13 November 2015
by Phillip Coorey
Australia and Germany sign new tax treaty
Australia and Germany have signed a new treaty on tax in the first step towards growing trade and investment between the nations and improving the integrity of the tax system by clamping down on multinational tax evasion.
The deal was signed in Berlin by Finance Minister Mathias Cormann and his German counterpart Wolfgang Schäuble and replaces a double taxation agreement that has existed between the countries since 1972.
The deal preceded the arrival in Berlin of Prime Minister Malcolm Turnbull on Friday.
Mr Turnbull and German Chancellor Angela Merkel will release the recommendations of the Australia-Germany Advisory Group in Berlin on Friday night, Australian time. The group was established a year ago when Dr Merkel visited Australia for the Group of 20 leaders' summit.
The recommendations include suggestions to improve economic and cultural ties between the world's fourth and 12th largest economies.
Investment, trade, the arts, security, people links, and science and innovation are all canvassed as areas for greater collaboration.
Senator Cormann said the new double taxation agreement will facilitate this by reducing the rates of withholding tax "helping to create a more favourable bilateral investment environment and making it cheaper for Australian businesses to access foreign capital and technology".
There will also be new arbitration rules and other changes to prevent double taxation that can deter business investment.
Progress on BEPS
Significantly, the new treaty puts into effect recommendations from the G20 and Organisation for Economic Co-operation and Development on base erosion and profit shifting (BEPS), an area in which Australia has taken the lead in moving with its own proposals but which will not be effective until there is widespread global action.
Progress on the implementation of BEPS laws will be discussed at the G20 in Turkey which Mr Turnbull and Senator Cormann will attend after leaving Berlin.
The new tax treaty will come into force as soon as the Parliaments of both countries have passed the requisite legislation.
Senator Cormann said he would legislate "as soon as practicable".
The German deal, which mirrors to some extent a recent agreement between Australia and Switzerland to share tax information, is part of a growing link between Canberra and Berlin.
July saw the first meeting of the high-powered Germany-Australia Advisory Group, which includes Mr Cormann, National Australia Bank chairman Michael Chaney, Siemens Australia CEO Jeff Connolly, Peter Jennings of the Australian Strategic Policy Institute, Nicholas Milton, conductor of the Canberra Symphony Orchestra, Australian National University professor Brian Schmidt, Australia's ambassador to Germany David Richie and Lucy Turnbull, president of the German-Australian Chamber of Industry and Commerce.
According to official figures, there are over 300 partnerships and co-operations between Australian and German universities, with Germany ranked as Australia's third most important research partner.
Germany is also the second-largest source country in Europe for students after the UK. Two-way trade in goods amounted to $13 billion in 2012-13, with services at $2.5 billion. German investment in Australia was $18.5 billion.