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This Digest was prepared for debate. It reflects the legislation as
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CONTENTS
Passage History
Purpose
Background
Main Provisions
Contact Officer and Copyright Details
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.
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.
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.
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.
Chris Field
14 October 1999
Bills Digest Service
Information and Research Services
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ISSN 1328-8091
© Commonwealth of Australia 1999
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Published by the Department of the Parliamentary Library,
1999.
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