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CONTENTS
Passage History
Purpose
Background
Main Provisions
Endnotes
Contact Officer & Copyright Details
International Tax Agreements Amendment Bill (No.1)
2000
Date Introduced: 6 April 2000
House: House of
Representatives
Portfolio: Treasury
Commencement: On Royal Assent
To:
-
- incorporate an agreement to eliminate double taxation made with
Romania into the International Tax Agreements Act 1953;
and
-
- amend a similar existing agreement with Finland via a new
protocol so as to provide a reciprocal exception from withholding
tax for full franked company dividend payments.
Double Taxation Agreements
Australia has bilateral agreements with a number
of countries, known as Double Taxation Agreements (DTAs), aimed to
prevent the double taxation of income.(1) The DTAs deal
with income from a number of specific sources, such as business
income, dividends, interest and royalties.
According to the Explanatory Memorandum to the
International Tax Agreements Amendment Bill (No.1) 2000:
Relief from double taxation is desirable because
of the harmful effects double taxation can have on the expansion of
trade and the movement of capital and people between countries.
(2)
Australia's DTAs provide for the taxation
treatment which is to apply to certain situations where income is
received by a resident of one of the parties to the DTA from
activities in the other parties territory. In particular, they
generally specify which country may tax various categories of
income and limitations of the amount that may be taxed. Subsection
4(2) of the International Tax Agreements Act 1953 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 a DTA.
DTAs 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 DTAs with over
40 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
-
- South Africa
-
- the United States of America, and
-
- New Zealand.
Besides seeking to eliminate double taxation,
the DTAs aim to combat evasion or avoidance by international tax
arrangements. This is done through:
-
- providing for the allocation of profits between related
commercial parties on an arm's length basis,
-
- generally preserving the application of domestic law rules that
are designed to address transfer pricing and other international
avoidance practices, and
-
- providing for exchanges of information between the respective
tax authorities.
The Romanian DTA is modelled on other recent
comprehensive double taxation agreements reached with other
countries. According to the Explanatory Memorandum, the primary
objective is of this DTA is
to promote closer economic cooperation between
Australia and other countries by eliminating possible barriers to
trade and investment...The DTA will also establish greater legal
and fiscal certainty within which cross-border trade and investment
can be carried on and promoted. (3)
The DTA is likely to have most impact on
Australian residents with business, investment or employment
interests (including persons working as consultants) in Romania.
Specific features of the DTA are listed on pages 9-11 of the
Explanatory Memorandum. The DTA will come into operation when
Australia and Romania have exchanged diplomatic notes to the effect
that they have given the force of law to the agreement under their
respective legislation systems.
The protocol modifying the existing DTA with
Finland is likely to have most impact on Australian residents with
business or investment interests in Finland. The primary objective
of the DTA as contained in the Explanatory Memorandum essentially
restates its main aspect, ie
[to] ensure reciprocal exemption from dividend
withholding tax (DWT) of dividends paid out of fully taxed company
profits to a resident of the other country and to update the
existing DTA in a number of respects. (4)
Specific features of the modifications are
listed on pages 51-52 of the Explanatory Memorandum. The DTA will
come into operation 30 days after Australia and Finland have
exchanged diplomatic notes to the effect that they have given the
force of law to the agreement under their respective legislation
systems.
Australian Romanian commercial
relations(5)
Romania is Australia's largest export market in
Central Europe and has been so for some years. Merchandise exports
during 1999, mainly iron ore and coking coal, were valued at $75
million. Imports to Australia amounted to $8 million. In July 1999,
an Australian Consulate-General was established in Bucharest to
facilitate expanded commercial links and the development of
bilateral contacts generally.
Much of Australia's trade stems from the use of
Romania as a commercial hub, with Australian materials processed
for re-export to other markets. There is some evident interest on
the part of Australian companies in making greater use of Romania
as a regional hub as well as cooperating with Romanian companies
with a view to securing contracts associated with Balkan
reconstruction. There is presently one large Australian investment
in Romania, the Esmeralda gold extraction joint venture at Baia
Mare. A cyanide spill from the Baia Mare tailings dam on 30 January
2000 resulted in contamination of the Tisza and Danube river
systems.(6)
According to the 1996 census, there were almost
14,000 Romanian-born people living in Australia. Most of the
community resides in Sydney and Melbourne.
Australian Finnish commercial
relations(7)
Bilateral trade in 1998 totalled $882.9 million,
with the balance of trade heavily in Finland's favour. Australia's
exports to Finland in 1998 totalled $258.1 million, with our main
exports being nickel ores (58%), other minerals and communications
equipment. The high proportion of minerals in our export profile
reflects the central role of Outokumpu Oy, a Finnish mining company
in Australia which exports nickel ore and concentrates to smelters
in Finland. Two Australian mining companies, Ashton and Western
Mining, are also present in Finland. Australia's imports from
Finland decreased by 9% to $624.8 million in 1998.
Finnish direct investment has grown
significantly in recent years, from $17 million in 1996 to $52
million in 1997. Exports to Asia by Finnish companies based in
Australia should also be factored in when considering the overall
trade and investment relationship. Currently, 47 Finnish companies
have their own representation in Australia, with 30 having
subsidiaries of which 22 are in manufacturing, and a further 170
Finnish companies have agents in Australia. Prominent Finnish
companies in Australia are Nokia, Outokumpu, Abloy, Tamrok, Kone,
Valmet and Huhtamaki-Polarcup. There is significant potential for
further Finnish investment in Australia, in particular in the
forestry, paper and energy sectors. The original Finnish DTA was
signed in September 1984.
There are approximately 17,000 Finns in
Australia, of whom 9,800 were born in Finland, reflecting a wave of
migration following the Second World War which has since slowed.
Over 390 Australian citizens are registered as officially resident
in Finland.
Schedule 1 - Romanian Agreement
Item 1 inserts the term "the
Romanian agreement' into the list of definitions contained in
existing subsection 3(1) of the International
Tax Agreements Act 1953.
Item 2 inserts a new
section 11ZJ into the International Tax Agreements Act
1953 to make it clear that the DTA will have the force of
law.
Item 3 inserts the text of the
DTA into the International Tax Agreements Act 1953 by
adding a new Schedule 45 to that Act.
Schedule 2 - Amending Protocol to the
Finnish Agreement
Item 1 amends the term 'the
Finnish agreement' currently in the list of definitions contained
in existing subsection 3(1) of the
International Tax Agreements Act 1953. The amended
definition includes reference to the amending protocol.
Item 2 inserts the term 'the
second Finnish protocol' into the list of definitions contained in
existing subsection 3(1) of the International
Tax Agreements Act 1953.
Item 3 inserts a new
section 11PA into the International Tax Agreements Act
1953 to make it clear that the protocol will have the force of
law.
Item 4 inserts the text of the
protocol into the International Tax Agreements Act 1953 by
adding a new Schedule 25A to that Act.
-
- Double taxation occurs when income earned by a taxpayer over a
particular period of time is subject to comparable taxes under the
taxation laws of 2 different countries.
- Explanatory Memorandum, p. 1.
- op cit., p. 6.
- op cit., p. 7.
5 With the exception of the reference to the Baia Mare cyanide
spill, the following information is from the Department of Foreign
Affairs and Trade Romania Country Brief at http://www.dfat.gov.au/geo/romania/index.html#brief
- A copy of the United Nations report on the spill can be viewed
or downloaded from http://www.unep.ch/roe/baiamare.htm
- The following information is from the Department of Foreign
Affairs and Trade Finland Country Brief at http://www.dfat.gov.au/geo/finland/index.html#brief
Angus Martyn
7 June 2000
Bills Digest Service
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ISSN 1328-8091
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