Bills Digest no. 30 2008–09
International Tax Agreements Amendment Bill (No. 2) 2008
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
Financial implications
Main provisions
Concluding comments
Contact officer & copyright details
Abbreviation
|
Definition
|
Agreements Act 1953
|
International Tax Agreements Act 1953
|
ATO
|
Australian Taxation Office
|
Commissioner
|
Commissioner of Taxation
|
GATS
|
General Agreement on Trade in Services
|
GST
|
goods
and services tax
|
ITAA
1936
|
Income Tax Assessment Act 1936
|
MFN
|
most
favoured nation
|
OECD
|
Organisation for Economic Co-operation and Development
|
OECD
Model
|
OECD
Model Tax Convention on Income and on Capital
|
OECD
Model Commentary
|
the
Commentaries on the Articles of the OECD Model Tax Convention
|
South
African Agreement (SAA)
|
Agreement between the Government of Australia and the
Government of the Republic of South Africa for the Avoidance of
Double Taxation and the Prevention of Fiscal Evasion with Respect
to Taxes on Income and its Protocol (both signed on 1 July
1999)
|
South
African Protocol (SAP)
|
Protocol amending the Agreement between the Government of
Australia and the Government of the Republic of South Africa for
the Avoidance of Double Taxation and the Prevention of Fiscal
Evasion with Respect to Taxes on Income (signed on 31 March
2008)
|
UK
|
United
Kingdom of Great Britain and Northern Ireland
|
Passage history
Date introduced:
17 September 2008
House: House of Representatives
Portfolio: Treasury
Commencement:
The Act commences on Royal
Assent. (The application of the 2008 South African convention is
dealt with in the Main provisions section of the Bills
Digest).
Links: The
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
at http://www.comlaw.gov.au/.
To amend the
Commonwealth International Tax Agreements Act 1953 (the
Agreements Act 1953) to incorporate into Australian law the South
African Protocol (SAP) signed on 31 March 2008 between Australia
and South Africa in order to modernise the tax treaty to meet
Australia s most favoured nation obligation and the proposed
changes to South Africa s domestic taxation of corporate profits.
On 1 April 2008, the Hon Chris Bowen MP, the
Assistant Treasurer and Minister for Competition Policy and
Consumer Affairs,
announced that Australia and South Africa had signed a new
Protocol to revise the tax treaty between the two countries which
was signed in 1999.
Australia and South Africa have a friendly
relationship with shared interests in international issues.
Multilateral and bilateral ties span a vast range of issues. These
include:
- Membership of and cooperation
in various bodies, notably the World Trade Organisation, the Cairns
Group on Agriculture, the Commonwealth, the New World Wine
Producers Group, the Commission for the Conservation of Antarctic
Marine Living Resources and the Kimberly Process on conflict
diamonds
- Bilateral agreements in force
cover areas such as air services, extradition, defence information,
double taxation and science and technology. The two countries
collaborate on various projects relating to climate change under
the Australia-South Africa Climate Change Partnership
According to the Department of Foreign Affairs
and Trade South Africa Country/Economy Fact Sheet, South Africa is
Australia s largest trading partner in Africa, its 21st
largest merchandise trading partner and 16th largest
merchandise export market. In 2007, Australian exports to South
Africa were valued at $2.53 billion (mainly medicaments, coal, meat
and civil engineering equipment). Australian imports from South
Africa were $1.35 billion and included passenger motor vehicles
(mainly BMW Series 3 vehicles) worth $663 million, transport
vehicles as well as motor vehicle parts and pig iron. Two-way
merchandise trade in 2007 was valued at $3.88 billion.
By the end of 2007, investment from South
Africa amounted to $1.2 billion while Australian investment in
South Africa stood at $893 million. Australia s investment in South
Africa s mining sector is steadily increasing. Agriculture,
infrastructure and services are other sectors attracting Australian
investment.
South Africa is the only African member of the
Cairns Group, which is chaired by Australia.
Since 1994, following the end of apartheid and
South Africa s fully democratic elections, Australia has
contributed over $120 million in development assistance.
Some 115,000 South African expatriates live in
Australia and around 7,500 Australians reside in South Africa.
The Department of Foreign Affairs and Trade
South Africa Country/Economy Fact Sheet can be accessed here.
Tax treaties generally serve three main
functions:
- They reduce or eliminate double taxation which arises by two
jurisdictions imposing tax on the basis of source of income and
residence of the recipient of income when that income flows across
borders.
- They set out the means of resolving transfer pricing issues by
setting out an agreed basis for allocating profits within a
multinational company operating in both jurisdictions.
- They provide provisions for the exchange of information between
the revenue authorities of two jurisdictions and in consequence
would assist in preventing fiscal evasion.
Australia generally follows the Organisation
for Economic Co-operation and Development (OECD) Model Tax
Convention on Income and on Capital (OECD Model) in
negotiating bilateral tax treaties. The OECD Model generally
favours the residence approach to the allocation of taxing rights,
although there are instances where Australia has adopted the source
country taxing rights approach.
The Joint
Standing Committee on Treaties (JSCOT) in Chapter 4, paragraph 4.6
of
Report 93, on treaties tabled on 12 March 2008 and 14 May 2008,
set out the reasons from the National
Interest Analysis (NIA) as to why it was necessary for
Australia to take treaty action, namely, to:
(i) meet Australia s most favoured nation (MFN)
obligations with South Africa under the existing Agreement; (ii)
promote closer economic cooperation between Australia and South
Africa; and (iii) upgrade the framework through which the tax
administrations of Australia and South Africa can prevent
international fiscal evasion.
The protocol to the existing South Africa
agreement (SAA) entered into in 1999 provides an MFN obligation
with South Africa. Paragraph 1 of the 1999 protocol provides that
if Australia enters into an agreement for the avoidance of double
taxation with a third State, and there is included in that
agreement a Non-discrimination Article, Australia shall immediately
inform the Government of South Africa and shall enter into
negotiations to provide comparable treatment for South Africa. This
obligation was triggered by the entry into force in 2003 of the
renegotiated United Kingdom tax treaty which included Article 25 on
Non-discrimination. The United Kingdom tax treaty is Schedule 1 to
the Tax Agreements Act 1953.
Paragraphs 4.6 to 4.14 of the JSCOT Report 93
set out further details of the reasons why it was necessary for
Australia to take treaty action. For ease of reference the contents
of these paragraphs are set out in Attachment A.
According to the Explanatory Memorandum,
Treasury has estimated the impact of the first round of effects on
forward estimates as negligible.
However, the JSCOT report at paragraph 4.17
adds that Australian revenue would be reduced due to the reductions
in Australian withholding tax (WHT) on dividends, interest and
royalties indicated in the Main provisions section of this Bills
Digest, whilst adding that the overall impact will be
negligible.
4.17 Australian revenue would be reduced to the
extent that Australian WHT is decreased and additional foreign tax
credits in respect of South African dividend withholding tax (when
introduced) exceed the reductions in foreign tax credits for South
African withholding tax on interest and royalties. However, the
cost to revenue arising from the Protocol is expected to be
negligible. The closer alignment with international treaty practice
would generally be expected to reduce compliance costs.
The Agreements Act 1953 gives the force of law
to all the tax treaties entered into between Australia and other
countries and which are listed in various Schedules to that Act.
Schedule 42 sets out the terms of the 1999 SAA.
Section 4 of the Agreements Act 1953
incorporates the Income Tax Assessment Act 1936 (ITAA
1936) and the Income Tax Assessment Act 1997 (the ITAA
1997). Section 4AA of the Agreements Act 1953 incorporates the
Fringe Benefits Tax Assessment Act 1986 (the FBTAA 1986).
Sections 4 and 4AA both provide that these Acts are to be read as
one with the Agreements Act 1953, and that the Agreements Act 1953
takes precedence over these other Acts except for the
anti-avoidance provisions in Part IVA of the ITAA 1936 and in
section 67 of the FBTAA 1986.
Item 2 of Schedule
1 amends subsection 3(1) of the Agreements Act 1953 to
insert the definition of the South African protocol:
the South African
protocol means the Protocol amending the Agreement
between the Government of Australia and the Government of the
Republic of South Africa for the avoidance of double taxation and
the prevention of fiscal evasion with respect to taxes on income. A
copy of the protocol is set out in Schedule 42A.
Schedule 42 of the Agreements Act deals with
the South African Agreement (SAA). Item 4 of
Schedule 1 inserts Schedule 42A South
African protocol (SAP) after Schedule 42 to amend the
SAA.
It is not within the scope of this Bills
Digest to cover all the Articles of the SAP which amend the SAA.
However, brief comments will be made on certain key changes made by
the SAP. The Explanatory Memorandum to the Bill (pages 14 to 17)
sets out in a table a summary of key features of the new law and
the current law. For ease of reference this table is included in
Attachment B to this Bills Digest.
Article 1 of the SAP omits
existing Article 2 of the SAA and substitutes a new Article
2 to the SAA.
The new Article 2 states the
range of taxes that the SAA will cover for the following
purposes:
- the taxes covered for relief from double taxation,
- the taxes covered by the new Article 23A of
the SAA dealing with non-discrimination,
- the taxes covered by new Article 25 for
exchange of information purposes, and
- the taxes covered by new Article 25A for
assistance in the collection of taxes.
Paragraph 1 of
Article 2 of the SAP omits existing Article 2 of
the SAA and substitutes a new Article 2 to cover
the following taxes in Australia and South Africa to which the SAA
shall apply.
- in the case of Australia:
the income tax, including the resource rent tax in respect of
offshore projects relating to exploration for or exploitation of
petroleum resources, imposed under the federal law of
Australia;
- in the case of South Africa:
- the normal tax;
- the secondary tax on companies; and
- the withholding tax on royalties.
The existing Article 2 of the SAA does not
cover the South African withholding tax on royalties.
Article 5 of the SAP omits
Article 10 of the SAA and substitutes new Article
10 to deal with dividends.
Paragraph 1 of new
Article 10 provides that dividends paid by a company which
is a resident of a Contracting State for the purposes of its tax,
being dividends beneficially owned by a resident of the other
Contracting State, may be taxed in that other State.
Paragraph 2 of new
Article 10, provides that those dividends may be taxed in
the Contracting State of which the company paying the dividend is a
resident, but the tax so charged shall not exceed:
- dividends is a company which owns directly shares representing
at least 10 per 5 percent of the gross amount of the dividends if
the beneficial owner of cent of the voting power of the company
paying the dividends (paragraph 2(a) of
Article 10), and
- 15 per cent of the gross amount of the dividends in all other
cases.
Under the existing SAA, the tax on
inter-corporate dividends is limited to 10 per cent and the rate of
dividend withholding tax is limited to 15 per cent in all other
cases.
Article 6 of the SAP omits
Article 11 of the SAA and substitutes new Article
11 to deal with interest.
Paragraph 2 of new
Article 11 reduces the rate of interest withholding tax to
a maximum of 10 per cent.
However, paragraph 3 of
Article 11 provides that the rate of interest
withholding tax shall be zero where interest is paid to:
- government bodies and central banks, or
- financial institutions.
There is no equivalent in the existing Article
11 of the SAA.
Article 7 of the SAP omits
Article 12 of the SAA and substitutes new Article
12 to deal with royalties.
Paragraph 2 of
Article 12 reduces the rate of royalty withholding
tax to a maximum of 5 per cent of the gross amount of
royalties.
Under the existing SAA, the rate of royalty
withholding tax is limited to 10 per cent of the gross amount of
royalties.
Article 9 of the SAP inserts
new Article 23A into the SAA to prevent tax
discrimination on the grounds of nationality. Paragraph
1 of Article 23A provides that nationals
of one country may not be less favourably treated than nationals of
the other country in the same circumstances.
Paragraph 1.133 on page 45 of the Explanatory
Memorandum to the Bill explains the need for this
non-discriminatory provision:
The Australian tax system is generally
non-discriminatory. However, for clarity this Article provides that
certain features of the Australian tax system should not be seen as
coming within the Article s terms. The measures identified can be
characterised as being an integral part of the administration of
Australia s economic and tax policy and the collection of its
taxes.
It will be noted that Article
12 of the SAP removes paragraph 1 of the existing protocol
of the SAA, which as pointed out earlier imposes MFN obligations on
Australia with respect to the inclusion of non-discrimination
rules. As new Article 23A will now provide for
non-discrimination, there is no need for paragraph 1 of the
existing protocol. The Explanatory Memorandum to the Bill in
paragraph 1.202 confirms the reason for its removal:
This reflects the fact that Australia s MFN
obligations have been met by the inclusion of a Non-Discrimination
Article (Article 23A) in the Agreement by Article 9 of this
Protocol.
It must also be noted that paragraph
3 of new Article 2 provides that for the
purposes of new Article 23A, the taxes to which
the SAA shall apply are taxes of every kind and description imposed
on behalf of the Contracting States, or their political
subdivisions or local authorities. In the case of Australia, this
will include State and Territory as well as local government
taxes.
However paragraph 5 of
new Article 23A provides that the rule against
non-discrimination does not preclude either Contracting State from
applying its anti-avoidance or anti-evasion rules, rebates or
credits for dividends paid by resident companies, research and
development concessions, consolidation rules or capital gains
deferral rules. Paragraph 6 of new Article
23A provides that provisions of the laws of a contracting
State to prevent avoidance or evasion of taxes include measures to
address thin capitalisation, dividend stripping, transfer pricing
and controlled foreign company measures.
Article 10 of the SAP omits
Article 25 of the SAA and substitutes new Article
25 to deal with exchange of information. The Explanatory
Memorandum to the Bill in paragraph 1.167 on page 51 states that
the provisions of new Article 25 align the
information exchange provisions to the 2005 OECD standard.
Paragraph 1 of new
Article 25 provides that the competent authorities of the
Contracting States shall exchange such information as is
foreseeably relevant for carrying out the provisions of the SAA or
to the administration or enforcement of the domestic law concerning
taxes referred to in Article 2.
Paragraph 4 of new
Article 2 gives an extensive coverage to the taxes that
may be subject to exchange of information under new Article
25. Subparagraph 4(a) of new
Article 2 states that in the case of Australia,
new Article 25 shall apply to taxes of every kind
and description imposed under the federal tax laws administered by
the Commissioner of Taxation. Further, paragraph 1
of new Article 25 adds that the exchange of
information is not restricted by Article 1 of the SAA. Article 1 of
the SAA deals with the personal scope of the SAA and states that
the SAA shall apply to persons who are resident of one or both of
the Contracting States. Thus the provision for the exchange of
information under new Article 25 may cover persons
who are not residents of Australia or South Africa.
Paragraph 2 of new
Article 25 provides that the exchanged information must be
treated as secret in the same manner as information obtained under
the domestic law of the State that receives the information.
Further, it provides that such information shall be disclosed only
to persons or authorities (including courts and administrative
bodies) concerned with the assessment or collection of, the
enforcement or prosecution of, the determination of appeals in
relation to taxes referred to in paragraph 4 of
new Article 2.
It must be noted that paragraph
4 of new Article 2 of
the SAP, in the case of Australia, covers taxes of every kind and
description imposed under federal tax laws administered by the
Commissioner of Taxation. In the case of South Africa, it covers
taxes of every kind and description imposed under the tax laws
administered by the Commissioner for the South African Revenue
Service.
Article 11 of the SAP inserts
new Article 25A into the SAA to provide for
assistance in the collection of revenue claims. As in the case of
exchange of information, paragraph 1 of
new Article 25A provides that assistance in the
collection of revenue claims is not restricted by the personal
scope measure in Article 1 of the SAA. Thus the provision for the
assistance in the collection of revenue claims under new
Article 25A may cover collection of revenue claims from
persons who are not residents of Australia or South Africa.
Further, paragraph 1 of
new Article 25A provides that the competent
authorities of the Contracting States may by mutual agreement
settle the mode of application of this Article in relation to
collection of taxes.
Paragraph 4 of new
Article 2 gives an extensive coverage to the taxes that
may be subject to the collection of taxes measures in new
Article 25A. Subparagraph 4(a) of
new Article 2 states that in the case of
Australia, new Article 25A shall apply to taxes of
every kind and description imposed under the federal tax laws
administered by the Commissioner of Taxation.
Paragraph 2 of new
Article 25A defines a revenue claim to mean an amount owed
in respect of taxes referred to in Article 2 of the SAA as well as
interest, administrative penalties and costs of collection and
conservancy related to such amount.
Paragraph 3 of new
Article 25A provides that where a revenue claim of a
Contracting State is enforceable under the laws of that State and
the debtor has exhausted all rights to prevent its collection in
that Contracting State, that revenue claim shall at the request of
the competent authority of that Contracting State be accepted for
purposes of collection by the competent authority of the other
Contracting State.
Paragraph 4 of new
Article 25A provides that Australia or South Africa may
request the other Contracting State to take measures of conservancy
where the revenue claim is not yet enforceable or where the debtor
has not exhausted all rights to prevent its collection. The
Explanatory Memorandum to the Bill in paragraph 1.186 on page 55
states that although Australia does not have specific conservancy
measures, the Commissioner may apply for a Mareva
injunction, to prevent the taxpayer and the taxpayer s associates
from dealing with certain assets.
Clause 2 of the Bill provides
that the proposed Act commences on the day on which it receives
Royal Assent.
Item 3 of Schedule
1 inserts proposed section 11ZGA into the
Agreements Act 1953 to provide that subject to this Act, on or
after the date of entry into force of the South African protocol,
the provisions of the protocol have the force of law according to
their tenor.
Paragraph 1 of
Article 13 of the SAP provides that the Government
of Australia and the Government of the Republic of South Africa
shall notify each other in writing through the diplomatic channel
of the completion of their domestic requirements for the entry into
force of the SAP.
In the case of Australia, the enactment of
this Bill and the tabling of the SAP in Parliament are
prerequisites to the exchange of diplomatic notes under
Article 13 of the SAP.
Paragraph 2 of
Article 13 of the SAP, which shall form an
integral part of the SAA, shall enter into force on the date of the
last notification.
The SAP shall have effect for Australia and
South Africa as follows.
Paragraph 2(a) of
Article 13 provides that the SAP shall have effect
as follows:
- with regard to withholding tax on income that is derived by a
non-resident, in respect of income derived on or after the first
day of the second month following the date on which the Protocol
enters into force;
- with regard to other Australian taxes, in respect of income,
profits or gains of any year of income beginning on or after 1 July
in the calendar year next following the date on which the Protocol
enters into force.
Paragraph 2(b) of
Article 13 provides that the SAP shall have effect
as follows:
- with regard to taxes withheld at source, in respect of amounts
paid or credited from the day after the date von which the Protocol
enters into force;
- with regard to other South African tax, in respect of years of
assessment beginning on or after 1 January next following the date
on which the Protocol enters into force.
Paragraph 2(c) of
Article 13 provides that the provisions for
exchange of information in new Article 25 take
effect from the date on which the SAP enters into force.
Paragraph 2(d) of
Article 13 provides that the provisions for the
collection of taxes in new Article 25A take effect
from a date to be agreed in an Exchange of Notes through the
diplomatic channel.
Concluding comments
It was noted in the section on Financial
implications in this Bills Digest that Treasury has estimated the
impact of the first round effects on forward estimates as
negligible.
The Regulation Impact Statement (RIS) in
paragraph 2.19 and 2.20 on page 101 of the Explanatory Memorandum
to the International Tax Agreements Amendment Bill (No. 1) 2008
(the Bill incorporating the 2008 Japanese Convention into
Australian law) succinctly highlights the difficulties of
estimating, which includes the estimation of cross-border
behavioural responses to concessions in a tax treaty.
2.19 Only a partial analysis of costs and
benefits can be provided because all the impacts of tax treaties
cannot be quantified. While the direct cost to Australian revenue
of withholding tax changes can be quantified relatively easily,
other cost impacts such as compliance costs are inherently
difficult to quantify. There are also efficiency and growth gains
and losses to Australia that provide estimation problems. Analysis
has been conducted to establish plausible impacts on Australian
economic activity and consequent tax revenue flowing from
implementation of the tax treaty. The tax revenue estimates are
subject to more uncertainty than the estimates of costs but are
best estimates given the technology of estimation, the availability
of estimates of behavioural responses, and data.
2.20 Benefits that flow to business are
generally equally difficult to quantify. The evidence from
international consideration (eg, the OECD) and from consultation
with business strongly indicates, however, that while the quantum
of benefits is very difficult to assess, a modern tax treaty
provides a clear positive benefit to trade and investment
relationships. Tax treaties provide increased certainty and reduce
complexity and compliance costs for business.
No RIS was prepared on the SAP as indicated by
the comment Regulation Impact Statement: Not Applicable on
information in relation to the SAP in the JSCOT website.
The JSCOT comments on costs which were included in the Financial
implications section of this Bills Digest indicates that the
reduction in withholding tax rates on dividends, interest and
royalties will be at a net cost to Australian revenue. However, it
concludes that the overall costs arising from all the measures in
the SAP will be negligible. This highlights the difficulty of
quantifying the revenue impacts of tax treaties.
(extract from Report 93 of the Joint Standing
Committee on Treaties)
4.6 According to the NIA the key objectives of
the Protocol are to: (i) meet Australia s most favoured nation
(MFN) obligations with South Africa under the existing Agreement;
(ii) promote closer economic cooperation between Australia and
South Africa; and (iii) upgrade the framework through which the tax
administrations of Australia and South Africa can prevent
international fiscal evasion. The protocol
is expected to reduce barriers to bilateral
trade and investment, as lowered withholding tax rates on interest
and royalties is expected to reduce costs for Australian
businesses. I can provide the committee members with more details
of any of these if they like. We therefore recommend that members
of the committee support the treaty action as proposed.
4.7 The Department of the Treasury stated that
the entry into force in 2003 of the Convention between the
Government of Australia and the Government of the United Kingdom of
Great Britain and Northern Ireland for the Avoidance of Double
Taxation and the prevention of Fiscal Evasion with respect to Taxes
on Income and on Capital Gains:
triggered a total of eight clauses in other
treaties, and we were aware of that when we entered into it.
4.8 The Agreement requires Australia to enter
into negotiations with South Africa with a view to establishing
rules to protect nationals and businesses of one country from tax
discrimination in the other country. Australia s MFN obligations
will be met when the Protocol enters into force.
4.9 The Protocol aligns withholding tax (WHT)
rates on dividends, interest and royalties and capital gains tax
treatment more closely with broad practice among Organisation for
Economic Co-operation and Development (OECD) members and improves
integrity measures within the Agreement. In particular, by
extending the scope of information exchange provisions and
introducing provisions for cross-border collection of tax
debts.
4.10 The Protocol is expected to reduce
barriers to bilateral trade and investment caused by overlapping
taxing jurisdictions. Reduced WHT rates on interest and royalty
payments will make it cheaper for Australian businesses to obtain
business loans and intellectual property from South Africa.
4.11 The existing Agreement provides for a
dividend WHT rate of zero for non-portfolio inter-corporate
dividends that are paid out of profits that have borne the normal
rate of company tax and a rate of 15 per cent for all other
dividends. Significantly, the secondary tax on companies (STC), as
a tax borne by resident South African companies, has not been
subject to treaty limitations.
4.12 The South African Government announced in
its 2007/08 Budget that the STC will be phased out and replaced by
a dividend tax on shareholders, which will be subject to treaty
limitations. This is subject to the renegotiation of several tax
treaties, including its tax treaty with Australia. To facilitate
South Africa s domestic law changes the Protocol provides for
dividend WHT at a rate of 5 per cent for non-portfolio
inter-corporate dividends and 15 per cent for all other dividends,
consistent with the OECD Model Tax Convention.
4.13 South Africa s proposed domestic law
changes, combined with limitations on dividend WHT in the new
Protocol, should benefit Australian investors. According to the
NIA, in the case of non-portfolio inter-corporate dividends,
Australian shareholder companies should benefit from a reduction in
total South African tax on the corporate profit since the South
African dividend WHT is limited to 5 per cent under the Protocol.
In the case of all other dividends, the overall South African tax
rate would be the same, however, Australian investors would benefit
from being able to claim a foreign tax credit in Australia for the
dividend WHT. This will reduce their overall tax burden.
4.14 The Protocol enhances the existing
framework of the Agreement by updating the exchange of information
rules to match the 2005 OECD standard and inserting assistance in
collection provisions to help in the recovery of tax debts from
those Australian taxpayers who move to South Africa. On being
questioned about whether there were any problems with the
implementation of the agreement, the Department of the Treasury
stated:
No. The revised protocol has updated our
exchange of information arrangements and in that regard it provides
a wider range of taxes that allows us to exchange information. It
also requires that bank secrecy is not a blocker to providing
information. The new protocol also contains an assistance in
collection provision that allows Australia to collect tax debts on
behalf of South Africa and vice-versa.
(Extract from the Explanatory Memorandum pages
14 to 17.)
New law
|
Current law
|
Updates
certain Articles of the Agreement, having regard to Australian,
South African and OECD tax treaty developments since the existing
Agreement was entered into.
|
Not applicable.
|
Updates the list of taxes to which the new treaty
arrangements apply. In the case of South Africa these taxes now
include:
However,
a broader range of taxes apply to certain Articles. In the case of
Australia, the taxes are:
-
taxes of every kind and description for Article
23A (Non-Discrimination); and
-
taxes of every kind and description imposed under
the federal law of Australia and administered by the Commissioner
for Article 25 (Exchange of Information) and Article 25A
(Assistance in the Collection of Taxes).
In the case of South Africa, the
taxes are:
-
taxes of every kind and description for Article
23A (Non-Discrimination); and
-
taxes of every kind and description imposed under
the tax laws administered by the Commissioner for the South African
Revenue Service for Article 25 (Exchange of Information) and
Article 25A (Assistance in the Collection of Taxes).
|
No equivalent.
|
The residency definition in the
Agreement has been supplemented. In particular, the Protocol:
|
Provides for more limited tie-breaker rules for
determining how residency shall be allocated.
|
Limits the treaty benefits that a
country is obliged to provide where income, profits or gains of
temporary resident individuals are exempted.
|
No equivalent.
|
Updates
the definition of permanent establishment . In particular, the
Protocol provides that a building site or construction or
installation project constitutes a permanent establishment where it
lasts for more than six months. Furthermore, an enterprise is
deemed to have a permanent establishment if:
-
it carries on supervisory or consultancy
activities connected with a building site or construction or
installation project for a period or periods exceeding in the
aggregate 183 days in any 12-month period;
-
it carries on activities (including the operation
of substantial equipment) in the exploration for or exploitation of
natural resources for a period or periods exceeding in the
aggregate 90 days in any 12-month period; or
-
it operates substantial equipment (including in
natural resource activities) for a period or periods exceeding in
the aggregate 183 days in any 12-month period.
Integrity provisions are included to prevent related parties from
circumventing the permanent establishment time thresholds by
splitting contracts.
|
A building site or construction, installation or
assembly project which exists for more than 12 months is included
in the list of examples of a permanent establishment. In addition,
an enterprise is deemed to have a permanent establishment if:
- it carries on supervisory activities in that State for more
than 12 months in connection with a building site, or a
construction, installation or assembly project; or
- substantial equipment is being used for or under contract with
the enterprise.
|
Dividend withholding tax is limited
to:
-
5 per cent of the gross amount of the dividends
if the beneficial owner of those dividends is a company which holds
directly at least 10 per cent of the voting power in the company
paying dividends; or
-
15 per cent of the gross amount of the dividends
in all other cases.
|
Inter-corporate dividends paid out of profits
that have borne the normal rate of company tax (which, in the case
of Australia, means that the dividends are fully franked ) are
exempt from dividend withholding tax, where the company that is
beneficially entitled to the dividends holds directly at least 10
per cent of the capital of the paying company. The rate of dividend
withholding tax is limited to 15 per cent in all other cases.
|
Reduces the rate of interest
withholding tax from a maximum of 10 per cent to zero where certain
interest is paid to:
|
No equivalent.
|
Reduces the rate of royalty
withholding tax from a maximum of 10 per cent to 5 per cent of the
gross royalty payment and extends the meaning of royalty to include
spectrum licences. Leasing of industrial, commercial or scientific
equipment will no longer constitute a royalty.
|
The rate of royalty withholding tax is limited
to 10 per cent of the gross payment. Definition of royalties
includes payments for use of industrial, commercial and scientific
equipment.
|
Modifies Article 13 (Alienation of
Property) to provide that gains of a capital nature from the
alienation of property not otherwise dealt with in Article 13 are
taxable only in the Contracting State of which the alienator is a
resident.
|
The sweep-up
provision enables each country to tax, according to its domestic
law, any gains of a capital nature derived by its own residents or
by a resident of the other country from the alienation of any
property not specified in Article 13.
|
Inserts a new Article 23A
(Non-Discrimination) preventing discrimination in relation to tax
laws.
|
No equivalent.
|
Closely aligns Article 25 (Exchange
of Information) to the 2005 OECD standard. The effect of the
changes is to expand the range of taxes to which the Article
applies and to clarify that bank secrecy laws or the requirement of
a domestic tax law interest in the information do not limit the
exchange of information.
|
The existing rules apply to a narrower range of
taxes.
|
Inserts a new Article 25A
(Assistance in the Collection of Taxes) into the Agreement which
authorises and requires Australia and South Africa to provide
assistance to each other in the collection of cross-border tax
debts.
|
No equivalent.
|
Bernard Pulle, Dr. Ravi Tomar and Paige Darby
23 September 2009
Bills Digest Service
Parliamentary Library
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