Bills Digest No. 73 1999-2000 International Tax Agreements Amendment Bill 1999


Numerical Index | Alphabetical Index

WARNING:
This Digest was prepared for debate. It reflects the legislation as introduced and does not canvass subsequent amendments. This Digest does not have any official legal status. Other sources should be consulted to determine the subsequent official status of the Bill.

CONTENTS

Passage History
Purpose
Background
Main Provisions
Contact Officer and Copyright Details

Passage History

International Tax Agreements Amendment Bill 1999

Date Introduced: 23 September 1999

House: House of Representatives

Portfolio: Treasury

Commencement: Royal Assent. The various measures have effect from differing dates often depending on when certain conditions are met. Refer to the brief description of the agreements in the background section of this Digest for further information.

Purpose

To incorporate into Australian law agreements aimed to avoid double taxation made with:

  • Republic of South Africa
  • Slovak Republic, and
  • Argentine Republic,

and to incorporate a number of changes to the existing agreement with Malaysia.

Background

Australia has agreements with a number of countries, known as Double Tax Agreements, aimed to prevent the double taxation of income where income is received by a resident of one of the parties to the agreement from activities in the other party to the agreement. The agreement also aims to help minimise tax avoidance and evasion. The agreements deal with income from a number of specific sources, such as business income, dividends, interest and royalties. A number of more recent agreements contain a general provision allowing the taxation by Australia of money derived in Australia where it is not specifically dealt with in the agreement. This process will be adopted in the new agreement with New Zealand.

The agreements provide for the taxation treatment which is to apply, particularly which country may tax various categories of income and limitations of the amount that may be taxed. Subsection 4(2) of the Income Tax (International Agreements) Act 1953 (the Principal Act) provides that agreements are, in most cases, to overrule provisions of the Income Tax Assessment Act 1936 and the Income Tax Assessment Act 1997, although a specific Australian law can overrule an agreement.

Agreements have a common format but differ to reflect the various tax rules applying in the countries with which Australia has an agreement. Australia currently has agreements with 37 countries, including:

  • China, Japan, Korea, Malaysia and Indonesia
  • Singapore, Thailand, India and Vietnam
  • most Western and Southern European and Scandinavian countries
  • Hungary and Poland
  • Ireland and the United Kingdom
  • the United States of America, and
  • New Zealand.

The aims of Double Tax Agreements are to prevent:

  • the double taxation of income received in one country that is a party to an agreement by a resident of the other country that is a party to an agreement. This is achieved by the separation of taxing powers between the parties and, in certain circumstances, the giving of credits for the payment of tax in the other country, and
  • tax evasion or avoidance by international tax arrangements. This is aimed to be achieved by the transfer of information between the taxation authorities of the countries that are parties to an agreement.

Agreements tend to have standardised rules for the taxation of various categories of income depending on its source and the place of residence of the person deriving the income, although different limits and variations to the standard rules apply for the various countries. Broadly, income from certain categories is reserved for taxation in the country of residence of the taxpayer while income from other sources may be taxed in its country of source, usually to a maximum percentage of the income (the most important categories covered by the later rule are dividends, royalties and interest). Where the country of residence also taxes these classes of income, it is required to allow a credit for the tax paid in the country of source. Agreements may also have general 'catch all' provisions designed to preserve the operation of Australia tax rules unless specifically excluded by the agreement.

Malaysia: A double tax agreement between Australia and Malaysia has been in force since 1980 A main feature of the agreement is the allowance for tax concessions available in Malaysia to encourage investment in that country. The agreement provides that where Malaysia allows concessional tax treatment an Australian investor fill be deemed to have paid the full rate of tax for the calculation of any tax payable in Australia. In the absence of such provisions the concessional Malaysian tax regime would be offset by higher Australian tax, thus removing the incentive to invest in Malaysia. A number of arrangements in this regard have been formally entered into between the two countries and the amendments to the 1980 agreement contained in the Bill will give legislative effect to those arrangements.

The changes will have effect from the dates that various Malaysian schemes allowing concessional tax treatment came into effect. The earliest of these dates is 1 July 1987.

Slovak Republic: This agreement falls within the category of a 'standard' double tax agreement in the matters subject to the agreement and the taxing arrangements between the countries. The agreement was signed on 24 August 1999 and will enter into force after notice has been given that the parties have completed the processes necessary to give effect to the incorporation of the agreement in their domestic law (including, for Australia, the passage of this Bill).

Argentine Republic: The agreement differs from the 'standard' model to reflect certain aspects of Argentinian tax law and will reduce the rate of tax payable by Australian residents on income from technical assistance, dividends, interest and royalties. The agreement was signed on 27 August 1999 and generally will enter into force after notice has been given that the parties have completed the processes necessary to give effect to the incorporation of the agreement in their domestic law. Income related to airline profits will be subject to the agreement from 27 September 1988, when an earlier agreement on this matter came into force.

Republic of South Africa: This agreement falls within the category of a 'standard' double tax agreement. The agreement was signed on 1 July 1999 and will enter into force after notice has been given that the parties have completed the processes necessary to give effect to the incorporation of the agreement in their domestic law.

Main Provisions

The various Schedules to the Bill will insert the text of the agreements into the Principal Act. As the Bill deals with the taxation treatment of a number of categories of income in each of the four countries with whom agreement has been reached, rather than introducing new policy, the individual Articles of the agreements will not be dealt with in this Digest.

Queries relating to specific categories of income and specific countries covered by the agreements should be directed to the author of this Digest.

Contact Officer and Copyright Details

Chris Field
14 October 1999
Bills Digest Service
Information and Research Services

This paper has been prepared for general distribution to Senators and Members of the Australian Parliament. While great care is taken to ensure that the paper is accurate and balanced, the paper is written using information publicly available at the time of production. The views expressed are those of the author and should not be attributed to the Information and Research Services (IRS). Advice on legislation or legal policy issues contained in this paper is provided for use in parliamentary debate and for related parliamentary purposes. This paper is not professional legal opinion. Readers are reminded that the paper is not an official parliamentary or Australian government document.

IRS staff are available to discuss the paper's contents with Senators and Members
and their staff but not with members of the public.

ISSN 1328-8091
© Commonwealth of Australia 1999

Except to the extent of the uses permitted under the Copyright Act 1968, no part of this publication may be reproduced or transmitted in any form or by any means, including information storage and retrieval systems, without the prior written consent of the Parliamentary Library, other than by Members of the Australian Parliament in the course of their official duties.

Published by the Department of the Parliamentary Library, 1999.

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