[Article 14, paragraph 5]. 2.331 The phrase is also applicable to more onerous administrative or compliance requirements that a taxpayer may be called upon to meet where those requirements differ based on nationality grounds. [Article 24, subparagraph5a) and paragraph 6]. [Article 5, paragraph8]. Generally under that definition a managed investment trust will be directly or indirectly widely held. However, the exemption will apply if: NewZealand no longer has an AIL; if the payer of the interest is not eligible to elect to pay the AIL; or. For instance, the supplier, depending on the nature of the services to be rendered, may have to incur salaries and wages for employees engaged in researching, designing, testing, drawing and other associated activities or payments to sub-contractors for the performance of similar services. House website. Dividend withholding tax is limited to 15percent for all dividends. 5.74 Businesses that collect withholding taxes will need to make small system changes to change the rate at which they withhold to reflect the Conventions withholding tax rate limits. The requirements of sub-subparagraph b)(ii) of paragraph 3 are not met because one of the companies owning Rotorua Co (that is, Oculum Co) is not entitled to equivalent benefits. The Australian partnership includes Australian partners (Y and Z Co) who are residents of Australia for the purposes of the treaty. An example of a conservancy measure is the seizure or the freezing of assets before final judgment to guarantee that the assets will still be available when collection can subsequently take place. Application of the Convention to fiscally transparent entities, Model Tax Convention on Income and on Capital, Eligibility for the treaty benefits will also be subject to the application of the respective anti-avoidance measures contained in the specific Article (in this example, paragraph 9 of Article 10 (, As such, in this example, the dividend income would be eligible for the benefits of the Convention. 5.60 Other benefits also include: the clarification of the residency rules. The Convention will become law from the date of Royal Assent. 2.388 It is intended that the Article extend to any identical or substantially similar taxes which are subsequently imposed by either country in addition to, or in place of, these taxes. [Article 27, paragraph 5]. 4.13 In the case of Australia, the competent authority is the Commissioner of Taxation (Commissioner) or an authorised representative of the Commissioner. On the other hand, a contract for the performance of services would, in the majority of cases, involve a much greater level of expenditure by the supplier in order to perform their contractual obligations. Planning and supervision are considered part of the building site if carried out by the construction contractor. 2.123 The OECD Model Commentary recognises that time thresholds in Article5 may give rise to abuses and notes that countries concerned with this issue may adopt solutions in bilateral negotiations to prevent such abuse. 5.50 This is expected to encourage investment in Australia and result in generally lower compliance costs. Allocates taxing rights over residual capital gains to the country of residence of the alienator. 2.170 Each country has the right to apply its domestic law relating to the determination of the tax liability of a person (for example, Australias Division 13 of Part III of the ITAA 1936) to enterprises, including in cases where the available information is inadequate, provided that such provisions are applied, so far as it is practicable to do so, consistently with the principles of the Article. However, a competent authority is not entitled to request information from the other country which is unlikely to be relevant to the tax affairs of a taxpayer, or to the administration and enforcement of tax laws. Agreement between the Government of Australia and the Government of Jersey for the Allocation of Taxing Rights with Respect to Certain Income of Individuals and to Establish a Mutual Agreement Procedure in Respect of Transfer Pricing Adjustments, The Jersey Agreement is the third agreement of its type signed between Australia and a low-tax jurisdiction and was signed in conjunction with the, Agreement between the Government of Australia and the Government of Jersey for the Exchange of Information with Respect to Taxes. [Article 30, paragraph 2]. This is normal in the context of any new tax treaty or bilateral agreement. 1.1 This Bill amends the Income Tax Assessment Act1997 (ITAA1997) to align the definition of a dual listed company (DLC) arrangement with the 2009 AustraliaNew Zealand Convention. Consistent with the OECD Model Commentary on Article 8 (Shipping, Inland Waterways Transport and Air Transport), paragraph 1 also covers profits from activities directly connected with such operations as well as profits from activities which are not directly connected with the operation of the enterprises ships or aircraft in international traffic but which are ancillary to such operation. 2.373 In some instances, the competent authorities will not reach agreement on a solution to a particular case. He is present in Australia for more than 183 days, and receives both employment income and fringe benefits. where the domestic taxation law of one of the States exempts the income from its tax. This reflects Australias usual practice of providing for taxation of profits from the exploitation of Australian land for the purposes of primary production under Article 7 (Business Profits). 2.292 In the course of negotiations, the delegations noted: It is understood that the term retirement benefits scheme means an arrangement in which the individual participates in order to secure retirement benefits. 2.197 In the case of Australia, the definition is consistent with subsection 3(2A) of the Agreements Act 1953 which clarifies that a reference to income from shares, or to income from other rights participating in profits, does not include a reference to a return on a debt interest as defined in Subdivision 974-B of the ITAA 1997. 5.35 Under its domestic tax law, Australia imposes a final withholding tax on interest, royalty and unfranked dividend payments to nonresidents at the rates of 10, 30 and 30 per cent of the gross payment, respectively. 5.16 Total exports (goods and services) in 2007-08 were valued at A$12.9 billion. Normally it would be expected that such an offset would be available subject to the limits arising under Australian domestic law and any treaty with that third country. 2.406 This paragraph follows the OECD provision but has no practical effect in Australia as there is currently no time limit imposed on the collection of a revenue claim. Further, the Convention will enter into force after the date of the last notification by diplomatic notes and once the domestic processes to give the Convention the force of law in the respective countries have been completed. However, some examples of substantial equipment would include: industrial earthmoving equipment or construction equipment used in road building, dam building or powerhouse construction; manufacturing or processing equipment used in a factory; or. providing new rules to protect nationals and businesses from tax discrimination in the other country. This Bill amends the International Tax Agreements Act 1953 (AgreementsAct 1953) to give the force of law in Australia to the Convention between Australia and NewZealand for the Avoidance of Double Taxation with Respect to Taxes on Income and Fringe Benefits and the Prevention of Fiscal Evasion (the Convention) that was signed in Paris on 26June2009. To be defined as a DLC arrangement, the DLC must have, amongst other things, common (or almost identical) boards of directors. [Article 11, paragraph 9]. If neither of these tests is satisfied, the MIT is entitled to treaty benefits only to the extent to which residents of Australia are the owners of the beneficial interests in the MIT. Where units in one MIT are held by another MIT (investor MIT), the investor MIT will be regarded as an Australian resident that is the owner of the beneficial interests in the first MIT where the investor MIT satisfies the requirements of paragraph 7 to be treated as an individual resident in Australia with respect to all the income it receives. [Article 25, paragraph2], 2.360 In the case of Australia, the competent authority is the Commissioner or an authorised representative of the Commissioner. By reason of this definition, Australia preserves its taxing rights, for example, over mineral exploration and mining activities carried on by non-residents on the seabed and subsoil of the relevant continental shelf areas (under section6AA of the ITAA 1936, certain sea installations and offshore areas are to be treated as part of Australia). Paragraph 4 complements paragraph 1 of this Article and is designed to cover arrangements involving the effective alienation of incorporated real property, or like arrangements. The general limit for royalties will be reduced from 10percent to 5percent. Agents of independent status (such as brokers or commission agents) to whom paragraph9 of Article 5 applies are also excluded. It does not include instances where no tax is payable on the amount in that other State merely because the individuals total taxable income falls below the general tax free threshold for resident individuals.. [Article 3, subparagraph 1e)]. In both cases, Winton Co and Osaka Co are considered to be entitled to equivalent benefits to those provided under paragraph 3. 004 of 28 January 2008 invited submissions from stakeholders and the wider community on Australias future tax treaty policy and in particular issues that might arise during negotiations with New Zealand. The United States has tax treaties with a number of foreign countries. Accordingly, Australia retains taxing rights over both their salaries. 5.24 This option would replace the existing treaty and Protocol with a new bilateral tax treaty that reflects the current policies and practices of both countries. Both provisions would be included in a modernised NewZealand tax treaty. 2.135 The principles set out in this Article are also to be applied in determining whether a permanent establishment exists in a third country or whether an enterprise of a third country has a permanent establishment in Australia (or NewZealand) when applying the source rule contained in: paragraph 7 of Article 11 (Interest); and. 2.15 Under paragraph 2, an item of income derived by such entities will be considered to be derived by a resident of a country if a resident is treated under the taxation laws of that country as deriving the item of income. The rate limit on source country taxation of royalties is 5percent [Article12, paragraph 2]. 4.6 The application of the Jersey Agreement to persons who are dual residents (that is, residents of both countries) is dealt with in Article 4 (Resident). substantial equipment is being used by, for or under contract with the enterprise. residents of Australia or Jersey that wish to contest a transfer pricing adjustment made by the Australian or Jersey tax authorities. The wording in this provision in the Convention reflects NewZealands treaty practice and the wording used in the United Nations Model Double Taxation Convention between the Developed and Developing Countries. [Article 13, paragraph 7]. The Australian resident beneficiaries are presently entitled to half of the royalty income and are taxed in Australia under section 97 of the ITAA 1936. Title to the refined product remains with the mining consortium and profits on sale are realised mainly outside of Australia. [Article II, paragraph 2], 3.25 The information to be exchanged in relation to criminal tax matters may relate to the income tax affairs of a taxpayer in a taxable period (for example, a year of income) that predates the entry into force of the Second Protocol. To the extent that the Australian partners owned only a share of the income, then only the share of the income attributable to the Australian partners interest would be eligible for the benefits of the Convention. 5.30 While the existing tax treaty has provided a good measure of protection against double taxation and prevention of fiscal evasion since coming into force, it has become outdated and no longer adequately reflects both partners desired positions, given Australia and NewZealands close economic relationship and the desire of both countries to continue to enhance this relationship. 2.37 As with the existing New Zealand Agreement, the Convention generally does not cover Australias goods and services tax (GST), customs duties, state taxes and duties and estate tax and duties. [Article 3, subparagraph 1k)]. In the course of negotiations, the delegations noted: With respect to the provision allowing the competent authorities to consult for the elimination for double taxation in cases not provided for in the Convention, it is understood that this does not provide any additional powers to the competent authorities beyond their usual statutory powers., 2.368 The competent authorities are permitted to communicate directly with each other without having to go through diplomatic channels. In the course of negotiations, the two delegations agreed: that dividends and interest will be regarded as being derived by a Contracting State, political subdivision, local authority or government investment fund where the investment is made by the Government and the funds are and remain government monies. This provision preserves Australias ability to tax payments that arise in Australia for the use in Australia of any part of the radiofrequency spectrum specified in an Australian spectrum licence. For withholding taxes, on income derived: on or after the first day of the second month next following the date on which the Convention enters into force. WebThe OECD defines double taxation as the imposition of comparable taxes in two (or more) countries on the same taxpayer in respect of the same taxable income or capital. When will the Agreement enter into force, and from what date will it have effect? It is understood that paragraph 7 of Article 4 (. This included all operations of ships and aircraft, including nontransport activities such as dredging, surveying and crop dusting. 4.35 Article 8 provides for consultation between the competent authorities of the two countries for the purpose of endeavouring to resolve disputes concerning transfer pricing adjustments purportedly made not in accordance with the arms length principle. The reason why the Article does not apply to payments of portable New Zealand superannuation or portable veterans pension is to ensure that Australia does not lose the ability to tax such payments. The definition more specific to the type of tax should be applied in such cases. 2.270 Under the existing New Zealand Agreement, income derived by crew members from employment exercised aboard a ship or aircraft operated in international traffic may be taxed in the country of which the carrier is a resident. [Article 23, paragraph 1]. Includes a comprehensive article preventing tax discrimination under tax laws. This principle also applies where a New Zealand enterprise carries on business activities in Australia. The Australian tax system is generally non-discriminatory. 5.37 While a reduction in maximum withholding tax rates will involve a cost to revenue, there are expected to be benefits to the revenue and to the wider economy arising out of increased business and investment activity, with the most direct benefits accruing to business. 2.141 Under Australian law the place where an interest in land, natural resources or standing timber, such as a lease, is situated (situs) is not necessarily where the underlying property is situated. Income derived by entertainers and sportspersons may generally be taxed by the country in which the activities are performed. The provision is intended to apply where one or more fiscally transparent entities is interposed between the income and the participant who is ultimately liable to tax on the income. 2.343 The operation of domestic measures to combat avoidance and evasion is not affected by this Article. 2.6 The Convention also applies to third country residents in relation to Article 24 (Non-Discrimination) in its application to nationals of one of the treaty countries, Article 25 (Mutual Agreement Procedure) so far as the person is a national of one of the treaty countries, and in relation to the exchange of information under Article 26 (Exchange of Information) and the assistance in collection of tax debts under Article27 (Assistance in the Collection of Taxes). However, this Article does not apply in respect of income dealt with separately in: Article 17 (Entertainers and Sportspersons); 2.262 Generally, salaries, wages and similar remuneration derived by a resident of one country from an employment exercised in the other country may be taxed in that other country. Further, the inclusion of the words with respect to that item of income is included to ensure that this rule will apply appropriately to income derived through entities such as certain trusts, where some items of income may be allocated to the beneficiary or participant and taxed in that persons hands, while other items of income are taxed at the entity level. 3.3 The Second Protocol was negotiated in the context of recent international progress in improving tax transparency and exchange of taxpayer information between countries, and the withdrawal by Belgium of its reservation to Article 26 (Exchange of Information) of the Organisation for Economic Co-operation and Development (OECD) Model Tax Convention on Income and on Capital (OECD Model). 3.7 Article 26 authorises and limits the exchange of information by the two competent authorities to information foreseeably relevant to the administration or enforcement of the relevant taxes. 2.29 Relief under the Convention will not apply to a beneficiary who is presently entitled to the royalty income but who is not an Australian resident for purposes of the Convention. The inclusion of rights to standing timber in the definition reflects New Zealands strong policy preference. Australian residents exporting to New Zealand; Australian employees working in New Zealand; Australian residents receiving pensions from New Zealand; Australian residents who receive income that is exempt in New Zealand because they are transitional residents of NewZealand; the Australian Taxation Office (ATO). 2.183 Dividends which are beneficially owned by a company that does not meet the conditions in subparagraph a) or b) of paragraph 3 of the Article will also be exempt from tax in the source country if the competent authority determines that the receiving company was established, acquired or maintained for reasons other than obtaining benefits under the Convention. 2.61 Section 12400 of Schedule 1 to the Taxation Administration Act1953 defines the term managed investment trust. Assume Milford Co is now owned by a second NewZealand resident company, Winton Co, and a Japan resident company, Osaka Co. Winton Co is listed on a stock exchange that is a recognised stock exchange within the meaning of Article 3 of the Convention. 5.33 The Convention provides better outcomes than the existing treaty for a large majority of stakeholders. 2.159 The Article does not impose a time limit on conclusion of the audit into the profits of the enterprise. The provisions of the Agreements Act 1953 (including the terms of the tax treaties) take precedence over inconsistent provisions of the: ITAA 1936 (other than the general anti-avoidance rules under Part IVA); FBTAA 1986 (other than section67 which is an antiavoidance rule). 2.9 As different countries frequently take different views as to when an entity is fiscally transparent, the risk of both double taxation and double non-taxation of income derived by or through such entities is increased. As the statutory requirements in each country prevent the appointment of common boards of directors, the DLC would not be required to satisfy this requirement in order to be defined as a DLC arrangement for the purposes of the Australian demerger rules. 2.151 The domestic law of the country in which the permanent establishment is situated (for example, Australias Division 13 of Part III of the ITAA 1936) may be applied to determine the tax liability of a person, consistently with the principles stated in this Article. In the Convention, the definition adopts the OECD Model approach in referring to information concerning technical, industrial, commercial or scientific experience, rather than the more usual reference in Australian treaties to knowledge or experience. Such option benefits are treated as remuneration from employment for the purposes of Article 14 (Incomefrom Employment). 5.77 No costs for the community or other parties have been identified. 2.218 However, consistent with Australias interest withholding tax provisions, an Australian source is not deemed in respect of interest that is an expense incurred by an Australian resident in carrying on a business through a permanent establishment outside both Australia and NewZealand (that is, the permanent establishment is in a third country). 3.13 The purposes for which the exchanged information may be used and the persons to whom it may be disclosed are restricted in a manner which is consistent with the approach taken in the OECD Model. Article XVII (National Treatment) of the GATS requires a party to accord the same treatment to services and service suppliers of other parties as it accords to its own like services and service suppliers. 5.41 In the case of interest arising in New Zealand and paid to an Australian financial institution, the exemption from withholding tax only applies where the Approved Issuer Levy (if applicable) has been paid. These costs also apply to the existing arrangements. Over half of Australias total investment in New Zealand is foreign direct investment, reflecting the high level of economic integration. Note however to the extent that the Australian tax paid by the trustee is subsequently refunded to a non-resident beneficiary, the income will not be regarded as beneficially owned by an Australian resident (see the explanation on paragraph 4 of Article 3 (General Definitions) in paragraphs 2.66 to 2.71). He continues to receive his New Zealand pension. Such remuneration will remain subject to the provisions of Article 14 (Incomefrom Employment), Article 16 (Directors Fees) or Article 17 (Entertainers and Sportspersons). Income derived from a country through an entity organised in that country will not be eligible for treaty benefits if the income is treated as derived by a resident entity under the tax laws of that country. [Article 27, subparagraph 8a)]. The existing treaty also does not contain other recent international developments, such as access to arbitration for taxpayers in certain circumstances where they have been taxed in a way that does not accord with the treaty. A special relationship also covers relationships of blood or marriage and, in general, any community of interests. 5.6 To prevent fiscal evasion, tax treaties include provision for exchange of information held by the respective revenue authorities. Accordingly, there is no obligation under paragraph 4 or any other provision of this Article to allow imputation credits to non-resident shareholders. 2.339 The treaty partner countries must allow the same deductions for interest, royalties and other disbursements paid to residents of the other country as it does for payments to its own residents. Residence status is a criterion for determining each countrys taxing rights and is a necessary condition for the provision of relief under the Jersey Agreement. [Article 25, paragraph 6], 2.378 Not all unresolved issues arising from the case are eligible to be resolved through arbitration. 4.23 Tie-breaker rules are included for determining residency, for the purposes of the Jersey Agreement, if a taxpayer qualifies as a dual resident, that is, a resident of both countries in accordance with paragraph1 of Article 4. Instead of the tiebreaker rule in paragraph 3 of the Article applying, the company will be deemed to be the resident of the country in which it is incorporated provided that it has its primary stock exchange listing in that country. In the case of payments arising in Australia a retirement benefit scheme includes a superannuation fund and a retirement savings account and in the case of New Zealand includes any superannuation scheme. 2.180 Provision has been made to allow the competent authorities to reach agreement that other stock exchanges constitute a recognised stock exchange for the purpose of the Convention. 5.83 The Bill and explanatory materials were the subject of confidential consultation with the Tax Treaties Advisory Panel. Source rules in the Convention prescribe, for domestic law and treaty purposes, that income, profits or gains derived by a resident of one country, which under the provisions of the treaty may be taxed in the other country, will be treated as having a source in that other country [Article 22]. It follows that Australia will be able to continue to apply its domestic law rules concerning access to concessions in respect of research and development expenditure. 2.232 The OECD Model Commentary deals with the need to distinguish these two types of payments in paragraph 11.3 of the Commentary on Article 12 (Royalties). 2.402 Where NewZealand makes a revenue claim, the Commissioner will apply the provisions of Division 263 in Schedule 1 to the Taxation Administration Act 1953 for the administration and collection of that claim. No profits are attributable to a permanent establishment by reason of mere purchase. The outcome of including this reference in the definition is broadly consistent with the existing treaty, which deems an enterprise to have a permanent establishment where it performs any operations for the felling, removal or other exploitation of standing timber. 2.172 It would generally be necessary for the affected enterprise to apply to the competent authority of the country not initiating the reallocation of profits for an appropriate compensatory adjustment to reflect the reallocation of profits made by the other treaty partner country. 2.241 Consistent with Australias royalty withholding tax provisions, royalty payments that are an expense incurred by an Australian resident in carrying on a business through a permanent establishment outside both Australia and NewZealand (that is, the permanent establishment is in a third State) will not be subject to tax in Australia. 2.68 Where tax paid by a trustee is credited against the tax payable by a beneficiary who is not a resident of Australia in accordance with section98A of the ITAA 1936, the trustee will not be regarded as subject to tax on that income. Although most are generally recognised by the international community as not being discriminatory, the specific exclusion of these provisions will ensure that they can continue to operate for their intended purpose.
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