacy), The Right to Respect of Privacy, Family, Home and Correspondence, and
Protection of Honour and Reputation, 8 April 1988, available at:
http://www.refworld.org/docid/453883f922.html.
23
Tax Laws Amendment (Implementation of the FATCA Agreement) Bill 2014
prohibited ground. Article 2(2) of the ICESCR also prohibits
discrimination in the exercise of rights under that treaty.
2.14
Although the ICCPR does not contain a definition of
discrimination, the United Nations Human Rights Committee has defined
discrimination in similar terms to Article 1(1) of the ICERD.2
2.15
As noted above, discrimination under the ICERD and ICCPR
comprises differential treatment (a distinction, exclusion or restriction) on
the basis of a prohibited ground, which nullifies or impairs the enjoyment
of human rights.
2.16
In relation to this Bill, the relevant issue is whether
differentiation on the basis of US citizenship or nationality constitutes
discrimination on prohibited grounds.
2.17
Article 1(2) of the ICERD provides that, ‘This Convention shall
not apply to distinctions, exclusions, restrictions or preferences made by a
State Party to this Convention between citizens and non-citizens.’
2.18
Therefore, on its face, a distinction between citizens and
non-citizens would not amount to discrimination for the purposes of the
ICERD.
2.19
However, in its General Recommendation No. 30, the
Committee on the Elimination of Racial Discrimination (ICERD
Committee) stated its view that, ‘differential treatment based on
citizenship or immigration status will constitute discrimination if the
criteria for such differentiation, judged in the light of the objectives and
purposes of the Convention, are not applied pursuant to a legitimate aim,
and are not proportional to the achievement of this aim’.3
2.20
In other words, differential treatment would not amount to
discrimination under international human rights law if the different
treatment meets the proportionate test for legitimate differential treatment.
2
United Nations Human Rights Committee, CCPR General Comment No. 18:
Non-discrimination, 10 November 1989, para 7, available at:
http://www.refworld.org/docid/453883fa8.html.
3
ICERD Committee, General Recommendation No.30: Discrimination Against Non-Citizens,
1 October 2004, para 4.
24
Statement of Compatibility with Human Rights
Compatibility with human rights
Legitimate objective
2.21
This Bill’s engagement with the right to privacy and the right to
protection from discrimination is in the furtherance of a legitimate
objective.
2.22
The principal objective of this Bill is to improve international
tax compliance and to implement the US’s FATCA rules in Australia.
2.23
Australia is a long-standing supporter of international
cooperation to prevent tax evasion, and the Australian Taxation Office
(ATO) currently provides taxpayer information — on an automatic
basis — to more than 40 of Australia’s tax treaty partners, including the
US.
2.24
This Bill establishes a more effective bilateral framework to
address international tax evasion. As a result, the Bill reinforces
Australia’s support for international tax transparency and cooperation
between revenue authorities to help prevent tax evasion and improve
global tax compliance. This is consistent with ongoing international
efforts, supported by the G20, to improve tax system integrity.
2.25
As noted in paragraph 1.10, the US has entered into
intergovernmental agreements for the implementation of FATCA, based
on a common model, with a number of jurisdictions. The
intergovernmental approach to FATCA has focussed international
attention on automatic exchange of information for tax purposes.
2.26
On 6 May 2014, the Organisation for Economic Co-operation
and Development (OECD) adopted the Standard for Automatic Exchange
of Financial Account Information (also referred to as the Common
Reporting Standard (CRS)), and called on jurisdictions to implement the
standard without delay. The G20 endorsed the CRS in February 2014 and
called for its early adoption by those jurisdictions that are able to do so.4
The CRS draws extensively from the intergovernmental approach to
FATCA.
2.27
This Bill enhances the integrity of the Australian tax system by
improving existing reciprocal tax information-sharing arrangements
between Australia and the US.
4
G20 Communiqué of the Meeting of Finance Ministers and Central Bank Governors, Sydney
22-23 February 2014.
25
Tax Laws Amendment (Implementation of the FATCA Agreement) Bill 2014
2.28
Article 25 (Exchange of Information) of the Convention between
the Government of Australia and the Government of the United States of
America for the Avoidance of Double Taxation and the Prevention of
Fiscal Evasion with respect to Taxes on Income enables the ATO to
provide bulk taxpayer data to the IRS, and the IRS to reciprocate by
providing corresponding data to the ATO.
2.29
The Bill builds on these arrangements by expanding the range,
and improving the relevance, of financial account information currently
exchanged. Any improvements in the scope and quality of information
available to the ATO enhances its administration of Australia’s taxation
laws.
2.30
Improving tax compliance and enhancing the integrity of the
Australian tax system are legitimate objectives of this Bill.
Reasonable and necessary
2.31
The Bill’s engagement of the right to privacy and engagement of
the right to protection from discrimination constitutes a reasonable and
necessary measure in pursuit of the Bill’s legitimate objective.
2.32
In order to be reasonable and necessary, a sufficient connection
must be established between the terms of the FATCA Agreement in
improving tax compliance and the engagement of the rights to privacy and
protection from discrimination. The key terms of the FATCA Agreement
are considered below.
Collection of personal information
2.33
The FATCA Agreement contemplates the collection of certain
personal information, such as a person’s name, address, U.S. Tax
Identification Number, the account number, the income credited to the
account and the account balance. These categories of information would
assist in facilitating tax compliance as such information would enable
Australia and the US to enhance their existing domestic data-matching
programs to verify income reported by their respective taxpayers.
Due diligence requirements
2.34
The due diligence provisions of the FATCA Agreement require
the identification and/or self-certification of account holders who are US
citizens or taxpayers. This condition is connected to the collection of
personal information. That is, the identification of such accounts ensures
that the Australian Government is able to perform its obligations under the
FATCA Agreement, for the purpose of facilitating the objective of
international tax compliance.
26
Statement of Compatibility with Human Rights
Closure of accounts
2.35
Certain Non-Reporting Australian Financial Institutions may be
required to close the accounts of US citizens or US taxpayers who are not
Australian residents. The purpose of this requirement is to ensure that US
citizens or taxpayers do not use these institutions for the purpose of
avoiding being reported to the IRS.
2.36
Under the FATCA Agreement, certain Non-Reporting
Australian Financial Institutions must not have policies or practices that
discriminate against opening or maintaining financial accounts for US
citizens or US taxpayers, who are residents of Australia. That is,
Australian resident US citizens are not precluded from holding accounts in
Australia.
Proportionate means of achieving a legitimate objective
2.37
The Bill’s engagement of the right to privacy and the right to
protection from discrimination is a proportionate means of achieving the
Bill’s legitimate objective.
2.38
To meet the proportionality criteria, it is necessary that the
differential treatment be weighed against the objective which that
treatment is seeking to achieve. In conducting this weighing exercise, it is
necessary to take into account the importance of the objective.5
2.39
The objective of facilitating tax compliance is sufficiently
important to justify the Bill’s engagement with privacy and the differential
treatment on the basis of a prohibited ground. Moreover, the terms of the
FATCA Agreement are the least intrusive, and would be effective in
facilitating tax compliance.
2.40
The key terms of the FATCA Agreement, in the context of
whether the interference constitutes a proportionate measure, are
considered below.
Collection of personal information
2.41
The type of personal information required by the FATCA
Agreement (a person’s name, address, U.S. Tax Identification Number,
the account number, the income credited to the account and the account
balance) is relatively narrow for determining a person’s potential tax
obligations.
5
See Human Rights Committee, Muller and Engelhard v Namibia, Communication
No. 919/2000, views adopted on 26 March 2002, para 6.8.
27
Tax Laws Amendment (Implementation of the FATCA Agreement) Bill 2014
2.42
Further, this requirement only applies to U.S. Reportable
Accounts, being accounts that exceed certain minimum thresholds. For
example, the FATCA Agreement provides that accounts containing a
balance less than USD 50,000 as at 30 June 2014 are not required to be
reviewed, identified or reported as U.S. Reportable Accounts.
2.43
Given that the information required is relatively limited and such
information must only be provided in respect of accounts with a relatively
high threshold balance, this requirement is likely to amount to a
proportionate means of facilitating tax compliance.
Due diligence requirements
2.44
In order for a Reporting Australian Financial Institution to
provide the information contemplated by the FATCA Agreement, there
has to be a mechanism to identify the relevant accounts. Conducting an
electronic search of existing records, or seeking self-certification from
clients is arguably the simplest means for a financial institution to identify
whether it has accounts potentially held by US taxpayers.
2.45
The FATCA Agreement provides that a finding of US indicia by
a Reporting Australian Financial Institution does not require the
institution to treat an account as a U.S. Reportable Account if certain
conditions apply (see Section II.4.(b) of Annex I).
2.46
Lastly, the obligation not to examine accounts that do not exceed
USD 50,000, further supports the argument that the scope of the due
diligence requirement is proportional to the Bill’s legitimate objective.
Closure of accounts
2.47
As already discussed, under the FATCA Agreement, certain
Non-Reporting Australian Financial Institutions are required to close the
accounts of US citizens or US taxpayers who are not Australian residents.
The FATCA Agreement provides Non-Reporting Australian Financial
Institutions with an option to report on these accounts, as if the
Non-Reporting Australian Financial Institutions were a Reporting
Australian Financial Institution. In light of this, it is considered that the
requirement to close accounts is a proportional means of ensuring that the
Australian Government is able to collect the necessary information in
respect of US citizens or US taxpayers, to facilitate tax compliance.
Safeguards
Protection of taxpayer privacy
2.48
These information exchanges are subject to strict treaty
confidentiality rules which are consistent with Australia’s domestic tax
28
Statement of Compatibility with Human Rights
secrecy rules, and other safeguards contained in Article 25 of the
Convention between the Government of Australia and the Government of
the United States of America for the Avoidance of Double Taxation and
the Prevention of Fiscal Evasion with respect to Taxes on Income. That
is, any information provided by the Commissioner can only be used by the
US for the purposes permitted by the treaty. In general, this means the
information can only be used for tax administration purposes and may
only be disclosed to persons (including courts and administrative bodies)
concerned with the assessment, collection, administration or enforcement
of, or with litigation with respect to, the taxes covered by the treaty.
2.49
The disclosure of taxpayer information by the Commissioner is
allowed by section 355-50 of Schedule 1 to the Tax Administration
Act 1953, which provides an exception to the general prohibition on the
disclosure of taxpayer information by ATO officers.
Remedies available if privacy right is infringed
2.50
Under Australia’s privacy law, a person can make a complaint
about the handling of their personal information by Australian
government agencies and private sector organisations covered by the
Privacy Act 1988.
2.51
Also, the Office of the Australian Information Commissioner is
responsible for the enforcement of Australia’s privacy law, and the
Information Commissioner has the power to investigate instances of
non-compliance by agencies and organisations and to prescribe remedies
to redress non-compliance. Depending on the particular complaint, some
possible resolutions could include compensation for financial or
non-financial loss, or change to the respondent’s practices.6
Conclusion
2.52
This Bill is consistent with Article 17 of the ICCPR on the basis
that its engagement of the right to privacy will neither be unlawful
(including by virtue of the amendments to Australia’s taxation legislation
set out in the Bill) nor arbitrary. To this extent, the Bill complies with the
provisions, aims and objectives of the ICCPR.
2.53
This Bill meets the test for legitimate differential treatment, and
does not contravene international human rights law protections against
discrimination on the basis of a person’s national origin, nationality or
citizenship.
6
For further information, please refer to the Office of the Australian Information
Commissioner’s website at http://www.oaic.gov.au/.
29
Tax Laws Amendment (Implementation of the FATCA Agreement) Bill 2014
2.54
In light of the above, this Bill is compatible with human rights
because to the extent that it may limit human rights, these limitations are
reasonable, necessary and proportionate.
30
Chapter 3
Regulation impact statement
INTRODUCTION
3.1
This Regulation Impact Statement (RIS) was prepared by the
Department of the Treasury at the decision making stage and was assessed
as being compliant with the Government’s requirements by the Office of
Best Practice Regulation.
3.2
A RIS is a document prepared by departments and, as such, this
RIS reflects the Department of the Treasury’s assessment of the costs and
benefits of each option at the decision making stage. Accordingly, this
RIS does not reflect changes arising from further consultation during the
legislative development of these amendments.
IMPLEMENTATION OF THE UNITED STATES FOREIGN
ACCOUNT TAX COMPLIANCE ACT IN AUSTRALIA
EXECUTIVE SUMMARY
3.3
This proposal is for Australia to conclude an intergovernmental
agreement (IGA) with the United States (US) to facilitate the
implementation of FATCA in Australia.
3.4
FATCA is a US anti-tax evasion regime aimed at detecting
untaxed income and assets held in foreign (i.e. non-US) financial
institutions by US taxpayers.
3.5
It will require foreign financial institutions (including Australian
financial institutions) to report details of accounts held by their US
customers to the US Internal Revenue Service (IRS). Non-compliant
financial institutions will face a 30 per cent withholding tax on their US
sourced income.
3.6
FATCA will commence on 1 July 2014, irrespective of any
action taken by Australia.
31
Tax Laws Amendment (Implementation of the FATCA Agreement) Bill 2014
3.7
Australia’s regulatory environment does not permit Australian
financial institutions to comply with FATCA. Industry has advised that
non-compliance would generate significant economic costs and would
damage its reputation and international competitiveness.
3.8
This proposal seeks to redress the inability of the current
regulatory environment to support industry compliance with FATCA by
establishing a legal framework that will enable financial institutions to
comply.
3.9
The Government has announced its intention to sign and enact a
treaty-status IGA with the US to facilitate industry compliance and to
minimise the economic impacts of FATCA in Australia more broadly. An
IGA would remove domestic legal impediments that currently prevent
Australian financial institutions from complying with FATCA.
3.10
This Regulatory Impact Statement compares three options for
responding to FATCA:
• Option 1 is to conclude a Model 1 IGA with the US;
• Option 2 is to conclude a Model 2 IGA with the US; and
• Option 3 is no government intervention (i.e. maintain the
status quo).
3.11
(Model 1 and Model 2 IGAs are alternate US model treaties
designed to provide a bilateral framework for foreign financial institutions
to comply with FATCA.)
3.12
As with other major proposals of this kind, compliance burdens
are likely to fall primarily on Australian financial institutions and their
customers. Some customers will have to supply more information to
financial institutions, and financial institutions will have to compile
appropriate records and forward them either to the Australian Taxation
Office (under option 1) or directly to the IRS (under option 2). In the case
of no government intervention (under option 3), Australian financial
institutions will bear the financial cost of the withholding tax on their US
sourced income if the appropriate customer information cannot be
supplied. However, customers would eventually bear the cost to the
extent that it is passed onto them primarily in the form of higher account
fees or higher borrowing costs.
3.13
All of the three options impose a compliance cost on the
Australian financial sector. The details of how compliance costs are
eventually borne by customers and their financial institutions is uncertain
because industry-specific factors will play as much a part as overall
32
Regulation impact statement
capital market factors. The important distinctions between them is the
amount of this cost and the degree to which financial institutions are
exposed to wider market and legal risks.
3.14
In the event that Australia does not conclude an IGA, there is a
real prospect that Australian financial institutions could face additional
risks that would ultimately manifest as increased borrowing costs or the
reduced availability of credit. The Australian Bankers’ Association
(ABA) has advised that in addition to bearing the financial cost of the US
withholding tax, participation in the global markets by Australian banks
and other financial institutions may be limited. Some financial
institutions may decide to restructure their investments or reduce their
reliance on US sourced funding so as to limit their exposure to FATCA
withholding tax. In addition, FATCA compliant financial institutions in
other countries may be reluctant to conduct transactions with Australian
financial institutions because of the associated FATCA reporting and
withholding obligations.
3.15
Together, these factors are likely to limit potential offshore
income streams of Australian financial institutions and therefore their
ability to develop and grow their business. Such impact would be greater
for Australian financial institutions that derive a larger proportion of their
income from the US financial markets but also for those who have
significant participation in the US capital markets.
3.16
Option 1 is the preferred option. It would enable Australian
financial institutions to comply with FATCA without breaching
Australian law and entails the lowest level of compliance costs for
industry. This option is consistent with the approach that many peer
countries have taken to FATCA and is consistent with the Government’s
long standing support for international cooperation to prevent tax evasion.
It also reduces the need for Australian financial institutions to engage with
US authorities in relation to their FATCA reporting obligations, thereby
reducing their compliance burden.
3.17
Option 2 would also achieve FATCA compliance for industry
but would generate higher compliance costs for industry and lower overall
benefits. The principal differences between Option 1 and 2 relate to the
need for industry to comply directly with the US under the Model 2 IGA
approach, and the lack of administrative reciprocity that would be
provided to Australia by the US.
3.18
Option 3 is not supported. It would not meet the Government’s
policy objective of enabling industry to comply with FATCA and expose
industry and consumers to the economic costs of non-compliance.
Despite representing the least amount of regulation, Option 3 would be the
most expensive option for industry (with an expected start-up cost of
33
Tax Laws Amendment (Implementation of the FATCA Agreement) Bill 2014
$477 million and ongoing annual costs of $58 million). Option 3 would
also generate significant economic losses for industry reputational risks
and decreased international competitiveness.
Compliance Costs Comparison between Options
Option 1
Option 2
Option 3
Annual
($M)
Total (over
10 years)
($M)
Annual
($M)
Total (over
10 years)
($M)
Annual
($M)
Total (over
10 years)
($M)
Start Up
25.54
255
31.90
319.08
47.74
477.47
Ongoing
22.72
227.2
24.63
246.37
58.84
588.45
Total
48.27
482.68
56.54
565.44
106.59
1065.92
3.19
The relative merit of these options is reflected in other countries’
responses to FATCA. To date, 20 countries have signed Model 1 IGAs
with the US, and 4 countries have signed Model 2 IGAs. Other IGAs are
under negotiation.
3.20
In addition, the Model 1 IGA format has now been adopted by
the Organisation for Economic Cooperation and Development as the
international standard for the automatic exchange of taxpayers’ financial
account information between revenue authorities, to help prevent tax
evasion. The G20 has endorsed the standard and called for its early
adoption by those jurisdictions that are able to do so.
1. INTRODUCTION TO FATCA
Overview
3.21
FATCA is a unilateral anti-tax evasion regime, enacted by the
United States in March 2010, aimed at detecting US taxpayers who use
accounts with offshore financial institutions to conceal income and assets
from the US IRS. The relevant provisions are contained in the US
Internal Revenue Code 1986 (IRC) and are supplemented by extensive US
FATCA regulations. FATCA will commence on 1 July 2014.
3.22
In broad terms, FATCA will require foreign (that is, non-US)
financial institutions — regardless of their country of location — to
periodically report directly to the IRS certain information about financial
accounts held by US individuals or US-controlled entities.
34
Regulation impact statement
3.23
To comply with these reporting requirements, foreign financial
institutions (FFIs) would have to conclude special agreements with the
IRS which would oblige them to:
• Undertake specified identification and due diligence
procedures with respect to their account holders;
• Report specified information annually to the IRS on their
account holders who are US persons or US-controlled
entities; and
• Withhold and pay to the IRS 30 per cent of any payments of
US sourced income, as well as gross proceeds from the sale
of securities that generate US sourced income, made to:
– Non-participating FFIs;
– Individual account holders that fail to provide sufficient
information to determine whether or not they are a US
person; or
– Foreign entity account holders that fail to provide
sufficient information about the identity of their
substantial US holders.
3.24
Compliance with FATCA is not mandatory but non-compliance
will expose FFIs to a 30 per cent US withholding tax on their own US
sourced income.
3.25
While FATCA is not extra territorial, the withholding tax rules
make compliance very attractive from the commercial perspective of most
affected Australian financial institutions. However, in the absence of
Australian government intervention, Australia’s privacy and
anti-discrimination laws would generally preclude Australian financial
institutions from fully complying with the FATCA requirements.
Australia’s bilateral investment relationship with the US
3.26
The US remains an important bilateral investment partner for
Australia in both direct and portfolio investment terms. In 2012, foreign
direct investment from the US to Australia and from Australia to the US
amounted to $131,255 million and $103,383 million respectively. Foreign
35
Tax Laws Amendment (Implementation of the FATCA Agreement) Bill 2014
portfolio investment from the US to Australia and from Australia to the
US amounted to $486,312 million and $330,597 million respectively.7
3.27
Notwithstanding the economic significance of the bilateral
relationship, it is not possible to readily quantify the scale of assets held
by the Australian financial sector that generates US sourced income.
Australia’s financial and insurance services sector
3.28
Based on data available from the Australian Bureau of Statistics
(ABS), the financial and insurance services sector is an important part of
the Australian economy. It currently employs over 400,000 people and is
the largest industry in Australia when measured by Industry Gross Value
Added (a measure of the economic worth of the goods and services
produced). As a share of national Industry Gross Value Added, the
industry has grown from around 6 per cent in 1990, to 8.7 per cent in
2013.8
3.29
FATCA will apply to a large part of the Australian financial
services sector – particularly custodial institutions, depository institutions,
investment entities and specified insurance companies. A broad range of
Australian financial institutions, including banks, some building societies
and credit unions, life insurance companies that offer insurance products
that include an investment component, private equity funds, managed
funds, exchange traded funds and some broker dealers are expected to
comply with its requirements.
3.30
The Reserve Bank of Australia in its most recent published
statistics report that there are approximately 4000 Authorised
Deposit-taking Institutions (ADIs), Non-ADI Financial Institutions,
Insurers and Funds Managers in Australia. Together these institutions
hold at least $5,000 billion in assets.9 While certain entities are exempt
from FATCA’s reporting requirements, most entities will be exposed to
its reporting requirements. The ABS publication of portfolio investment
assets by country and sector also shows that in December 2013, Australian
banks, insurance companies and mutual funds held approximately
Australian Bureau of Statistics Catalogue 5352.0 — International Investment Position,
Australia: Supplementary Statistics, 2012 Table 1
8
Australian Bureau of Statistics Catalogue 5204.0 — Australian System of National Accounts,
2012-13
7
9
Reserve Bank of Australia website: Main Types of financial Institutions http://www.rba.gov.au/finstability/fin-inst/#adis
36
Regulation impact statement
$70 billion of their assets in the US.10 As such, these figures are indicative
of the potential scope and scale of FATCA’s potential impacts on the
Australian financial institutions.
3.31
In preparing this Regulation Impact Statement (RIS), the
Treasury consulted, in particular with the ABA, Financial Services
Council (FSC) and Customer Owned Banking Association (COBA). The
compliance cost estimates contained in this RIS are based on data
supplied by industry.
3.32
The ABA represents 25 member banks. The banking industry in
Australia collectively serves over 16 million customers, holds $1.9 trillion
of deposits and has assets of $3.2 trillion, including loans and advances to
customers of $2.0 trillion.
3.33
The FSC represents Australia’s retail and wholesale funds
management businesses, superannuation funds, life insurers, financial
advisory networks, trustee companies and public trustees. The FSC has
over 125 members who are responsible for investing $2.2 trillion on
behalf of 11 million Australians. The pool of funds under management is
larger than Australia’s GDP and the capitalisation of the Australian
Securities Exchange and is the third largest pool of managed funds in the
world.
3.34
COBA (formally ABACUS) represents Australia’s mutual
banking institutions, including credit unions, building societies and mutual
banks. It has around 4.5 million customers and total assets of $85 billion.
The importance of US financial markets11
3.35
The US capital markets are a significant source of funding for
Australia’s banking industry. Australian banks have traditionally relied
on offshore markets, including the US market, as an important source of
funding. As at December 2013, around 68 per cent of Australian bank
bonds outstanding were issued offshore. Of these, 50 per cent were
denominated in US dollars.
3.36
Offshore funding has been mainly utilised by the major banks as
it is cost effective for them to raise wholesale funds offshore, and it
enables them to achieve a high level of diversity in their funding. Smaller
Australian Bureau of Statistics Catalogue 5352.0 — International Investment Position,
Australia: Supplementary Statistics, 2012 Table 8
11
According to advice provided by the Reserve Bank of Australia to Treasury on
5 March 2014.
10
37
Tax Laws Amendment (Implementation of the FATCA Agreement) Bill 2014
lenders in Australia rely more heavily on domestic deposits and
securitisation to fund their lending.
3.37
Any difficulty for the major banks in accessing funding from the
US market is unlikely to have a direct impact on these smaller lenders.
However, these small lenders may face increased competition for funding
and potentially higher funding costs if the major banks seek to substitute
their offshore funding with domestic funding.
FATCA’s objectives
3.38
The following is an extract from the FATCA regulations.
U.S. taxpayers’ investments have become increasingly global in
scope. FFIs now provide a significant proportion of the investment
opportunities for, and act as intermediaries with respect to the
investments of, U.S. taxpayers. Like U.S. financial institutions,
FFIs are generally in the best position to identify and report with
respect to their U.S. customers. Absent such reporting by FFIs,
some U.S. taxpayers may attempt to evade U.S. tax by hiding
money in offshore accounts. To prevent this abuse of the U.S.
voluntary tax compliance system and address the use of offshore
accounts to facilitate tax evasion, it is essential in today’s global
investment climate that reporting be available with respect to both
the onshore and offshore accounts of U.S. taxpayers. This
information reporting strengthens the integrity of the U.S.
voluntary tax compliance system by placing U.S. taxpayers that
have access to international investment opportunities on an equal
footing with U.S. taxpayers that do not have such access or
otherwise choose to invest within the United States.
Australian financial institutions that may be affected
3.39
The term ‘FFI’ covers a broad range of financial institutions and
includes any entity that falls within the FATCA definitions of:
• depository institution (being an entity which accepts deposits
in the course of a banking or similar business);
• custodial institution (being an entity which holds financial
assets for the account of others as a substantial portion of its
business);
38
Regulation impact statement
• investment entity (being an entity which is engaged in the
business of trading or investing in a variety of financial
instruments or assets); or
• specified insurance company (being an insurance company
which makes payments under a ‘cash value insurance
contract’ or an ‘annuity contract’ as defined in the FATCA
regulations).
3.40
In Australia, this would include banks, building societies, credit
unions, life insurance companies, private equity funds, managed funds,
exchange traded funds and some broker dealers.
3.41
Certain classes of persons are treated as ‘exempt beneficial
owners’ under FATCA, meaning that they are generally exempted from
FATCA due diligence, reporting and withholding. This is because the
FATCA requirements do not apply to an entity that falls within the
FATCA definition of ‘exempt beneficial owner’. The following classes of
persons will be regarded as exempt beneficial owners provided that they
meet all of the requirements prescribed for that class of exempt beneficial
owner:
• any foreign government or its political subdivisions, or their
wholly owned agencies or instrumentalities;
• any international organisation or its wholly owned agencies
or instrumentalities;
• any foreign central bank;
• certain retirement funds;
• certain entities wholly owned by exempt beneficial owners.
FFI obligations
3.42
FFIs are expected to conclude individual agreements with the
IRS, which will follow a template ‘FFI agreement’, by 1 July 2014. The
FFI is required to register with the IRS and to agree to comply with the
terms of an FFI agreement. An FFI that enters into an FFI agreement is
referred to as a ‘participating FFI’.
3.43
Under an FFI agreement, participating FFIs are obliged to:
• Undertake specified identification and due diligence
procedures with respect to their account holders.
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Tax Laws Amendment (Implementation of the FATCA Agreement) Bill 2014
– Broadly, a participating FFI must determine if the account
is a US account or an account held by either a recalcitrant
account holder or non participating FFI. The due
diligence requirements vary depending on whether the
financial account is a pre-existing individual account, new
individual account, pre-existing entity account or new
entity account and the size of the account. A pre-existing
account is one maintained as at 30 June 2014. There are
also strict rules regarding the documentation which can be
relied on, the retention of records and the FFI’s standard
of knowledge.
• Report specified information annually to the IRS on their
account holders who are US persons or US-controlled
entities.
– This includes the account holder’s name, address, account
number, US tax identification number, account balances
or values (on individual and aggregate bases), debits and
credits to the account and total deposits and withdrawals.
– Some Australian financial institutions already report some
of this information annually to the Australian Taxation
Office (ATO), pursuant to existing Australian income tax
requirements. Typically this includes: name, address,
Australian tax file number(s), the amount of income
derived and the amount of Australian tax withheld (if
any).
• If foreign law would prevent the FFI from reporting the
required information absent a waiver from the account
holder, and the account holder fails to provide a waiver
within a reasonable period of time, the FFI is required to
close the account.
• Withhold and pay to the IRS 30 per cent of any payments of
US sourced income, as well as gross proceeds from the sale
of securities that generate US sourced income, made to:
– Non-participating foreign financial institutions; or
– Recalcitrant account holders (that is, individual account
holders that fail to provide sufficient information to
determine whether or not they are a US person, foreign
entity account holders that fail to provide sufficient
information about the identity of their substantial US
40
Regulation impact statement
holders, or account holders that fail to provide a waiver of
a foreign law that would prevent reporting)
3.44
A participating FFI may elect not to withhold on ‘passthru
payments’, and instead be subject to withholding on payments it receives,
to the extent those payments are allocable to recalcitrant account holders
or nonparticipating FFIs. A passthru payment includes any withholdable
payment or other payment to the extent attributable to a withholdable
payment. A participating FFI must also withhold on any passthru
payments it makes to any other participating FFI that has made such an
election.
Number of customers affected
3.45
Industry-wide data is not available because financial institutions
do not routinely record the country of origin of their customers. However,
the ABA has estimated that in Australia each of the major banks have at
least 30,000 accounts that display some US indicia (based on an analysis
of data reported regularly by banks to the ATO).
Customer obligations
3.46
From 1 July 2014, financial institutions will be required to
determine whether or not new accountholders (individuals and entities)
are US persons, either at the time a new account is opened or if the
account balance subsequently exceeds US$50,000.
3.47
For pre-existing accounts, some customers may be required to
certify that they are not US persons, for example in cases where financial
institutions’ customer records display US indicia. Failure to certify could
result in customers being deemed to be US persons, with the result that
their account information will be reported.
3.48
Generally, and in the absence of changes in customer
circumstances, these requirements will apply on a once-only basis.
3.49
These requirements will impose some additional burdens on
customers of financial institutions but those burdens will vary depending
on individual customer circumstances and between financial institutions.
These burdens cannot be accurately quantified but are expected to be
minimal for the majority of customers. These burdens will be greater for
customers who are US persons or whose accounts display US indicia.
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Tax Laws Amendment (Implementation of the FATCA Agreement) Bill 2014
FATCA withholding tax
3.50
Relevant income to which FATCA withholding tax applies
generally includes any payment of US-sourced interest, dividends, rents,
salaries, wages, premiums, annuities, compensations, remunerations,
emoluments, and other fixed or determinable annual or periodical gains,
profits and income; and gross proceeds from the disposal of any property
of a type which can produce interest or dividends from US sources
(collectively defined as ‘withholdable payments’).
3.51
Bank interest paid with respect to US taxpayers’ offshore
accounts is deemed to have a US source, as is income the source of which
cannot be determined by the relevant withholding agent at the time of
payment. The FATCA regulations generally rely on, but also expand,
detailed source of income rules contained in US tax law.
3.52
FATCA withholding tax also applies to ‘passthru payments’ that
a participating FFI makes to a recalcitrant account holder or
non-participating FFIs.
3.53
The US FATCA regulations are supplemented by the US IRS
requiring payers of US sourced income (‘withholding agents’) to certify
that payees are FATCA-compliant or deemed compliant by operation of
the rules before payments can be released free of withholding tax.
Withholding agents are therefore required to withhold tax and are made
liable for it.
3.54
Figures are not readily available for the quantum of US sourced
income derived directly or indirectly by Australian financial institutions.
However, large Australian financial institutions (such as banks) are
expected to directly or indirectly derive high levels of US sourced income.
Whereas, smaller Australian financial institutions are expected to only
directly or indirectly derive low levels of US sourced income.
Tax treaty relief from FATCA withholding tax
3.55
FFIs that are entitled to the benefits of a bilateral tax treaty
between their home country and the US are generally entitled to relief
from FATCA withholding tax, by way of a full or partial refund from the
IRS, where the treaty limits the US’s taxing rights over US sourced
income.
42
Regulation impact statement
3.56
The Australia-US tax treaty12 contains such limitations. For
example, the treaty limits the US’s taxing rights over US-sourced
dividends and interest derived by Australian residents to a maximum rate
of 15 per cent and 10 per cent respectively. It is permissible for the US to
apply its domestic FATCA withholding tax rate at the time the
US-sourced dividend or interest payment is made, however, Australian
financial institutions may rely on the treaty to seek a refund from the IRS
of any excess tax withheld in the US.
3.57
Australian financial institutions are only entitled to claim a
foreign income tax offset in their Australia income tax returns for the
amount of US withholding tax that has been paid in accordance with the
tax treaty. They cannot therefore claim relief in Australia for the excess
US tax withheld but must instead seek a refund or credit from the IRS. In
seeking such a refund or credit, Australian financial institutions would be
subjected to any relevant IRS procedures (including any waiting period
for the refund).
3.58
FATCA specifies that no interest will be paid on FATCA
withholding tax refunds of credits. Consequently, an Australian financial
institution will not have the use of the overpaid amount until the refund is
received, nor will it receive any recompense for the loss of the use of the
amount during that period. The Australian financial institution will also
need to bear any costs associated with claiming the refund.
Exchange of tax information under the Australia-US tax treaty
3.59
The Australia-US tax treaty aims to avoid double taxation and
prevent fiscal evasion. Importantly, the treaty expressly allows the US to
tax its citizens regardless of whether they are also citizens or Australian
tax residents.
3.60
The treaty avoids double taxation by allocating taxing rights
between the two countries over various categories of income. Where the
treaty permits both countries to tax the same income, the country of
residence of the relevant taxpayer is required to provide appropriate relief.
3.61
Article 25 (Exchange of Information) of the treaty authorises the
exchange of taxpayer information in order to prevent tax evasion.
Information exchange can take three forms:
12
The Convention between the Government of Australia and the Government of the United
States of America for the Avoidance of Double Taxation and the Prevention of Fiscal
Evasion with Respect to Taxes on Income, which entered into force on 31 October 1983, and
its Amending Protocol which entered into force on 12 May 2003.
43
Tax Laws Amendment (Implementation of the FATCA Agreement) Bill 2014
• on request — where either country requests information
about a specific taxpayer or transaction;
• automatically — where both countries voluntarily provide
bulk taxpayer information periodically; and
• spontaneously — where both countries voluntarily provide
information considered to be relevant to the other country’s
administration of its tax system.
3.62
While Article 25 would permit the ATO to provide ‘FATCA
information’ to the IRS on a case-by-case basis on request, the ATO is
currently unable to provide bulk FATCA data to the IRS. Such
information is not readily available to the ATO because neither the treaty
nor domestic law obliges Australian financial institutions to report bulk
data.
US Citizens in Australia
3.63
According to the 2011 Australian Census of Population and
Housing, approximately 77 00013 US citizens live in Australia. Of these,
approximately 54 per cent are dual Australian-US citizens.
Australian Privacy Law
3.64
Australia’s privacy laws14 are broadly intended to provide a
nationally consistent framework for the protection of privacy and the
handling of personal information, and to implement Australia’s
international obligations in relation to privacy. In implementing these
broad objectives, Australian privacy law recognises the need for the
protection of the privacy of individuals to be balanced with the interests of
entities in carrying out their functions or activities.
3.65
Australia’s Privacy Act 1988 (the Privacy Act) generally
prohibits the use of personal information for a purpose other than for
which it was originally collected. Such personal information can only be
used for another purpose if that other purpose is a related purpose and the
13
14
That is, born in the US, but reside on a permanent basis in Australia.
Other than the Privacy Act 1988, there are a number of other Australian laws that relate to
privacy, for example, on telecommunications, data-matching, and anti-money laundering
and counter-terrorism. This Regulation Impact Statement is only concerned with the
Privacy Act.
44
Regulation impact statement
individual would reasonably expect the information’s disclosure for that
related purpose, or if the use or disclosure is required or authorised by law
(see Australian Privacy Principle 6).15
3.66
Australian financial institutions’ account holders would not have
expected their personal information collected in respect of existing
accounts to be used in the manner required by FATCA. It would also be
impractical to expect every account holder to provide consent or respond
to a request to provide consent. This means that unless the use or
disclosure is required or authorised by Australian law, Australian financial
institutions would not be able to fully comply with their FATCA
obligations to examine and report on existing accounts.
3.67
From 12 March 2014, that is, upon commencement of the
Australian Privacy Principles, an organisation will be prohibited from
collecting personal information unless the information is reasonably
necessary for one or more of the entity’s functions or activities (see
Australian Privacy Principle 3.2). There is uncertainty as to whether
Australian financial institutions would be able to meet these tests in
relation to FATCA requirements in relation to the opening of new
financial accounts.
3.68
If Australian domestic law was implemented to require the
disclosure for FATCA purposes, the Australian financial institutions
would nevertheless be required to inform individuals as to why their
personal information is being collected, to whom it may be disclosed, any
law that requires the particular information to be collected, and the main
consequences (if any) for the individual if all or part of the information is
not provided (see Australian Privacy Principle 5).
3.69
The Privacy Act allows an Australian financial institution to
transfer personal information about an individual to the US tax authorities
only if the individual consents to the transfer, or the financial institution
has a reasonable belief that the US tax authorities are subject to a law
which effectively upholds principles for fair handling of the information,
and which is substantially similar to Australia’s privacy law (see
Australian Privacy Principle 8).
15
The Privacy Act 1988 was amended by the Privacy Amendment (Enhancing Privacy
Protection) Act 2012. From 12 March 2014, Schedule 1 of the amending Act, that is, the
Australian Privacy Principles, replaced the former National Privacy Principles and
Information Privacy Principles. The Australian Privacy Principles apply to the handling of
personal information by most Australian and Norfolk Island Government agencies and some
private sector organisations.
45
Tax Laws Amendment (Implementation of the FATCA Agreement) Bill 2014
3.70
Again, it would be impractical to expect every account holder to
provide consent or respond to a request to provide such consent; and
establishing a belief that relevant US law is substantially similar to
Australian privacy law would require Australian financial institutions to
incur compliance costs by obtaining legal advice. In light of this,
Australian financial institutions would not be able to fully comply with
their FATCA obligations.
Australian anti-discrimination law
3.71
Australian Commonwealth law governing discrimination on the
grounds of race is broadly intended to give effect to Australia’s
obligations under the International Convention on the Elimination of All
Forms of Racial Discrimination. These obligations are to promote
equality before the law for all persons, regardless of their race, colour or
national or ethnic origin, and to make discrimination against people on the
basis of their race, colour, descent or national or ethnic origin unlawful.
3.72
FATCA requires the interrogation or closure of customer
accounts based on US citizenship. A person’s citizenship refers to their
nationality. The fact that FATCA specifically targets US citizens means
that it is specifically targeting certain persons, based on their nationality.
3.73
It is unlikely that this would be inconsistent with
Commonwealth laws governing discrimination on the grounds of race.
For the purposes of the Racial Discrimination Act 1975, and under
Australian courts’ jurisprudence in relation to that Act, a distinction made
on the basis of a person’s citizenship is not a distinction based on race,
colour, descent or national or ethnic origin.
3.74
A distinction based on nationality may, however, be inconsistent
with some Australian State and Territory laws governing discrimination
on the grounds of race, on the basis that, race is defined in these laws as
including nationality (which would refer to citizenship). This means that,
in contrast to Commonwealth laws governing discrimination on the
grounds of race, it is generally unlawful to discriminate on the basis of a
person’s nationality in certain Australian States and Territories.
2. PROBLEM TO BE ADDRESSED
3.75
FATCA will take effect from 1 July 2014, regardless of any
action taken by Australia.
46
Regulation impact statement
3.76
From that date, the US will expect Australian financial
institutions to commence interrogating their customer records for US
indicia for the purpose of reporting certain account data to the IRS.
3.77
Australian financial institutions have a strong desire to be
classified by the US as FATCA-compliant. Being classified as
non-compliant carries two significant risks:
• It would expose Australian financial institutions to the
economic cost of the 30 per cent FATCA withholding tax on
their US sourced income; and
• It would potentially exclude them from major international
markets that restrict their dealings to FATCA-compliant
financial institutions. This would result in reputational risks
for Australian financial institutions and potentially increase
their cost of capital.
3.78
In both cases, these risks could lead to Australian consumers of
financial services bearing higher fees and/or higher interest rates.
3.79
The main problem for Australian financial institutions is that
Australia’s regulatory framework will not permit them to comply with
FATCA directly. Australian privacy laws would prevent them from
undertaking the relevant FATCA due diligence and reporting
requirements, thereby rendering them FATCA non-compliant. Some
Australian State and Territory anti-discrimination laws would also prevent
the interrogation or closure of customer accounts based on US citizenship.
3.80
As most major Australian financial institutions operate in the US
financial markets or otherwise invest in the US, the financial burden of
being classified as FATCA non-compliant has created a strong incentive
for industry to comply with FATCA.
3.81
As a result, Australia’s financial industry has sought the
Government’s assistance in creating a legal framework in Australia which
would enable it to become FATCA-compliant. Industry considers that an
IGA based on the US Model 1 IGA would best address industry’s FATCA
needs.
3.82
Concluding a bilateral IGA with the US is expected to address
the risks identified above and reduce the compliance costs for both
Australian financial institutions and the broader Australian community
significantly.
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Tax Laws Amendment (Implementation of the FATCA Agreement) Bill 2014
The intergovernmental agreement (IGA) solution
3.83
In recognition of the fact that legal restrictions in many countries
would prevent financial institutions from complying with FATCA, the US
— in conjunction with France, Germany, Italy, Spain and the United
Kingdom — developed the IGA approach as an alternative to direct
compliance with the FATCA regulations.
3.84
Broadly, an IGA is a bilateral treaty-status agreement designed
to assist countries in their implementation of FATCA and ease the
compliance burden for their financial institutions. In particular, an IGA is
intended to provide the legal authority for countries to permit their
financial institutions to comply with the FATCA due diligence and
reporting obligations (thereby addressing any domestic law impediments),
as well as providing greater FATCA treatment certainty for those
countries’ entities and their financial products.
3.85
Essentially there are two types of model IGA (although there are
variants of each model for use depending on whether or not countries have
pre-existing taxpayer information-sharing agreements with the US):
• Model 1 IGA — a country will direct its financial institutions
to provide FATCA information directly to its own revenue
authority, which would subsequently transmit it to the IRS.
• Model 2 IGA — a country will direct its financial institutions
to conclude individual agreements with the IRS and enable
them to report directly to the IRS consistent with the US
FATCA regulations. That country would also agree to
provide the US with further taxpayer information in response
to IRS requests.
Australian Government responses to FATCA
3.86
On 7 November 2012, the previous Government announced the
commencement of formal discussions between Australian and US officials
for an IGA with the US to minimise the impact of FATCA in Australia.16
The key objectives of the proposed IGA would be to reduce the overall
burden of FATCA on Australian business and to improve existing
reciprocal tax information-sharing arrangements between Australia and
the US.
16
48
Refer Press Release 2012/110 - Deputy Prime Minister & Treasurer, Wayne Swan –
7 November 2012.
Regulation impact statement
• Industry welcomed this announcement and has prepared for
FATCA on the understanding that a Model 1 IGA would be
concluded with the US. In this regard, industry has already
incurred significant irrecoverable costs.
• Negotiations with the US also proceeded on the
understanding that a Model 1 IGA would be concluded.
3.87
On 6 November 2013, the Government affirmed this approach
when it announced that it would proceed with signing and enacting an
IGA to enable the financial sector to comply with US FATCA reporting
rules.17
3. Objectives of Government action
3.88
The objectives of the Government action are to establish a legal
framework which would:
• Protect Australian financial institutions’ international
competitiveness:
– 24 countries have now entered into bilateral IGAs with
the US to assist their financial institutions in complying
with FATCA;18
• Enable the financial sector to comply with FATCA in the
most cost effective way;
• Provide greater FATCA treatment certainty for a range of
Australian entities and their financial products; and
• Enhance the integrity of the Australian tax system by
improving existing reciprocal tax information-sharing
arrangements between Australia and the US.
17
Refer joint press release 017/2013 – Treasurer, Joe Hockey and Assistant Treasurer, Arthur
Sinodinos AO - 6 November 2013.
18
Bermuda, Canada, the Cayman Islands, Chile, Costa Rica, Denmark, Finland, France,
Germany, Guernsey, Hungary, Ireland, the Isle of Man, Italy, Japan, Jersey, Malta, Mauritius,
Mexico, the Netherlands, Norway, Spain, Switzerland and the United Kingdom. Of these, only
Japan, Switzerland and Bermuda have followed the Model 2 text.
49
Tax Laws Amendment (Implementation of the FATCA Agreement) Bill 2014
Enhancing tax system integrity
3.89
Australia is a long-standing supporter of international
cooperation to prevent tax evasion and the ATO currently provides
taxpayer information — on an automatic basis — to more than 40 of
Australia’s tax treaty partners, including the US.
3.90
Article 25 (Exchange of Information) of the Australia-US tax
treaty (and corresponding provisions in other treaties) enables the ATO to
provide bulk taxpayer data to the IRS without breaching Australian
privacy or anti-discrimination laws. The IRS reciprocates by providing
corresponding data to the ATO. These exchanges are subject to
confidentiality rules and other safeguards contained in Article 25 that are
designed to protect the rights of taxpayers.
3.91
The IGA approach to FATCA, which would rely on Article 25,
would build on these arrangements by expanding the range and improving
the relevance of financial account information currently exchanged.
While the potential revenue gains to Australia of the IGA approach are not
possible to quantify at this stage, all improvements in the volume and
quality of information available to the ATO can be expected to enhance its
administration of Australia’s tax laws.
3.92
The IGA approach to FATCA has focussed international
attention on automatic exchange of information for tax purposes. In
February 2014, the Organisation for Economic Cooperation and
Development released the Common Reporting Standard (CRS) – that calls
on jurisdictions to obtain information from their financial institutions and
to automatically exchange that information with other jurisdictions
annually. The CRS is essentially based on the FATCA Model 1 IGA.
3.93
The G20 endorsed the CRS in February 2014 and called for the
early adoption of the standard by those jurisdictions that are able to do
so.19
19
G20 Communiquè Meeting of Finance Ministers and Central Bank Governors , Sydney
22-23 February 2014.
https://www.g20.org/sites/default/files/g20_resources/library/Communique%20Meeting%20
of%20G20%20Finance%20Ministers%20and%20Central%20Bank%20Governors%20Sydn
ey%2022-23%20February%202014_0.pdf
50
Regulation impact statement
4. OPTIONS TO ACHIEVE OBJECTIVES
3.94
There are three main options for dealing with FATCA in
Australia:
• Regulate to require financial institutions to report customer
information to the Australian Government, instead of to the
US Government, pursuant to a Model 1 IGA.
• Regulate to require financial institutions to report customer
information directly to the US Government, pursuant to a
bilateral Model 2 IGA; or
• Take no government action with regard to FATCA
compliance (no additional regulation).
3.95
Options 1 and 2 would formally require the Government to
make regulatory change.
Option 1 – Require Australian financial institutions to report
to the Australian Government (Model 1 IGA)
3.96
Under this option, Australia would conclude an
intergovernmental agreement with the US and enact enabling legislation
to require Australian financial institutions to collect and report account
holder information to the ATO. The ATO would subsequently transmit
the information to the IRS under existing information-exchange
arrangements permitted by the Australia-US tax treaty.
Option 2 – Require Australian financial institutions to report
directly to the US Government (Model 2 IGA)
3.97
Under this option, Australia would conclude an
intergovernmental agreement with the US that would require Australia to
direct and enable Australian financial institutions to collect and report
accountholder information directly to the US IRS. The Government
would need to remove the existing legal impediments (in particular, under
Australian privacy and anti-discrimination laws) that currently prevent
Australian financial institutions from complying with FATCA. This
would require significant legislative change.
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Tax Laws Amendment (Implementation of the FATCA Agreement) Bill 2014
Option 3 – No Government Intervention
3.98
Under this option, the Government would not intervene and
would expect Australian financial institutions to individually decide
whether and to what extent they would comply with FATCA. The
consequences of not complying would be borne by financial institutions.
However, as explained below, Australian financial institutions would be
expected to continue to press strongly for some regulatory change to
enable them to fully comply with FATCA.
5. ANALYSIS OF OPTIONS
3.99
FATCA will impose significant compliance costs on Australian
financial institutions and their customers regardless of any action taken by
the Australian Government. This impact analysis considers each option in
ascending order (of its compliance cost burden).
3.100
Options 1 and 2 are regulatory actions that the Government
could implement to help limit those costs. The respective compliance cost
savings produced by Options 1 and 2 represent the incremental change in
avoided compliance costs under each option.
3.101
Option 3, is a non-regulatory option which will not resolve the
fundamental problem faced by financial institutions, i.e. it will not assist
them in legally complying with FATCA and avoiding the imposition of
US withholding tax on their US sourced income. Option 3 would also
expose financial institutions to reputational and other economic costs that
are not strictly compliance costs.
3.102
Table 5.1 provides an overview of the impacts of each option in
practice.
3.103
Parts 5.1, 5.2 and 5.3 consider the costs and benefits of each
option individually, including up-front and ongoing costs. Further
information about these compliance costs is provided in Part 6.
3.104
Table 5.2 summarises the relative costs and benefits in
comparison with other options available. This should be read in
conjunction with the individual option analysis and observations regarding
compliance cost differences in Part 6.
52
Regulation impact statement
Table 5.1 Options comparison for Australian financial institutions
seeking to comply with FATCA
No IGA
(Option 3)
Entry into FFI Agreement
with the IRS.
Identification and
documentation of account
holders. Australian domestic
privacy and antidiscrimination laws may
prevent compliance.
Reporting of US accounts.
Australian domestic privacy
law may prevent compliance.
IRS information requests
directed to Australian
financial institution.
Deduct and withhold tax with
respect to passthru payments
made to recalcitrant account
holders and non-participating
FFIs.
Close accounts of recalcitrant
account holders.
FATCA exemptions for
Australian entities and
financial products determined
under FATCA regulations.
No additional US financial
account information provided
from IRS to ATO.
With Model 1 IGA
(Option 1)
Not required; registration
instead.
Required. The IGA, together
with enabling legislation, will
resolve the conflict with
Australian law.
With Model 2 IGA
(Option 2)
Not required; registration
instead.
Required. The IGA, together
with enabling legislation, will
resolve the conflict with
Australian law.
Required, but information
reported to the ATO instead
of the IRS, thereby mitigating
national legal impediments
and risks of litigation against
banks. Australia-US tax
treaty confidentiality and use
rules apply.
IRS information requests
directed to ATO under
Australia-US tax treaty –
ATO then contacts Australian
financial institution.
Required, but information
reported directly to the IRS.
Australia-US tax treaty
confidentiality and use rules
apply.
Not required for recalcitrant
accounts (reporting on these
accounts is required instead);
withholding only required if
the Australian financial
institution is acting as a
qualified intermediary (or
equivalent) on payments to
non-participating FFIs;
reporting required on
payments to nonparticipating
FFIs and to immediate payers
of passthru payments.
Not required.
FATCA exemptions for
Australian entities and
financial products specified in
IGA Annex II.
Additional US financial
account information provided
from IRS to ATO.
IRS information requests
directed to Australian
financial institution. New
enabling legislation required
to allow this. IRS group
information requests also
directed to ATO under
Australia-US tax treaty
Not required for recalcitrant
accounts (reporting on these
accounts is required instead);
withholding only required if
the ATO does not respond to
an IRS group information
request within 6 months;
reporting required on
payments to nonparticipating
FFIs.
Not required.
FATCA exemptions for
Australian entities and
financial products specified in
IGA Annex II.
No additional US financial
account information provided
from IRS to ATO.
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Tax Laws Amendment (Implementation of the FATCA Agreement) Bill 2014
Option 1 — Require Australian financial institutions to report
to the Australian Government (Model 1 IGA)
Benefits of reporting to the Australian Government
3.105
Australia’s financial industry has advocated Australian
Government intervention by adopting the Model 1 IGA framework
following the US announcement of the IGA approach in February 2012.
3.106
Concluding an IGA with the US (based on the US Model 1 IGA)
— supported by relevant enabling legislation — would reduce the overall
burden of FATCA in Australia. In particular, it would:
• Address the Australian privacy and anti-discrimination law
impediments that currently prevent industry from complying
with FATCA by providing the necessary legal authority for
Australian financial institution to perform the due diligence
and reporting obligations. The enabling legislation would
authorise the collection and use of personal information for
FATCA reporting purposes
• Enable information reporting and handling within the
Australian legal framework
• Reduce the incidence of direct interaction between Australian
financial institutions and the IRS
• Ensure that information is collected, handled and provided to
the IRS in accordance with existing tax treaty rules, which
contain safeguards with respect to the confidentiality and use
of information
• Remove the need for Australian financial institutions to
pursue individual FFI agreements with the IRS or to seek
customer waivers to enable it to comply with those
agreements
• Provide financial institutions with access to less onerous due
diligence requirements compared to the FATCA regulations
(for instance, unlike the FATCA regulations, the IGA does
not prescribe documentation of record requirements)
• Ensure that US income derived by Australian financial
institutions and other Australian entities (such as government
investment funds) will not be subject to the 30 per cent US
FATCA withholding tax
54
Regulation impact statement
• Ensure that financial institutions will not be expected to close
or withhold tax from recalcitrant accounts or from payments
to other non-complying financial institutions
• Ensure that financial institutions will automatically receive
the benefits of more favourable terms afforded by the US to
foreign financial institutions in its IGAs with other countries
• Ensure that financial institutions will have the opportunity to
contribute to the development of the proposed ATO FATCA
reporting system
• Allow Australian financial institutions to be generally
presumed compliant with FATCA if they report annually to
the ATO. This will enable counterparties in financial
dealings to easily verify Australian financial institutions’
FATCA status
• Treat Australian financial institutions as FATCA compliant,
and not subject to FATCA withholding tax, from the date of
signature of the IGA, providing that Australia is using its best
endeavours to bring the IGA into force before the first IGA
reporting date of 30 September 2015
• Exempt certain categories of Australian financial institutions
and financial products from the scope of FATCA. In
particular, the following entities and financial products would
be specifically excluded from the FATCA rules20:
– All Australian superannuation entities and products,
pooled superannuation trusts and entities that invest
exclusively for or on behalf of Australian superannuation
entities
20
These entities and products are generally considered to pose a low risk for US tax avoidance
by US persons. While most of these entities and products would fall within the FATCA
regulations exceptions for such entities and products, their specific listing in Annex II
guarantees this (thereby removing any potential compliance costs associated with
confirming their FATCA treatment). Securing exceptions for Australia’s entire
superannuation industry (including superannuation entities and superannuation products)
and Australia’s government investment funds are key objectives from an Australian
compliance cost perspective. Adapting the exception for small financial institutions to take
account of the Australian context (including the potential proportion of New Zealand
resident account holders), as well as expressly naming low risk Australian financial accounts
(such as first home saver accounts), are also key objectives for Australian industry.
55
Tax Laws Amendment (Implementation of the FATCA Agreement) Bill 2014
– Specified Federal and State Government entities
(including the Reserve Bank) and investment funds (such
as the Future Fund)
– International organisations with an office in Australia
– Small Australian financial institutions (including those
with primarily Australian and New Zealand resident
account holders)
– First Home Saver Accounts (FHSAs) and FHSA life
insurance policies
– Most exempt life insurance policies
– Employee share schemes and employee share trusts
– Funeral policies
– Scholarship plans
– Australian equivalents to any financial products excluded
under another country’s IGA
• Enhance the integrity of the Australian tax system by
broadening the scope of existing information sharing
arrangements between the ATO and the IRS
• Reinforce Australia’s support for international tax
transparency and cooperation between revenue authorities to
help prevent tax evasion
3.107
Furthermore, by signing the IGA, privacy outcomes are better
protected as the Australian Government is involved in the control and
sharing of information. Greater opportunities for accountability and
scrutiny are provided than if individual FFI Agreements were to be
signed.
3.108
Concluding an IGA based on the US Model 1 IGA would also
be consistent with the approach taken by other countries. To date, only
4 countries (Bermuda, Chile, Japan and Switzerland) have adopted the
US Model 2 IGA approach.
56
Regulation impact statement
Costs of an IGA
Administration costs for the ATO
3.109
The information reported under the IGA would be in addition to
the taxpayer information the ATO already exchanges on a reciprocal basis
with the IRS pursuant to the Australia-US tax treaty. The ATO expects to
meet the costs of adapting its systems to collect and report the relevant
FATCA information to the IRS from its existing budget allocation.
Legislative requirements
3.110
The design of necessary law changes would be the subject to
consultation with Australian stakeholders. It would be necessary to
amend the taxation law to require Australian financial institutions to
comply with the IGA’s terms. Those legislative changes would either
expressly or implicitly overcome any Australian privacy law and
anti-discrimination law impediments.
Costs for Australian industry
3.111
An IGA would require all Australian entities that fall within the
IGA definition of ‘Australian financial institution’ to comply with the
IGA’s requirements.
3.112
Australian industry estimates that the minimum upfront
implementation costs for Australian banks, fund managers and life
insurance companies totals just over $255 million. This includes project
development and management, system development, legal advice and
other costs that are non-ongoing. The proportion of compliance costs that
relates to each of these components varies greatly across entities, and the
size of the relevant entities. Australian financial institutions have already
incurred over $110 million in FATCA compliance costs to prepare for
their expected IGA obligations.
3.113
Ongoing compliance costs are estimated to total approximately
$23 million per year. For wealth management entities, the ongoing
compliance cost would depend on the fees charged by third parties (such
as custodians) to perform the necessary due diligence and reporting
requirements and, as such, this figure may be subject to change as these
charges are incurred.
3.114
Collectively, the annual yearly costs for this option of both the
start-up and recurring costs is $48.27 million per year. Throughout this
document, ‘annual yearly costs’ includes the industry wide annualised
start-up costs (over the ten year period) coupled with the ongoing yearly
costs.
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Tax Laws Amendment (Implementation of the FATCA Agreement) Bill 2014
3.115
Annex II of the proposed IGA would provide FATCA treatment
certainty for a range of Australian entities and financial products.
3.116
The majority of Australian customer owned financial institutions
(such as credit unions) expect to fall within the IGA Annex II exemptions
for small financial institutions. The IGA would therefore largely
eliminate compliance costs for such customer owned financial institutions.
3.117
The IGA would also effectively eliminate compliance costs for
the other entities and products specified in its Annex II, which includes
Australia’s entire superannuation industry.
Costs for US citizens
3.118
The IGA does not alter existing US tax obligations and filing
obligations for US citizens. However, the IGA increases the chance of
detecting US citizens who have not complied with their US tax
obligations in respect of income held in Australian accounts. This is
consistent with the objective of FATCA, and is consistent with the terms
of the Australia-US tax treaty which expressly recognises the US’s right
to tax US citizens even if such individuals are also Australian tax
residents.
Privacy
3.119
In a submission to Treasury, the Office of the Australian
Information Commissioner (OAIC) noted that ‘Entering into an IGA with
the US would create an opportunity to bring the IGA and its information
sharing obligations within the scrutiny of Parliament. This will provide
Parliament with an opportunity to examine, among other issues, the
privacy impacts of the implementation approach contained in the IGA and
any enabling legislation.’21
‘The OAIC suggests that, if information is to be exchanged on the
basis of the proposed IGA, specific domestic legislative authority
should be the basis on which an Australian Government agency is
authorised to collect the personal information from domestic entities
and to disclose that personal information to the US Government.’22
3.120
Treasury considers that an IGA would adequately address
Australian privacy concerns while meeting FATCA’s tax system integrity
objectives. Allowing Australian financial institutions to review accounts
based on US citizenship would be also be consistent with the
21
22
See OAIC submission to the Treasury, paragraph 20.
See OAIC submission to the Treasury, paragraph 21.
58
Regulation impact statement
Australia-US tax treaty which preserves the US’s taxing rights over
income derived by US citizens.
Option 2 — Require Australian financial institutions to report
directly to the US Government (Model 2 IGA)
Benefits of Reporting to the IRS
3.121
Under this approach, the Government would conclude an IGA
with the US Government (based on the US Model 2 IGA) which would
require the Australian Government to direct and enable affected
Australian financial institutions to register with the IRS and confirm their
intention to comply with the US FATCA regulations, including:
• Applying the due diligence rules to identify US accounts
• Annually reporting in the time and manner prescribed by the
FATCA regulations
3.122
Many of the benefits of the Model 1 IGA are replicated in the
Model 2 approach, including that the Model 2 IGA would become the
legal authority to make the necessary Australian law changes.
3.123
Amending Australian law to remove the Australian privacy and
anti-discrimination law impediments would enable Australian financial
institutions to report accountholder information to the US Government,
and would remove the need for Australian financial institutions to
conclude individual FFI agreements with the US or seek customer
waivers.
Drawbacks
3.124
While concluding a Model 2 IGA would adequately enable
industry to comply with FATCA it would present a number of significant
drawbacks. For example:
• Amendments to non-tax laws, such as privacy and
anti-discrimination laws, would be required;
• The terms of a Model 2 IGA would not require the US to
provide reciprocal account information to Australia. In this
regard, concluding a Model 2 IGA would not meet the
Government’s objective of enhancing the integrity of the
Australian tax system.
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Tax Laws Amendment (Implementation of the FATCA Agreement) Bill 2014
• This option could be perceived as being inconsistent with the
Government’s long-standing position in relation to
international cooperation to prevent tax evasion, and its
commitment, through the G20, to the implementation of the
OECD’s Common Reporting Standard for the exchange of
financial account information between revenue authorities.
3.125
In view of these drawbacks, it is considered that concluding
Model 2 IGA would be an inferior option from a tax transparency policy
perspective.
Costs for Australian industry
3.126
Australian industry estimates that the minimum upfront
implementation costs for Australian banks, fund managers and life
insurance companies totals just over $319 million. This represents
approximately $64 million more than for Option 1.
3.127
Ongoing compliance costs are estimated to total approximately
$25 million per year. This represents approximately $1.9 million more
per year than for Option 1.
3.128
Collectively, the annual yearly costs for this option of both the
start-up and recurring costs is $56.54 million per year. This represents
approximately $8.27 million more spent per year than for Option 1.
Costs for US citizens
3.129
These costs are unchanged from Option 1.
5.3 Option 3 — No Government Intervention
Benefits of no Government intervention
3.130
In the absence of Government intervention, individual
Australian financial institutions would be free to decide whether and to
what extent to comply with FATCA. That is, they would face no
additional Australian regulatory burden and could choose to either ignore
FATCA or attempt to comply with it directly.
• If they chose to ignore FATCA - a foreign law that has no
legal standing in Australia - they would not be required to
undertake any interrogation of their customer accounts to
search for US indicia.
60
Regulation impact statement
• If they attempted to comply directly with FATCA, they
would need to do so consistently with Australian privacy and
anti-discrimination laws.
3.131
Some Australian stakeholders may prefer this option. These
could potentially include for example:
• small Australian financial institutions that either do not invest
in the US or believe that their FATCA compliance costs
would exceed the 30 per cent FATCA withholding tax
imposed on their US sourced income. It is expected there
would only be a small number of Australian financial
institutions with FATCA reporting obligations that would fall
within this category; most of the financial institutions that do
not invest in the US are likely to fall within the FATCA
exemptions for small financial institutions or local banks;
• brokers that may be required to assist Australian financial
institutions complete the necessary FATCA due diligence for
account holders; and
• US citizen account holders who have not complied with their
US tax obligations.
Costs of no government intervention
3.132
The majority of Australia’s financial institutions do not support
this option because ignoring or attempting to comply with FATCA
directly is likely to impair their competitive position in relation to
financial institutions from countries that have concluded IGAs with the
US. That is, their exclusion from the IRS register of financial institutions
entitled to exemption from the 30 per cent FATCA withholding tax could
limit the number of counterparties they deal with and effectively deny
them access to some financial markets. Industry is of the view that some
counterparties may be attracted to the simplicity of restricting their
dealings to transactions that would not require them to withhold and remit
tax to the IRS.
3.133
Without Government intervention, industry representatives have
outlined various concerns, including exposure to legal risk, increased
capital provisioning and potentially being locked out of FATCA
compliant jurisdictions. This would have an effect on the types of
products that Australian financial institutions could provide and would
reduce their global competitiveness. Financial institutions that would not
be caught under the FATCA regulations are in the minority and, as such,
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Tax Laws Amendment (Implementation of the FATCA Agreement) Bill 2014
the effects of a non-compliant jurisdiction would have an impact on the
majority of the Australian financial sector as a whole.
3.134
Beyond the associated costs that would be incurred by industry,
this approach would be inconsistent with Australia’s standing as a global
leader on exchange of information, and furthermore would be inconsistent
with the approach advocated by the OECD and the G20 in relation to the
Common Reporting Standard.
Choosing to ignore FATCA
3.135
While the US FATCA regulations provide a number of
exemptions that would apply to certain Australian entities and financial
products, the majority of Australian financial institutions would face
difficulties in their dealings with financial institutions in other
jurisdictions and US payers. These other institutions would seek
confirmation of their FATCA status from the IRS. Without such
confirmation, these Australian entities may have the FATCA 30 per cent
withholding tax incorrectly withheld from their US sourced income,
which would generate significant costs in seeking redress. In addition,
there would be reputational costs to Australia’s financial industry.
3.136
Other affected financial institutions with FATCA reporting
obligations that chose to ignore those obligations would be deemed
FATCA non-compliant by the US and become liable for the 30 per cent
withholding tax on their US sourced income, to be withheld at source by
US payers and by participating FFIs on their passthru payments to
non-participating Australian financial institutions. Notwithstanding
Australian financial institutions’ ability to rely on the Australia-US tax
treaty to seek a refund of any excess withholding tax, this would
nevertheless have a significant impact on their liquidity (particularly on
those financial institutions participating in the US capital markets or
deriving income from the US financial markets) and add complexity to
their dealings with foreign counterparts, which would assume withholding
obligations.
3.137
Industry has indicated that most affected Australian financial
institutions (especially banks, fund managers and life insurance
companies) would not choose the option of ignoring FATCA, as that
choice would ultimately impede their ability to operate effectively in
international financial markets — especially in the US and in those
jurisdictions that are generally FATCA compliant.
3.138
Australian entities that consider that they or their products fall
within the scope of the exemptions provided by the FATCA regulations
may need to incur legal costs to confirm this with the IRS, in order to
62
Regulation impact statement
protect themselves from the FATCA 30 per cent withholding tax on their
US sourced income.
Choosing to comply directly with FATCA
3.139
Affected Australian financial institutions could attempt to
comply directly with the FATCA regulations. This would require each
affected financial institution to enter into a binding FFI agreement with
the IRS to collect and report account holder data. As FFI agreements
would be required for each affected subsidiary within a group, industry
estimates that several thousand FFI agreements would be required.
3.140
Each of these would generate significant costs with regard to:
• obtaining legal advice on the interpretation and application of
complex US law;
• signing and registering the FFI agreement with the IRS;
• assuming legal liability (including personal liability for
officials) in relation to the obligations imposed by those
agreements;
• developing systems to accommodate direct information
reporting to the IRS, i.e. systems to accommodate unfamiliar
technical IRS specifications;
• identifying ‘recalcitrant’ account holders and segregating
them for special treatment;
• building capability to meet their own withholding obligations
in relation to non compliant counterpart financial institutions
and recalcitrant account holders;
• maintaining an ongoing relationship with the IRS in relation
to reporting requirements, data transmission, data quality and
dispute resolution.
3.141
Few, if any, affected Australian financial institutions could fully
comply with the FFI agreement obligations without some form of
Australian government (Federal and State) intervention to overcome
Australian privacy and anti-discrimination law barriers. Australian
financial institutions would incur substantial costs in advocating for
necessary changes, but would also need to operationalise a legal solution
for the intervening period while a legislative solution was reached.
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Tax Laws Amendment (Implementation of the FATCA Agreement) Bill 2014
3.142
In addition, with a first reporting date of 31 March 2015 (the
date that applies in the absence of an IGA), Australian financial
institutions would be unlikely to be able to comply with FATCA as the
withholding and waiver systems would be both time-consuming and
costly to build. Based on Australian Government announcements to date,
Australian financial institutions are expecting a Model 1 IGA that would
negate the need to build such withholding and waiver systems.
3.143
As FATCA targets US citizens, it is likely that its reporting and
account closure requirements are inconsistent with some State or Territory
anti-discrimination laws. There would be no breach of such laws,
however, if Commonwealth legislation was enacted to override the
relevant State or Territory discrimination laws or amendments were made
to the relevant State or Territory laws themselves.
3.144
Consequently, it is likely that affected Australian financial
institutions would press for such amendments to give them sufficient legal
protection, at a significant cost. If the Federal and State governments
were persuaded to make such amendments, a coordinated national plan
may need to be negotiated and this would need to be done without a treaty
status document to rely on as authority for the amendments.
3.145
Under Australia’s privacy law, Australian financial institutions
can generally only disclose information with the relevant individual’s
consent or if required by Australian law. Under Option 3, affected
Australian financial institutions would therefore need to obtain their
customers’ consent to interrogate accounts and report the required
FATCA information to the IRS. Industry has indicated that contacting
every customer and establishing procedures for handling customer
responses, enquiries and complaints would not serve the purpose of
effective information exchange. The ABA has indicated that this
approach would be costly as millions of account holders would need to be
contacted (Australian banks have more than 16 million accountholders).
It would also be unlikely to be effective based on previously ineffective
response rates to customer mail-outs.
3.146
In that event, it is very likely that affected Australian financial
institutions would press for Australian Government intervention to amend
Australian law to allow them to legally perform the FATCA due diligence
and to report the required information to the IRS.
3.147
Under the terms of a FFI Agreement, a financial institution
would be required to withhold tax with respect to recalcitrant account
holders (i.e. account holders that fail to provide the necessary
documentation or information requested by the financial institution) and
non-participating financial institutions (i.e. financial institutions that are
not covered by an IGA or who have not entered into a FFI Agreement). It
64
Regulation impact statement
is unlikely that current Australian law would permit this, especially if the
account holder was not in fact a US person. Consequently, it is likely that
affected Australian financial institutions would press for Australian
Government intervention to allow them to legally perform the FATCA
withholding obligations.
3.148
In order to perform those withholding obligations, affected
Australian financial institutions would also need to develop a FATCA
withholding tax capability. The extra cost associated with building the
withholding tax capacity and making other necessary changes forms part
of the compliance costs attributable to business systems design and
development for this option.
3.149
Affected financial institutions seeking to comply with the
FATCA requirements would also incur the additional upfront
implementation costs and ongoing compliance costs that apply with an
IGA (as above).
Costs for Australian industry
3.150
Australian industry estimates that the minimum upfront
implementation costs for Australian banks, fund managers and life
insurance companies seeking to comply with the FATCA requirements in
the absence of a Model 1 IGA totals over $477 million. This represents
approximately $222 million more than for Option 1.
3.151
Ongoing compliance costs are estimated to total approximately
$59 million per year. This represents approximately $36 million more per
year than for Option 1.
3.152
Collectively, the annual yearly costs for this option of both the
start-up and recurring costs is $106.59 million per year. This represents
approximately $58.32 million more spent per year than for Option 1.
Costs for US citizens
3.153
These costs are less than under Option 1 as some Australian
financial institutions will not be able to comply with FATCA, meaning
that any of their accounts held by US citizens will escape reporting.
Weaknesses of this approach
3.154
Like Option 2, this option would not meet the Government’s
objective of enhancing the integrity of the tax system by improving the
existing reciprocal tax information-sharing arrangements from the US to
Australia. Under this option, the US is not required to provide equivalent
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Tax Laws Amendment (Implementation of the FATCA Agreement) Bill 2014
financial account information to Australia. Further, the US is unlikely to
receive all its desired information if the FATCA reporting requirements
are not met by Australian financial institutions.
Table 5.2 Overview – Relative advantages and disadvantages of options
Advantages
Option 1
•
•
•
•
•
•
•
Option 2
•
•
Option 3
•
Disadvantages
Overcomes legal
impediments
Most cost-effective option
for industry
Industry support
Limited industry interaction
with the IRS
Government commitment
Consistent with CRS
Carves out Australianspecific AFIs
Overcomes legal
impediments
Second most cost-effective
option for industry (an
average yearly extra $8
million)
•
•
Not preferred by industry
No additional commitment to
reciprocity of information
sharing
No regulation by government
•
•
Doesn’t overcome legal risks
Industry exposure to
withholding tax
Reduced competitiveness
No enhancement to
information exchange
Businesses face negative
business model implications
•
•
•
66
Regulation impact statement
6. COMPLIANCE COSTS
Methodology
Sample
3.155
Treasury consulted through peak bodies that represent a
significant portion of businesses to be affected by FATCA to estimate the
burden of compliance on business.23 These peak bodies were the:
• Australian Bankers’ Association (ABA)
• Customer Owned Banking Association (COBA)
• Financial Services Council (FSC)
3.156
FATCA will apply to Australian Financial Institutions that fall
within the FATCA definition of ‘financial institution’. The definition of
financial institution extends to those institutions that fall within the
FATCA definitions of Depository Institution, Investment Entity,
Custodial Institution or Specified Insurance Company
3.157
Banks fall within the definition of Depository Institution for the
purposes of the FATCA, and therefore all ABA members are expecting to
have FATCA obligations. FSC members that expect to have FATCA
obligations include those which fall within the FATCA definitions of
Investment Entity, Custodial Institution or Specified Insurance Company.
The estimates provided by the FSC represent those members who would
be captured under FATCA. The majority of COBA members expect to be
exempt under FATCAs Non Registering Local Bank Exemption and
Local Client Base Exemption.
23
Treasury also contacted the Property Council of Australia on 4 March 2014 in order to get an
appreciation of the number of its members that may be captured and exposed to FATCA
compliance costs. Unfortunately, it has not been possible to get the data in the time available
regarding the number and size of Property Council members that would be impacted, or the
Compliance costs that they would be expected to incur. However the Property Council has
indicated that pending internal validation, it is comfortable with assuming these costs would
be akin to similarly sized businesses who are members of the ABA or FSC.
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Tax Laws Amendment (Implementation of the FATCA Agreement) Bill 2014
Costs to business
Table 6.1 Compliance Costs – Descriptions
Start Up Costs
Item Name
Item Description
Professional Legal Services These services will be engaged in relation to confirming
entities’ FATCA obligations.
Australian financial institutions are required to establish
their FATCA obligations under the extensive US
FATCA regulations (in excess of 300 pages plus
commentary) and/or the terms of an IGA. Option 3 is
the most onerous.
The cost of ascertaining the legal obligations under
either IGA option (i.e., Options 1 and 2) is similar
because the entity only has to rely on the IGA and any
corresponding domestic legislation for the obligations
that the agreement imposes. Option 3 requires the
entity to gain an understanding of the FATCA
regulations and also their interactions with Australian
law. Essentially it requires familiarity with two tax
systems and the interactions between the two.
The difference in associated costs will be primarily in
relation to the varying degree to which Australian
financial institutions will be able to rely on domestic
law, and to what extent they will need to be familiar,
and comply, with US legislation.
Other possible legal advice costs include:
•
For those businesses that operate in other
jurisdictions, if Australia is a non-IGA country,
regarding their interactions with IGA countries,
FATCA compliant countries and non-compliant
countries.
•
Dealing with recalcitrant accounts.
•
Developing internal legal guidance for the
application of FATCA in each business.
•
Legal advice about the legality and risks of
waivers and both anti-discrimination and privacy
law constraints
•
Contingency funds for any legal challenges to
actions by customers or other parties.
Business systems design and
development
68
In order to comply with the due diligence and reporting
requirements, each business will have to build an
information system capacity to retain information for,
identify, classify and interrogate customer accounts.
Australian financial institutions are required to apply
thresholds to identify and classify customer accounts
Regulation impact statement
Business Model
implications
held at 30 June 2014 into various categories depending
on the account balance. Accounts held by individuals
must be classified as either non-reportable, lower value
or higher value accounts. Accounts held by entities
must be classified as either non-reportable or
reviewable accounts. Lower value, higher value
(individuals) and reviewable accounts must be
interrogated electronically and, for certain accounts also
manually, to identify whether the accountholders are
US individuals or US controlled-entities. Details of
reportable accounts must be reported annually to the
ATO/IRS. Customer interface enhancement includes
updating account opening procedures (on-boarding) and
developing self-certification procedures for customers
that will have to demonstrate that they are not US
persons).
In addition, existing systems will need to be enhanced
to minimise the effect on customers of the FATCA
requirements. Customer interface enhancements are
expected.
The identification, classification and interrogation
obligations increase incrementally from Options 1
through to 3. In particular, a system built for Option 3
will need a withholding tax capacity which institutions
do not currently have, greater information collecting
capacity to fulfil the more onerous information
obligations under the FATCA regulations, and the
system must be able to produce information to be
reported directly to the IRS.
The FATCA compliant status of an Australian financial
institution with operations in a jurisdiction that is
FATCA non-compliant (due to local law conflicts)
could be jeopardised. Changes to the business model
and becoming legally compliant with both FATCA and
local laws would require:
•
divesting or closing operations in such
jurisdictions;
•
reducing exposure to US sourced assets as a result
of the 30 per cent withholding tax;
•
increasing counter-party risk provisioning;
•
increased identification (of payees and
accountholders) obligations; and
•
removing or changing product offerings.
These costs are the direct cost associated with
complying with the FATCA regulations directly.
Opportunity, reputational and economic costs have not
69
Tax Laws Amendment (Implementation of the FATCA Agreement) Bill 2014
Development of staff
training and education
Registration with IRS
Internal compliance
assurance
Business operating model
changes
Management of global
conglomerates
Conversion costs
Other
Operation of business
systems
70
been included.
This is the cost associated with ensuring staff are able
to understand the business’ obligations. This is
particularly important for front-line staff that will have
to explain why the customer may have to include
foreign tax residency status in their paperwork.
This is the process by which an entity will register with
the IRS. Registration would be required for all relevant
subsidiaries of Australian parent financial institutions.
This is the development of internal governance
procedures that will minimise Australian financial
institutions’ exposure to legal sanctions for
non-compliance.
Non-IT changes to business models, including:
•
organisational change management
•
alignment of Australian subsidiaries that operate
in different financial industries
•
managing business partner relationships (e.g.
external vendors) to ensure FATCA compliance
Many large financial institutions operate globally and
undertake activities covering different industry sectors,
e.g. insurance, banking and funds management.
This line activity relates to central management and
support functions provided from financial institutions’
Australian offices.
These are the costs associated with building a new
solution to comply with the FATCA regulations
directly. In general, the FFI agreement approach
(Option 3) contains more prescriptive obligations. In
order to meet the FFI agreement standards, businesses
would incur new costs to enable them to comply.
Some Model 1 solutions may be able to be reworked,
but these sunk costs have not been included in these
prospective figures. It is the cost which businesses will
incur in either adapting existing solutions or starting
new solutions in a variety of areas, such as account
opening procedures, infrastructure and documentation.
This includes FATCA project governance and
administration costs, under central and decentralised
models, including executive involvement costs.
Recurring Costs
This is the operation of the business system as
described above. The components of this price will
relate to:
Regulation impact statement
•
•
Compile and report data to
ATO/IRS
Deliver staff training and
customer education
Engagement with the
ATO/IRS
Manage customer consent
issues
Compliance assurance
Professional legal services
Other
Classification of new customer accounts
Consideration and classification of existing
accounts as needed
•
Reviewing and monitoring customer accounts
•
Record-keeping and retrieval
•
System maintenance and updates
In order to comply with FATCA, the necessary due
diligence will require businesses to provide reports of
all identified US account holders either to the ATO
(Option 1) or to the IRS (Options 2 and 3).
This includes:
•
Delivery and update of training models for staff
•
Information provided to customers about
compliance with FATCA/IGA and the impact on
their accounts.
Receiving advice from the tax administrations and
seeking guidance as necessary.
Where there is no legal requirement for compliance
with FATCA, businesses will have to seek consent for
the use and release of their data for FATCA purposes.
This is due to the interaction with domestic privacy and
anti-discrimination legislation, as canvassed above.
This is the ongoing process by which internal processes
seek to reduce risks to the business. It will also include
part of the budget for the withholding tax capability.
Ongoing advice on the legal obligations for compliance.
Ongoing costs associated with running a decentralised
model.
It may also include for some members of the same
group, system maintenance and manual inputting of
data.
Regulatory Burden and Cost Offset (RBCO) Estimate Table
Table 6.2 Option 1
Average Annual Compliance Costs (from Business as usual)
Costs ($m)
Total by Sector
Cost offset ($m)
24
Business
$48.27 M24
Business
Community
Organisations
$
Individuals
Community
Organisations
Individuals
$
Total
Cost
$
Total
by
This cost is attributed to the yearly cost as calculated by: (Start-up cost ÷ 10) + yearly
ongoing cost
71
Tax Laws Amendment (Implementation of the FATCA Agreement) Bill 2014
Agency
Within portfolio
$
$
$
$
$
$
Source
$
$
Outside portfolio
$
$
$
$
Total by Sector
$
$
$
$
Proposal is cost neutral?
Proposal is deregulatory
Balance of cost offsets
 yes
 no
 yes
 no
<$58.32 M >25 (per year)
Table 6.3 Option 2
Average Annual Compliance Costs (from Business as usual)
Costs ($m)
Total by Sector
Cost offset ($m)
Business
$56.5426
Business
Community
Organisations
$
Individuals
Community
Organisations
Individuals
$
Total
Cost
$
Agency
Within portfolio
$
$
$
$
$
$
Total
by
Source
$
$
Outside portfolio
$
$
$
$
Total by Sector
$
$
$
$
Proposal is cost neutral?
Proposal is deregulatory
Balance of cost offsets
 yes
 no
 yes
 no
< $50.05 M>
Table 6.4 Option 3
Average Annual Compliance Costs (from Business as usual)
Costs ($m)
25
Business
Community
Organisations
Individuals
Total
Cost
This cost represents the difference between the status quo (take no action) Option 3 and
Option 1. The status quo is estimated to cost $106.59 million per year.
26
This cost is attributed to the yearly cost as calculated by: (Start-up cost ÷ 10) + yearly
ongoing cost
72
Regulation impact statement
Total by Sector
Cost offset ($m)
$106.5927
Community
Organisations
$
Individuals
$
Agency
Within portfolio
$
$
$
$
$
$
Total
by
Source
$
$
Outside portfolio
$
$
$
$
Total by Sector
$
$
$
$
Proposal is cost neutral?
Proposal is deregulatory
Balance of cost offsets
 yes
 no
 yes
 no
28
NIL
Start Up
Ongoing
Total
Business
$
Table 6.5 Compliance Costs Comparison between Options
Option 1
Option 2
Option 3
Annual
Total
Annual
Total
Annual
Total
($M)
(over 10 ($M)
(over 10
($M)
(over 10
years)
years)
years)
($M)
($M)
($M)
25.54
255
31.90
319.08
47.74
477.47
22.72
227.2
24.63
246.37
58.84
588.45
48.27
482.68
56.54
565.44
106.59
1065.92
Comparing the Compliance Cost Burden
3.158
The compliance costs as indicated above show that Option 1 is
the least expensive option for business. The estimated compliance costs
progressively increase through Options 1 to 3. Less government
regulation in this context will cause greater compliance burdens — in
addition to economic costs that cannot be included in the RIS compliance
cost analysis.
This cost is attributed to the yearly cost as calculated by: (Start-up cost ÷ 10) + yearly
ongoing cost
28
This is the status quo.
27
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Tax Laws Amendment (Implementation of the FATCA Agreement) Bill 2014
Option 1
3.159
Option 1 solely has the combined benefits of treaty protection,
efficiency through liaising with the ATO and consistency with other
international tax information sharing initiatives developed by the OECD
and endorsed by the G20.
3.160
It is also the least expensive of the options. Based on the
estimates provided by industry, the minimum upfront costs total
$255 million. As indicated above, these costs are those that are
non-ongoing and reflect the significant set up costs associated with
building the systems to enable compliance. The ongoing yearly cost is
estimated to be $23 million a year.
3.161
Initial start-up costs make up almost 53 per cent of the total
compliance costs, with the remaining 47 per cent of the total costs over
the ten year period being ongoing.
3.162
Business system design and development accounts for
79.9 per cent of the start-up costs and 42 per cent of the total costs (over
ten years). The next biggest cost is legal advice costs at 12 per cent of the
start-up costs and 7 per cent of the total costs (over ten years). The lowest
proportion of start-up costs is the registration with the IRS at 0.5 per cent.
3.163
Operation of business systems makes up the highest proportion
of ongoing costs at 51.5 per cent and 2 per cent of the total costs (over
ten years). Preparing and reporting data for compliance made up
19 per cent of the ongoing costs, and makes up almost 1 per cent of the
total costs (over ten years).
Option 2
3.164
Option 2 shares some of the common benefits with Option 1,
which is reflected in the smaller proportion of cost difference between the
two options. The average yearly cost difference between Option 1 and 2
is about $8 million.
3.165
Based on the estimates provided by industry, the minimum
upfront costs total approximately $319 million. As indicated above, these
costs are those that are non-going and reflect the significant set up costs
associated with building the systems to enable compliance. The ongoing
yearly cost is estimated to be $24.6 million a year.
3.166
Initial start-up costs make up almost 56 per cent of the total cost
of compliance, with the remaining 43 per cent of the total costs over the
ten year period being on-going.
74
Regulation impact statement
3.167
Business system design and development make up 73 per cent of
the start-up costs and 41.6 per cent of the total costs (over ten years). The
next biggest cost is legal advice costs at 10 per cent of the start-up costs
and 5.7 per cent of the total costs (over ten years). The lowest proportion
of start-up costs is the registration with the IRS at 0.4 per cent.
3.168
Operation of business systems makes up the highest proportion
of ongoing costs at 47.5 per cent and 2 per cent of the total costs (over ten
years). Preparing and reporting data for compliance accounts for
6 per cent of the ongoing costs.
3.169
There are similarities in the proportionate spending across the
variety of line items between Option 1 and Option 2. The increases in
spending between the two are the increase in cost associated with:
• Start-up — Business systems design and development —
worth about $31million
• Start-up — internal compliance assurance — worth an
estimated $6.3 million – this cost is not associated with the
first option
• Start-up — increasing costs in making changes to the
business operating model — almost $1 million
• Ongoing — compliance assurance — $6.1 million.
Option 3
3.170
Option 3 is the most expensive of the three options. Less
government regulation in this context will cause business additional
compliance costs.
3.171
The total start-up cost associated with this option is
$477.47 million. The ongoing cost per year is $58.8 million. Each year,
the total average ongoing compliance cost burden that will fall on
business is $106.59 million.
3.172
The biggest start-up costs are:
• Business design and development representing 51.3 per cent
— worth $245.24 million
75
Tax Laws Amendment (Implementation of the FATCA Agreement) Bill 2014
• Legal costs representing 8.5 per cent — worth
$40.42 million29
• Business model implications representing 19.7 per cent —
worth $94 million
3.173
The biggest ongoing costs are:
• Managing customer consent representing 28.4 per cent —
worth $16.7 million per year
• Compliance assurance representing 27.86 per cent — worth
$16.39 million per year
• Operation of business systems representing 23.3 per cent —
worth $13.7 million per year
3.174
The biggest differences between the compliance costs under this
option and signing either of the two IGAs are:
• An additional $8 million on start-up legal advice under
Option 3
• An additional $40 million compared to Option 1 and around
an additional $10 million compared to Option 2 on the
building and design of a system to comply with FATCA
directly
• An additional $94 million compared to Option 1 and an
additional $88 million compared to Option 2 on implications
to the business model
• Internal compliance assurance
29 Due to the complexity of Option 3 and industry’s expectation that it will not be adopted,
little data was available in relation to the true expected legal compliance costs. For instance,
there could be significant costs associated with legal advice on the application of FATCA
regulations themselves, closure of recalcitrant accounts and the legality and risks of waivers
and both anti-discrimination and privacy law constraints. Contingency funds may also be
needed for any legal challenges to actions by customers or other parties. In addition there
are fundamental differences in the legal advice that would be required between Option 3 and
the options which rely on an IGA. Both Option 1 and 2 would result in an international
agreement, which would provide the legal authority to address existing domestic law
impediments such as anti-discrimination and privacy barriers. An IGA would provide a legal
basis upon which an entity could rely in order to comply with the regulations. This should
therefore be taken as a conservative estimate.
76
Regulation impact statement
• Changes to the operation of the business model
• Conversion costs — worth about $39 million
• Other associated costs with start-up
• Ongoing managing customer consent
• Ongoing compliance assurance
3.175
Furthermore, the compliance costs associated with Option 3 do
not account for the significant pressure from business that would arise
should there be no intervention.
• This pressure would be applied at state and federal levels to
drive for legislative change to enable compliance with
FATCA under domestic legislation.
• Without the legal backing of the treaty status document,
uncertainty may arise as to whether the Federal Government
would have the constitutional authority to effect the change
without the cooperation of the States.
• Changing legislation on a State-by-State basis as required
would lead to difficulties around consistency.
Managing the process by which these legal changes could be made is also
likely to be costly and time consuming. There could also be significant
delays between the commencement of FATCA and when the necessary
domestic changes came into effect.
Economic Costs
3.176
The costs in the above table do not include the economic,
reputational and opportunity costs of not pursuing either Options 1 or 2.
Australian business has emphasised, however, that these additional costs
would be significant.
3.177
Industry has indicated that changing from the original Australian
Government indicated position of the Model 1 IGA will impose
significant additional compliance costs. The conversion is most
pronounced where no government action is taken, where it is estimated
that it will cost $39 million to convert businesses to non-IGA solutions.
This cost does not factor in the spent costs already sunk, which is
estimated to be about $110 million.
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Tax Laws Amendment (Implementation of the FATCA Agreement) Bill 2014
3.178
Industry has further indicated that such a change from the
Australian Government announcements would place business at a
significant disadvantage.
3.179
The Australian banking industry has built FATCA compliance
systems on the basis that an IGA was imminent. If an IGA were not
signed, the ABA is concerned that this would result in the entirety of the
Australian banking industry being non-FATCA compliant. This, in turn,
would result in immediate significant system redesign costs to meet the
standards of a FFI agreement as highlighted by the quantitative analysis.
3.180
According to the ABA:
‘A failure to implement an IGA would mean that Australian banks and
other financial institutions will not be participating FFIs since they are
unable to exchange information directly with the US Inland Revenue
Service under existing Privacy Laws. This would result in a potential
contraction of the Australian finance industry’s participation in global
markets due to ongoing increased transaction costs, perceived
increased counter-party risk (of dealing with Australian banks) and the
deconstruction of Australian global bank operating business models.
More particularly:
•
Investments by Australian banks and managed funds in most US
equities will become subject to 30 per cent withholding tax on a
staggered basis, so too US securities and debt lent to US
subsidiaries of Australian companies. This will result in an
artificial reweighting of investment and debt portfolios as
Australian financial institutions wind down their participation in
the US market.
•
Australian banks will, over time, be excluded from participating in
global derivative and interbank markets if US and global banks put
in place policies which prohibit transacting with parties which are
not participating FFIs due to the complications of withholding and
reporting.
•
Australian banks will, over time, withdraw from jurisdictions
which have laws that prevent the signing of a FFI Agreement and
do not have an IGA in place to avoid “tainting” the global
conglomerate (with non-participating FFI status). Cessation of
operations in foreign jurisdictions will also negatively impact
Australian Banks’ ability to develop and grow their businesses by
limiting and reducing their potential offshore income streams.’30
3.181
Industry has also noted that there would be a reputational cost
for Australian financials as a result of being in a non-compliant
30
ABA advice to Treasury on 7 March 2014
78
Regulation impact statement
jurisdiction. Industry contends that access to finance will become difficult
for Australian banking institutions without an IGA.
3.182
Industry further notes that there would also be opportunity costs
associated with pursuing a non-IGA option. This would include the
profits associated with alternative projects that would have to be forfeited
due to expenditure on FATCA.
7.
CONSULTATION
3.183
The Australian Government announced that it would commence
discussions on an IGA with the US on 7 November 2012. While the
proposed Australia-US IGA like that of most other countries reflects the
US Model 1 agreement, the Government has been actively engaged with
Australian stakeholders to ensure the overall compliance burden of the US
legislation is minimised and the legitimate interests of Australian citizens
are protected.
3.184
Treasury has conducted extensive consultation throughout the
IGA negotiation process including through the invitation of public written
submissions, a general information session for industry representatives
and targeted stakeholder meetings.
3.185
Prior to the previous Government’s announcement that Australia
would enter into IGA negotiations with the US, written submissions were
sought in relation to the advantages and disadvantages of pursuing an
IGA. Treasury received feedback from 32 stakeholders: 23 from
businesses and their representative bodies, 7 from individuals and 1 each
from the Office of the Australian Information Commissioner and the Tax
Justice Network.
3.186
Overall, Australian industry was supportive of entering into an
IGA. Industry broadly agreed that this option reduces the compliance cost
for industry and consumers through removing the need for Australian
financial institutions to enter into, administer and certify individual
agreements with the IRS. Furthermore, industry was of the view that
utilising existing reporting channels would minimise information
transmission costs and improve efficiency. However, concerns were also
raised that there would be significant costs as a result of the need to
establish new infrastructure, processes and compliance frameworks.
Some industry participants submitted that these costs would be likely to
fall disproportionately on smaller institutions such as Australia’s mutual
banking sector and would reduce their competitiveness against the big
four banks.
79
Tax Laws Amendment (Implementation of the FATCA Agreement) Bill 2014
3.187
The Information Commissioner acknowledged that an IGA
would generally address legal privacy concerns by making disclosures
‘required or authorised by law’ for the purposes of the Privacy Act. The
Information Commissioner noted that other privacy law obligations would
continue to apply if an IGA was concluded, including the obligation to
notify individuals about the purpose for which information is collected
and the organisations to which the information will be disclosed. The
proposed IGA would facilitate Australian financial institutions’
compliance with the FATCA requirements because the IGA would require
domestic law to be implemented.
3.188
Some individuals that generally oppose FATCA expressed the
view that individual FFI agreements would distribute the FATCA burden
more equitably, with the burden falling exclusively on individuals who
wish to deal with financial institutions that access US funding.
3.189
US citizens who reside in Australia are generally opposed to the
conclusion of an IGA on the grounds that it could expose them to IRS
enforcement action. While the IGA would not provide any special
concessions for such US citizens, the US offers an Offshore Voluntary
Disclosure Program (OVDP) for US taxpayers to get their US tax affairs
in order. The OVDP would allow US taxpayers with undisclosed foreign
accounts and unreported income to seek protection from criminal
prosecution. However, US citizens have complained that the OVDP is
only attractive where the individual only has a small amount of US tax
outstanding.
3.190
In addition to financial costs, industry also identified legal
impediments to compliance with FATCA in the absence of an IGA.
3.191
One stakeholder noted that suitable amending legislation would
be required to support Australian financial institutions’ reporting
obligations under the IGA. Treasury intends to develop relevant
amendments to the taxation laws, in consultation with industry, to give
effect to Australia’s obligations under the IGA.
3.192
The Information Commissioner was concerned that the Model
IGA did not contain any specific rules regarding the storage, security and
retention of personal information, access to information, correction of
information, or limits on the use of personal information. In response to
this concern, Treasury notes that the proposed IGA would specifically
provide that all information exchanged would be subject to the
confidentiality and other protections provided for in the tax treaty,
including provisions limiting the use of information exchanged. The
Exchange of Information Article in the Australia-US tax treaty
specifically provides that:
80
Regulation impact statement
Any information so exchanged shall be treated as secret and shall not
be disclosed to any persons other than those (including a Court or
administrative body) concerned with the assessment, collection,
administration or enforcement of, or with litigation with respect to, the
taxes to which this Convention applies.
3.193
The Exchange of Information article in the tax treaty follows
internationally accepted principles and imposes a higher standard of tax
secrecy than Australia’s domestic tax secrecy laws. In so doing, it
provides legal protection against the misuse of personal information.
3.194
Industry also provided comments in relation to the content of the
IGA. In particular, it was noted that definitions of certain terms published
in the model agreement are inconsistent with its interpretation and
understanding in the Australian financial services industry. The proposed
IGA tailors these definitions to the Australian context to the extent
possible.
3.195
Industry was also keen to ensure that Australian financial
entities received equivalent IGA treatment to their counterparts (or
competitors) in other IGA jurisdictions. Treasury has worked with
industry and US Treasury to include IGA text that achieves equivalent
treatment to the extent possible without creating unintended gaps in the
FATCA reporting framework. While it was possible to accommodate
some of industry’s proposals (such as the Memorandum of Understanding
clause which clarifies the reporting obligations for securities registered in
an Australian securities clearing and settlement facility), US Treasury
officials could not accommodate other Australian industry proposals
which they considered were inconsistent with the FATCA rules or
reporting framework (such as the Australian Property Council’s request
for FATCA exemptions for Australian property trust structures).
3.196
Numerous other written submissions were received as part of
Treasury’s ongoing consultation with industry on IGA design issues especially from the ABA and the FSC, and their members. Following the
IGA negotiation announcement, consultation has focussed on suitable
content for Annex II of the proposed IGA, practical IGA due diligence
(Annex I) issues, and IGA implementation issues. Treasury has worked
closely on a technical level with peak industry bodies to address these
specific concerns. The ATO has also been involved in the implementation
aspects of the IGA.
3.197
Throughout the consultation process, the proposed IGA has
received widespread support from Australian industry. Peak industry
bodies and corporates have advised that the conclusion of an IGA would
significantly reduce their FATCA-related compliance costs and overcome
domestic legal constraints. Not proceeding with the IGA would be
81
Tax Laws Amendment (Implementation of the FATCA Agreement) Bill 2014
contrary to the interests and submissions made by the financial services
industry.
3.198
The Tax Justice Network is also broadly supportive of an IGA as
it is consistent with the global trend towards facilitating the automatic
exchange of tax information.
3.199
The following bodies have provided input to the IGA
consultation process:
• Australian Bankers Association (ABA)
• Australian Finance Conference (AFC)
• Australian Financial Markets Association (AFMA)
• Australian Securitisation Forum (ASF)
• Association of Superannuation Funds of Australia (ASFA)
• Australian Securities Exchange (ASX)
• Australian Custodial Services Association (ACSA)
• Computer Share
• Customer Owned Banking Association (COBA) - formerly
Abacus - Australian Mutuals
• Export Finance and Insurance Corporation
• Financial Services Council (FSC)
• Future Fund
• Property Council of Australia (PCA)
• SMSF Professionals’ Association
• Tax Institute
• Treasury’s Tax Treaties Advisory Panel (consisting of
professional body and industry representatives)
3.200
Other corporate stakeholders that have been consulted include
the major accounting bodies and legal firms and firms that are part of the
property management, infrastructure, superannuation, banking and
financial services industry. State and Territory governments and their
82
Regulation impact statement
investment entities were also consulted. Treasury has also consulted with
the ATO, Australian Prudential Regulation Authority, the Department of
Industry and the Department of Foreign Affairs and Trade. Advice was
also sought from the Office of International Law (Attorney General’s
Department), the Australian Government Solicitor and the Office of the
Australian Information Commissioner.
3.201
Together with the ATO, Treasury expects to conduct further
consultation as the IGA is implemented domestically.
8. CONCLUSION
3.202
Treasury’s preferred option is to conclude a Model 1 IGA
(Option 1).
3.203
Option 3 would fail to meet the Government’s overriding
objectives. It would not:
• Adequately protect industry’s international competitiveness
because it would put Australian financial institutions at a
disadvantage compared to financial institutions from
countries that have concluded IGAs with the US;
• Guarantee industry’s compliance with FATCA;
• Provide greater FATCA treatment certainty for Australian
entities and their financial products; or
• Implement enhanced information-sharing with the US.
3.204
Option 2 would adequately protect industry from exposure to the
FATCA withholding tax but would commit each Australian financial
institution to develop and maintain an ongoing relationship with the IRS,
including the provision of sensitive customer information directly to the
IRS. It would also fail to meet the Government’s overriding objective of
obtaining enhanced information from the US on a fully reciprocal basis.
3.205
Option 1 meets all of the Government’s objectives.
3.206
Industry’s support for the conclusion of a Model 1 IGA is
consistent with the desire to reduce industry’s own compliance burden
whilst remaining able to operate competitively in a global marketplace.
An IGA would also minimise the compliance costs on the broader
Australian community.
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Tax Laws Amendment (Implementation of the FATCA Agreement) Bill 2014
9. RECOMMENDATION
3.207
The Treasury recommends the signature of the proposed
Model 1 IGA to allow time to implement the IGA before the FATCA
rules commence on 1 July 2014 and to meet the first IGA reporting date of
30 September 2015.
10. IMPLEMENTATION AND REVIEW
3.208
The Treasury would develop relevant amendments to the
taxation laws, in consultation with industry, to give effect to Australia’s
obligations under the IGA. Although the final design and form of the
amendments still needs to be settled, the legislation is likely to consist of a
reporting obligation on relevant Australian financial institutions to provide
the necessary information (as specified in the IGA) to the ATO and a
supporting administrative framework. Such amendments would address
the potential conflicts with privacy law and anti-discrimination law.
3.209
It is intended that all relevant enabling legislation to give effect
to the IGA be enacted prior to July 2014 (being the date on which the
FATCA obligations commence). This would negate the need for
transitional rules prior to the first IGA reporting date of
30 September 2015.
3.210
In parallel, the ATO will continue to consult with prospective
reporting Australian Financial Institutions and the IRS on the
development of appropriate systems, methods and guidance for IGA
reporting.
84
Regulation impact statement
ATTACHMENT A
THE PROPOSED (MODEL 1) IGA FRAMEWORK
3.211
The proposed IGA would consist of three elements:
• the main body;
• Annex I (due diligence obligations for Australian financial
institutions); and
• Annex II (exempt entities and products).
3.212
It would also be accompanied by a Memorandum of
Understanding dealing with some interpretation issues and confirming that
Australian financial institutions will be treated as FATCA compliant from
the date of signature of the IGA.
1. Main body
Preamble
3.213
The preamble notes Australia and the US’s mutual desire to:
• Build on the existing relationship of mutual assistance in tax
matters, including the automatic exchange of tax information
authorised by the Australia-US tax treaty;
• Improve international tax compliance and pursue reciprocal
and equivalent levels of information exchange;
• Address Australian legal impediments and reduce the
FATCA compliance burden;
• Work together on achieving common reporting and due
diligence standards for financial institutions in the long term;
and
• Coordinate FATCA reporting obligations with other US tax
reporting obligations of Australian financial institutions.
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Tax Laws Amendment (Implementation of the FATCA Agreement) Bill 2014
Definitions
3.214
Article 1 defines the key terms used in the IGA (vis-à-vis the
FATCA regulations’ definitions), e.g. ‘Reporting Australian Financial
Institution’ (Australian financial institutions that must undertake due
diligence and report information on US accounts) and ‘US Reportable
Account’ (the types of financial accounts that are required to be reported
on). Terms not defined in the IGA would be interpreted in accordance
with Australian law.
Obligations to obtain and exchange information on reportable accounts
3.215
Article 2 obliges Australia to obtain and exchange information
with the US on accounts that have been deemed reportable by the IGA’s
due diligence rules (Annex I). Article 2 also prescribes the relevant
account information to be reported by Australian financial institutions to
the ATO:
• Name, address, US tax identification number, account
number, name and identifying number of the reporting
Australian financial institution, account balance or value of
the account as of the end of the relevant year, and in certain
cases, the total gross amounts of dividends, interest and
income from other assets held in the account, gross proceeds
from the sale or redemption of property and gross deposits
and withdrawals.
Time and manner of exchange of information
3.216
Article 3 governs the timing and manner of the exchange of
information. For instance, it allows the amount and character of payments
into reportable US accounts to be determined under Australian tax laws,
rather than US FATCA regulations or other US tax laws.
3.217
Article 3 also phases-in the information that has to be obtained
for the 2014 to 2016 calendar years, according to its type. It also provides
a general deadline for the provision of information to the IRS — 9 months
after the end of the calendar year to which it relates.
FATCA treatment of Australian financial institutions under the IGA
3.218
Article 4 operates to treat Australian financial institutions that
comply with the IGA’s due diligence and information reporting
obligations as generally FATCA-compliant by the US and not subject to
withholding tax. (However, as explained below, particular Australian
financial institutions that have not complied with their obligations may be
exposed to withholding tax).
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Regulation impact statement
3.219
The US FATCA regulations on withholding tax and the closure
of ‘recalcitrant’ accounts will be suspended. Instead, Australian financial
institutions will apply IGA due diligence measures to ascertain whether an
account is a ‘reportable US account’ and, if so, report the relevant
information to the ATO according to IGA (not US domestic) rules.
3.220
Article 4 expressly exempts Australian superannuation funds
from FATCA, as well as other financial institutions listed in Annex II.
3.221
The IGA will lift the general requirement that all members of a
multinational group be FATCA compliant in order for any one member to
remain compliant. For instance, the non-compliance of a foreign branch
will not taint an Australian financial institution’s compliant status (subject
to certain conditions).
3.222
Further, Article 4 will ensure that Australia will not be obliged
to obtain and exchange information prior to the date by which other FFIs
are required to report similar information to the IRS under relevant US
financial institutions.
Continued collaboration on compliance, enforcement and enhancing
transparency
3.223
Article 5 sets out how the ATO and IRS will collaborate to
enforce financial institutions’ compliance with the IGA. In particular, it
will allow them to notify each other of any ‘significant non-compliance’
by a financial institution, in which case domestic law sanctions (including
applicable penalties) would apply. While it is envisaged that the existing
uniform penalty regime in the Taxation Administration Act 1953 would
apply to non-compliant Australian financial institutions, the precise
approach will be determined during the IGA implementation process.
3.224
‘Significant non-compliance’ might include the intentional
provision of incorrect information, intentional or negligent omission of
information, repeated failure to adhere to the due diligence obligations, or
consistent late submission of information.
3.225
If the ATO’s enforcement actions do not resolve an Australian
financial institution’s non-compliance within 18 months of notification by
the IRS, the IRS will treat the Australian financial institution as
non-compliant (as a ‘non-participating financial institution’). The general
presumption of FATCA-compliance would thus be reversed in respect of
that Australian financial institution, thereby exposing it to withholding tax
on payments it receives from some foreign financial institutions.
3.226
Article 5 also gives financial institutions the flexibility of using
third party service providers to fulfil their IGA obligations. The
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Tax Laws Amendment (Implementation of the FATCA Agreement) Bill 2014
obligations would, however, remain the responsibility of such financial
institutions. Industry has welcomed this option.
3.227
Article 6 contains a mutual commitment to enhance the
effectiveness of information exchange and transparency. For example, the
US acknowledges the need for domestic rules to enable it to engage in
reciprocal automatic information exchange with Australia.
3.228
Article 7 automatically affords Australia (and Australian
financial institutions) the benefits of any more favourable terms (on the
treatment of Australian financial institutions and their due diligence
requirements) that the US provides under an IGA signed with another
country.
3.229
Article 8 provides for bilateral consultations to help resolve any
difficulties that arise with the implementation of the IGA, and for the
amendment of the IGA by mutual written consent.
3.230
Article 9 clarifies that Annexes I and II form an integral part of
the IGA, and Article 10 establishes rules for the entry into force and
termination of the IGA.
2. Annex I (due diligence obligations)
3.231
Australian financial institutions will be required by Australian
law to apply the IGA’s due diligence procedures to identify reportable
accounts and payments made to certain non-participating financial
institutions. These procedures are generally simpler than the equivalent
US FATCA regulations provisions and would be adapted to the Australian
context in relevant implementing legislation. However, Australian
financial institutions may elect to apply the US FATCA regulations if they
consider them to be better suited to their circumstances if Australia so
permits.
3.232
Under the IGA, a financial account will only become reportable
(a ‘U.S. Reportable Account’) when it is so identified through the
application of the due diligence requirements in Annex I.
3.233
Four separate categories of due diligence requirements are set
out for: pre-existing individual accounts; new individual accounts;
pre-existing entity accounts; and new entity accounts. A pre-existing
account is one maintained as at 30 June 2014.
3.234
In acknowledging that Australian financial institutions may have
many pre-existing accounts, Annex I will allow Australian financial
institutions to review them over extended periods, depending on their
value. Reviews would generally consist of searching existing electronic
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Regulation impact statement
databases, or reviewing information collected for regulatory or customer
relationship purposes (including under Anti-Money Laundering
procedures), for ‘US indicia’ — for example, a US place of birth, address,
telephone number, or place of incorporation. Where such indicia are
detected, or account values exceed certain thresholds, further
identification processes may be required to establish the account holder’s
status.
3.235
For new accounts (opened from 1 July 2014) Australian
financial institutions must generally obtain customer self-certifications
affirming whether or not they are US taxpayers (or, for some entities,
whether their owners are US taxpayers). The IGA would allow Australian
financial institutions to rely on existing account opening practices,
Australian Anti-Money Laundering rules, public information or
information their possession, to test whether the self-certifications are
reasonable in the circumstances.
3.236
Annex I also sets out the procedures for determining whether an
account holder is a non-participating financial institution. Australian
financial institutions must report the payments made to any account
holders that are identified as a non-participating financial institution.
3.237
Industry stakeholders have advised they are generally satisfied
they can meet these Annex I procedures. Further consultation will be
undertaken as necessary with a view to unfolding or clarifying Annex I
terms (including in Australia’s implementing legislation).
3. Annex II (exempt entities and products)
3.238
Annex II will be the country-specific part of the IGA, which will
exempt certain ‘low-risk’ entities and products from FATCA’s
identification, reporting and withholding rules.
3.239
Specifically listing certain Australian entities and products will:
• provide greater certainty to Australian stakeholders;
• overcome any ambiguities or gaps arising from the
application of the US rules; and
• generally ease the compliance burden on Australian financial
institutions.
3.240
Annex II was developed in consultation with Australian
Government and industry specialists and aims to ensure consistency
between stakeholders’ needs and FATCA’s objective of addressing tax
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Tax Laws Amendment (Implementation of the FATCA Agreement) Bill 2014
evasion. It will provide relief for Australian entities and products as
follows.
Entities
3.241
The following entities would be exempt from FATCA.
Australian governmental entities
3.242
Australian federal, state and local governments and their wholly
owned agencies and instrumentalities, including:
• The Clean Energy Finance Corporation, the Export Finance
and Insurance Corporation, the Future Fund, the Building
Australia Fund, the Education Investment Fund and the
Health and Hospitals Fund (or any of their wholly owned
subsidiaries); and
• State government Treasury (or equivalent) corporations
• The Reserve Bank of Australia.
International organisations
3.243
International organisations with offices in Australia, including
those that are covered by the International Organisations (Privileges and
Immunities) Act 1963, or that have signed a headquarters agreement for
the conferral of privileges and immunities with the Australian
Government.
Australian superannuation funds
3.244
All Australian superannuation funds, including any plan,
scheme, fund, trust or other arrangement operated principally to
administer or provide pension, retirement, superannuation or death
benefits, including a ‘superannuation entity’, a ‘public sector
superannuation scheme’, a ‘constitutionally protected fund’, a ‘pooled
superannuation trust’, or any entity wholly owned by the foregoing.
Small financial institutions
• Financial institutions with a local client base (provided that at
least 98 per cent of the financial accounts maintained by that
financial institution is held by residents of Australia and New
Zealand);
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Regulation impact statement
• Local banks (provided that they are an ‘authorised deposittaking institution’ as defined in the Banking Act 1959 and
that its total assets do not exceed USD175 million);
• Financial institutions with only low-value accounts (provided
that none of the financial accounts it maintains have a
balance in excess of USD 50 000 and its total assets do not
exceed USD 50 million);
• Qualified credit card issuers (provided that it is a financial
institution solely because it issues credit cards and customer
deposits cannot exceed USD 50 000)
Deemed compliant investment entities
• Australian trusts to the extent that their trustees are required
to report all relevant information;
• Certain Australian financial institutions, controlled foreign
corporations and closely held investment vehicles with
sponsoring entities that comply with all relevant
requirements on their behalf;
• Investment advisors and investment managers;
• Certain regulated collective investment vehicles;
Products and accounts
3.245
The following products/accounts would be exempt from
FATCA.
Certain savings accounts
• Certain retirement and pension accounts that are a
‘complying superannuation/FHSA life insurance policy’,
‘exempt life insurance policy’ or ‘retirement savings
account’;
• Certain regulated non-retirement savings accounts;
• Certain tax-favoured products that are ‘employee share
schemes’, ‘employee share trust’, ‘first home saver
accounts’, ‘funeral policies’ or ‘scholarship plans’.
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Tax Laws Amendment (Implementation of the FATCA Agreement) Bill 2014
Certain term life insurance policies
Accounts held by deceased estates
Escrow accounts
Partner jurisdiction accounts
• Accounts of a type excluded under an IGA between the US
and a third country.
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Index
Schedule 1: FATCA
Bill reference
Paragraph number
Item 1, subsection 995-1(1) of the ITAA 1997
1.58
Item 2, section 396-1 of Schedule 1 to the TAA 1953
1.59
Item 2, subsections 396-5(1) and (2) of Schedule 1 to the TAA 1953
1.21
Item 2, subsection 396-5(3) of Schedule 1 to the TAA 1953
1.34
Item 2, subsection 396-5(4) of Schedule 1 to the TAA 1953
1.30
Item 2, subsection 396-5(5) of Schedule 1 to the TAA 1953
1.31
Item 2, subsection 396-5(6) of Schedule 1 to the TAA 1953
1.32
Item 2, subsections 396-10(1) and (2) of Schedule 1 to the
TAA 1953
1.45
Item 2, subsection 396-10(3) of Schedule 1 to the TAA 1953
1.48
Item 2, subsections 396-10(4), (5) and (6) of Schedule 1 to the
TAA 1953
1.47
Item 2, section 396-15 of Schedule 1 to the TAA 1953
1.57
Item 2, section 396-20 of Schedule 1 to the TAA 1953
1.28, 1.46, 1.36
Item 2, section 396-25 of Schedule 1 to the TAA 1953
1.52
Item 3, paragraphs (1) and (3)
1.61
Item 3, paragraphs (2) and (3)
1.61
93