Joint Press Conference with Finance Minister of Japan

Mr Koji Omi

Hyatt Regency, Coolum

Friday 3 August 2007

8.25am

SUBJECTS: New Australia-Japan Income Tax Treaty

TREASURER:

Thank you very much.  It is a great pleasure to announce today with Finance Minister, Koji Omi of Japan, that Australia and Japan have reached an agreement in principle on a new income tax treaty to modernise and replace the existing double tax agreement which we signed in March of 1969.  We have been negotiating this double tax treaty since the beginning of this year and it will be based on the OECD model tax convention. 

Japan is Australia’s largest export destination, one of our most important trading partners and the modernisation of this tax treaty will encourage further investment between our two countries.  It will reduce withholding tax on dividends, it will reduce withholding tax on interest, it will protect taxing rights in relation to resources and it will lead to further cooperation between our two countries against the avoidance of taxation. 

For Australia this has been part of a process which has now modernised our tax treaties with the United States, the UK, France and other countries.  Japan is a very important trading partner of Australia.  To be able to announce this after discussions with Finance Minister Omi, it is a very substantive breakthrough for investment between our two countries.  And I want to thank the Finance Ministry of Japan and Minister Omi very much for their cooperation in relation to this and invite Finance Minister Omi to speak to you.

MINISTER OMI:

I am very happy to be able to announce the fundamental agreement in principle on a new income tax treaty with the Treasurer Costello and we expect (inaudible) of  a new tax treaty to give you (inaudible) development of the economy between the two countries and I expect the treaty will facilitate investment flows and improved economic (inaudible) between the two countries.   And again I am very happy to be able to announce the fundamental agreement of the tax treaty and we should open a new era of the friendship in economic fields between the two countries.  Thank you.

TREASURER:

Thank you. 

JOURNALIST:

David Uren from The Australian newspaper.  May I ask whether there have been any discussions between you about the effect of the carry trade on currencies on the Australian dollar and on currencies in general?

TREASURER:

There hasn’t been any bilateral discussions between the two of us in relation to that matter.  There was some discussion in the forum yesterday in relation to those matters.  But it is not something that Australia has raised and it is not an issue for us. 

JOURNALIST:

Tim Colebatch with the Melbourne Age.  Could either of you give us any indication of exactly what the changes will be in the treaty or is it details are so mind numbing that only a tax lawyer would understand it?

TREASURER:

Well, I will have a go.  We are reducing withholding taxes imposed on dividends, interests and royalties.  The withholding tax will be reduced from 15 to 10 per cent.  The rate will be zero on interest payments from Japan to the Future Fund, Australia’s Future Fund, and EFIC.  There will be a time limit of seven years for transfer pricing audits unless there is evidence of fraud or evasion.  The treaty will protect Australia’s taxing rights over its natural resources.  So from our point of view, stronger protection of our rights to tax resources in this country, lower withholding tax on interest payments and dividends both ways and stronger cooperation against avoidance.  And I will be releasing a written press release which explains those matters. 

JOURNALIST:

This is to either of you, it is Colin Brinsden, AAP.  We saw some more gains on Wall Street last night, do you think the worst is over for the turmoil we have seen in the markets in the past few days?

MINISTER OMI: (through translator)

Because of my position that I occupy I make it a rule not to make a specific comment about the issues related to stockmarket or to the exchange rate and as far as the exchange rate is concerned our understanding and the position is that it should always reflect the economic fundamentals.

JOURNALIST:

(inaudible) from Japanese newspaper the Nikkei Mr Costello, may I ask you what kind of actual effect in Japan do you expect with this new tax treaty?

TREASURER:

I would expect that this will make it more attractive for Australians to hold equities for interest bearing securities in Japan and I would expect it to make Japanese companies to find it more attractive to invest in Australia.  We have in this country a very large pool of savings, some of which gets invested outside Australia.  The interest payments will have a lower rate of tax so that will make it more attractive for that investment to take place.  Conversely, Japanese companies may be investing in equities in the Australian stockmarket and it will make it more attractive for them to do so.  So I see very much this as facilitating investment between Australia and Japan.  These are the two largest stockmarkets in Asia – the Japanese stockmarket and the Australian stockmarket – and I see them building growth and liquidity together.  We will make this the last question as we have a conference to start at 9am. 

JOURNALIST:

David Uren from The Australian.  May I ask whether there has been any discussion about extending to Japan the flexibility for foreign investment contained in the Australian Free Trade Agreement with the United States? 

TREASURER:

I will just say something briefly and then I will ask (inaudible).  As you know, Australia and Japan are at the moment having talks about a Free Trade Agreement.  Those talks will continue.  There are obvious sensitivities that will have to be negotiated in the course of those talks but I think we should go in to them with goodwill and try and accomplish as much as we can.  All right, thank you all very much.