Bills Digest no. 81 2009–10
International Tax Agreements Amendment Bill (No. 2)
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
Contact officer & copyright details
Date introduced: 25 November 2009
Commencement: Royal Assent
relevant links to the Bill, Explanatory Memorandum and second
reading speech can be accessed via BillsNet, which is at http://www.aph.gov.au/bills/.
When Bills have been passed they can be found at ComLaw, which is
The Bill amends the
International Tax Agreements Act 1953 (‘the
International Tax Agreements Act’) and the Income Tax
Assessment Act 1997 (‘ITAA 1997’) to give domestic
legal effect to three treaties (known variously as conventions,
agreements and/or protocols) entered into in 2009 by Australia
- New Zealand
- Belgium, and
Each of the three treaties is intended to avoid the situation
where a taxpayer (who resides in Australia or the other contracting
state) is taxed on the same income in both Australia and the other
concept of bring taxed twice on the same income is referred to as
‘double taxation’). The tax treaties also prevent
income tax evasion by:
- encouraging cooperation and the sharing of information between
contracting states, and
- ensuring that the laws of Australia and the other state are
The treaty with Jersey is a completely new agreement made
between the two states on 10 June 2009, whereas the treaty with New
Zealand was made on 26 June 2009 to replace earlier tax treaties
made between the two nations. In the case of Belgium, the
Bill gives effect to a protocol signed on 24 June 2009 which amends
an agreement between the two states that was originally entered
into in 1977. Further details of these various treaties are
On 26 June 2009, Australia and New Zealand entered into a treaty
known formally as the ‘Convention between Australia and New
Zealand for the avoidance of double taxation with respect to taxes
on income and fringe benefits and the prevention of fiscal
evasion’. It is referred to in the Bill as ‘the
2009 New Zealand convention’ and replaces four earlier tax
agreements between Australia and New Zealand that were entered into
or amended between 1960 and 2005.
The text of the 2009 New Zealand convention appears in
item 18 of Schedule 1 to the
Bill. Following the passage of the Bill, it will appear as
Schedule 4 to the International Tax Agreements Act (in place of
existing Schedules 4 and 4A). While the convention becomes law in
Australia on the date of Royal Assent, it does not actually come
into force until the date of the last notification by diplomatic
channels of each state having completed its domestic
processes. Even then, different parts of the convention will
apply in Australia from different dates, as follows:
Type of tax
On income derived on or after the first day of the second month
next following the date on which the convention enters into
Fringe benefits tax
On fringe benefits provided on or after 1 April next following
the date on which the convention enters into force
Other Australian taxes
On income, profits or gains of any income year beginning on or
after 1 July next following the date on which the convention enters
Also, because New Zealand has slightly different tax
classifications to those used in Australia, the convention will
apply there on just two different dates:
- for withholding taxes, on income, profits or gains
derived: on or after the first day of the second month next
following the date on which the convention enters into force,
- for other New Zealand taxes: for any income
year beginning on or after 1 April following the date on which the
convention enters into force.
On 13 October 1977, Australia and Belgium entered into a treaty
known formally as the ‘Agreement between Australia and the
Kingdom of Belgium for the Avoidance of Double Taxation and the
Prevention of Fiscal Evasion with respect to Taxes on Income’
(‘the Belgian agreement’). The text of that
agreement appears as Schedule 13 to the International Tax
Agreements Act. It was amended by a protocol (‘the first
Belgian protocol’) signed on 20 March 1984, and has more recently been amended
by another protocol (‘the second Belgian protocol’)
signed on 24 June 2009.
The text of the second Belgian protocol appears in item
19 of Schedule 1 to the Bill.
Following the passage of the Bill, it will appear as Schedule 13B
to the International Tax Agreements Act.
The second Belgian protocol enters into force following the last
notification through diplomatic channels of the completion of the
necessary domestic processes to bring the treaty into force.
Its provisions take effect on various dates, depending on the
nature of the taxes involved. For most taxes, the protocol
will apply on or after 1 January 2010, but the provisions of
Article 26 (Exchange of Information) will have effect with respect
to criminal tax matters from the date the protocol enters into
force, irrespective of the taxable period to which the matter
On 10 June 2009, Australia and Jersey entered into two tax
- the ‘Agreement for the Exchange of Information with
Respect to Taxes’, and
- the ‘Agreement for the Allocation of Taxing Rights with
Respect to Certain Individuals and to Establish a Mutual Agreement
Procedure in Respect of Transfer Pricing Adjustments’
(‘the Jersey agreement’).
Only the second agreement is mentioned in the Bill. It
deals specifically with the allocation of taxing rights in respect
to certain cross-border income derived by individuals who are
resident in both countries, and also establishes a mutual
agreements procedure for resolving transfer pricing
Both agreements come into force in Australia and Jersey when both
nations have completed the necessary domestic requirements.
Item 20 of Schedule 1 to
the Bill inserts the text of the Jersey agreement (for the
allocation of taxing rights) as Schedule 50 to the International
Tax Agreements Act.
The Jersey agreement takes effect for any year of income
beginning on or after a specified date in the calendar year next
following the date on which the agreement enters into force.
In the case of Australia, it will apply from 1 July in the relevant
year, but in the case of Jersey, it will apply from 1 January
(being the start of the tax year in Jersey).
The three treaties that are the subject
of the current Bill were considered by the Joint Standing Committee
on Treaties (JSCOT) in late 2009. The committee recommended
that binding treaty action be taken in relation to all three
The impact of the amendment of section 125–60 of the ITAA
1997 is considered to be unquantifiable but is expected to be
The impact of the first round effects of the 2009 New Zealand
convention on the forward estimates has been estimated as
‘unquantifiable’. However, the Explanatory Memorandum
explains that the costs to revenue (such as those associated with
the reduction in the rates of withholding tax and the change in
taxing rights over pensions) are expected to be offset by revenue
gains (such as those that are expected to flow as a result of
reductions in New Zealand withholding tax and reductions in the
Foreign Income Tax Offsets that will be able to be
The financial impact of the second Belgian protocol is
unquantifiable. However, the fact that the protocol replaces
and updates existing Article 26 (Exchange of Information) in the
Belgian agreement may ‘improve taxpayer compliance and
increase tax revenue’.
The financial impact of the Jersey agreement is expected to be
Item 1 of Schedule 1 to the
Bill amends existing subsection 125–60(4) of the ITAA 1997,
which defines the term ‘dual listed company
arrangement’. Such an arrangement exists where two
publicly listed companies have agreed to maintain their separate
legal entity status, shareholdings and listings, but align their
strategic directions and economic interests. Existing
paragraph 125–60(4)(a) sets out one of the ways that a
dual listed company arrangement is achieved, being ‘the
appointment of common (or almost identical) boards of
directors’. Item 1 brings this
attribute into line with the requirements of the 2009 New Zealand
convention by limiting the appointment of common boards of
directors to situations where the relevant regulatory requirements
allow this to occur.
Item 2 provides that the amendment contained in
item 1 will apply in relation to capital gains tax
(CGT) events happening on or after the commencement of Schedule 1
(being Royal Assent).
Items 3–13 of Schedule 1
amend section 3 of the International Tax Agreements Act (being the
interpretation section of the Act) as a consequence of entering
into the three tax treaties that are the subject of the Bill.
Particularly, they amend existing definitions of terms (such as
‘Belgian agreement’) and also insert definitions for
new terms (such as ‘the first Belgian protocol’).
Item 14 repeals existing sections 6B and 6C and
substitutes new provisions (proposed sections 6B and
6C) in their place to:
- state that once a provision of the 2009 New Zealand convention
enters into force, the provision has ‘the force of law
according to its tenor’
- set out a list of previous New Zealand agreements, and
- state that so far as provisions of those previous agreements
affect Australian tax, they continue to have the force of law in
respect of income or fringe benefits in relation to which the
particular agreement remains effective.
Item 16 inserts proposed section
11CB, which provides that on or after the second Belgian
protocol enters into force, its provisions have the force of law
‘according to their tenor’. Similarly,
item 17 inserts proposed section
11ZO, which provides that on or after a provision of the
Jersey agreement enters into force, the provision has the force of
law ‘according to its tenor’.
Item 18 repeals existing Schedules 4 and 4A to
the International Tax Agreements Act and substitutes
proposed Schedule 4 in their place.
Proposed Schedule 4 sets out the text of the 2009
New Zealand convention.
Item 19 inserts proposed Schedule
13B into the International Tax Agreements Act. It
sets out the text of the second Belgian protocol.
Item 20 inserts proposed Schedule
50 into the International Tax Agreements Act. It
sets out the text of the Jersey agreement.
Members, Senators and Parliamentary staff can obtain further
information from the Parliamentary Library on (02) 6277 2795.
Parties to a treaty are known as ‘contracting
The text of current Schedule 4 to the International Tax Agreements
Act is available at
viewed 14 January 2010, and the text of current Schedule 4A (being
the protocol which amended the original New Zealand Agreement) is
viewed 14 January 2010.
Article 30 (Entry into Force) of the 2009 New Zealand convention
(which is found in the Bill at pp. 60–61).
Ibid. The New Zealand tax year starts on 1 April each year:
see New Zealand Government (Inland Revenue), ‘What happens
when in the tax year and why?’, website, viewed
15 January 2010, http://www.ird.govt.nz/help/onlineforms/other/taxyear.html
The text of Schedule 13 is available at
viewed 14 January 2010.
The first Belgian protocol appears as Schedule 13A to the
International Tax Agreements Act and is available at
viewed 14 January 2010.
Article II of the second Belgian protocol (which is found in the
Bill at pp. 66–67).
The Australian Taxation Office (ATO) explains the basics of
‘international transfer pricing’ as follows:
Where a tax treaty exists, the Commissioner would usually raise
a transfer pricing or profit reallocation adjustment under both
Division 13 of the Income Tax Assessment Act 1936 (ITAA 1936) and
the Associated Enterprises article (usually Article 9) of the
relevant treaty. The Associated Enterprises article contains its
own provisions to deal with profit shifting arrangements and also
mandates the ‘arm’s length’ principle for
international dealings between associated enterprises.
Accordingly, the Commissioner may apply the provisions of
Division 13 and/or the Associated Enterprises article when making a
transfer adjustment. There should be no fundamental inconsistency
between the results under Division 13 and the Associated
Enterprises article of the treaty since both are based on the arm's
length principle, though due regard should be given to the precise
wording of the treaty being applied. In the event of any
inconsistency, the treaty provisions will prevail unless the treaty
itself gives precedence to the domestic law (see Section 4(1) of
For further details, see ATO, ‘Transfer pricing’,
ATO website, viewed 14 January 2010,
The agreements and associated documents are available on the
Treasury website, viewed 13 January 2010,
. Article 10
(Entry into Force) of the Jersey Agreement (which is found in the
Bill at p. 74). Confirmation of the start date for the Jersey
tax year is found in PKF International Limited (an association of
legally independent member firms), Jersey Tax Guide 2009,
viewed 15 January 2010, p.
Review into treaties tabled on 20 August (2) and 15 September
2009, Report 107, Parliament of Australia, Canberra, tabled 16
November 2009, viewed 13 January 2010,
Explanatory Memorandum, International Tax Agreements Amendment Bill
(No. 2) 2009, p. 7.
. Ibid., p.
. Ibid., p.
. Ibid., p.
current text of section 125–60 is available at: http://www.austlii.edu.au/au/legis/cth/consol_act/itaa1997240/s125.60.html,
viewed 13 January 2010.
19 January 2010
Bills Digest Service
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