Background
The Convention between the Government of Australia and the Government of the French Republic for the Avoidance of Double Taxation with Respect to Taxes on Income and the Prevention of Fiscal Evasion, and its associated protocol, (the 2006 France Convention) was signed in Paris on 20 June 2006 and entered into force on 1 June 2009. This replaces the existing tax treaty that was concluded in 1976 and partially revised by an amending protocol in 1989.
The 2006 France Convention will also cover airline profits which are currently covered by the Agreement between the Government of Australia and the Government of the French Republic for the Avoidance of Double Taxation of Income Derived from International Air Transport (the Airline Profits Agreement) signed in 1969.
Date of effect
The 2006 France Convention entered into force on 1 June 2009.
For Australian withholding tax on income derived by a non-resident, the 2006 France Convention has effect in relation to income derived on or after 1 January 2010. For other Australian taxes covered by the treaty, the treaty has effect in respect of income, profits or gains for years of income beginning on or after 1 July 2010.
For French taxes on income withheld at source, the 2006 France Convention has effect from 1 January 2010. For other French taxes, the 2006 France Convention also has effect from 1 January 2010.
The Exchange of information article [Article 25] has effect from 1 June 2009.
The Assistance in the collection of taxes article [Article 26] will have effect from a date to be agreed in an exchange of notes between Australia and France.
Main features of the new Convention
Income from real property may be taxed in full by the country in which the property is situated. Income from real property for these purposes includes natural resource royalties [Article 6].
Business profits (including income derived from professional services or other activities of an independent nature) are taxable only in the country of residence of the recipient, unless they are derived by a resident of one country through a branch or other prescribed permanent establishment in the other country. In that instance, that other country may tax the profits attributable to the permanent establishment. These rules also apply to business trusts; and payments for spectrum licences [Article 7; Protocol, item 3].
Profits derived from the operation of ships and aircraft in international traffic are generally to be taxed only in the country of residence of the operator [Article 8].
Profits between associated enterprises in Australia and France may be taxed on an arms length basis [Articles 9 and 22].
Dividends, interest and royalties may generally be taxed in both countries, but there are limits on the tax that the country in which the dividend, interest, or royalty is sourced may charge on such income flowing to residents of the other country who are the beneficial owners of the income [Articles 10 to 12].
Source country tax on dividends is limited to 15%, except as follows:
- no source country tax is payable on intercorporate dividends where the dividend recipient is a company that holds directly at least 10% of the voting power of the Australian company paying the dividend (or at least 10% of the capital of the company in the case of France), and the dividend is paid out of profits that have borne the normal rate of company tax [Article 10, subparagraph 2(a)];
- a 5% rate limit applies to other intercorporate dividends where the dividend recipient is a company that holds directly at least 10% of the voting power of the Australian company paying the dividend (or at least 10% of the capital of the company in the case of France) [Article 10, subparagraph 2(b)].
Source country tax on interest is limited to 10% [Article 11, paragraph 2]. However, exemptions from source country taxation have been provided for certain interest paid to certain government bodies [Article 11, subparagraph 3(a)], and financial institutions [Article 11, subparagraph 3(b)].
Source country tax on royalties is limited to 5% [Article 12, paragraph 2].
Income, profits or gains from the alienation of real property may be taxed in full by the country in which the property is situated. Specific rules apply in relation to business assets and shares or other interests in land-rich entities so that they may be taxed in full by the country in which the property is situated. All other capital gains will be taxable only in the country of residence. A specific provision deals with the alienation of property by departing residents [Article 13].
Income from employment (employees' remuneration) will generally be taxable in the country where the services are performed. However, where the services are performed during certain short visits to one country by a resident of the other country, the income will be exempt in the country visited [Article 14].
Directors' fees and other similar payments derived by a person in his or her capacity as a member of a board of directors of a company may be taxed in the country in which the company is resident [Article 15].
Income derived by entertainers and sportspersons from their entertainment or sports activities may be taxed in the country in which the activities are performed [Article 16].
Pensions and annuities will generally be taxed only in the country of residence of the recipient. Some public service pensions may be taxed only by the paying country [Articles 17 and 18].
Income from government service (including government service pensions) will generally be taxed only in the country that pays the remuneration. However, the remuneration shall only be taxed in the other country where the services are rendered in that other country by a resident who is a national or citizen of that other country, provided the resident is not a dual national or citizen [Article 18].
Payments made from abroad to visiting students for the purposes of their maintenance or education, will be exempt from tax in the country visited provided the student is (or was immediately before visiting) a resident of the other country and is visiting solely for the purpose of their education [Article 19].
Other income (not dealt with by other Articles, including income arising in countries other than Australia or France) derived by a resident of one country is taxable only in the country of residence, unless it is derived from sources in the other country, in which case it may also be taxed in that other country [Article 20].
Source rules effectively deem income or profits derived by a resident of a country that may be taxed in the other country under the 2006 France Convention to have a source in that other country [Article 21].
Double taxation relief for income which is taxable by both countries in accordance with the 2006 France Convention is required to be provided by the taxpayer's country of residence as follows:
- in Australia, by allowing a credit against Australian tax payable for the French tax on income derived by a resident of Australia from sources in France [Article 23, paragraph 1]
- in France, by allowing either a credit for the Australian tax against French tax payable in some circumstances, or for an amount equal to the French tax attributable to certain types of income provided the income has been taxed in Australia. The method applied will depend on the type of income [Article 23, paragraph 2].
Australia's double tax relief obligation is affected by the general foreign tax credit (or foreign income tax offset) provisions or relevant exemption provisions under Australia's domestic law.
Consultation and exchange of information between the tax authorities of both countries is authorised by the 2006 France Convention. The convention authorises and requires Australia to exchange information where the information relates to taxes administered by the Commissioner of Taxation [Articles 24 and 25].
The 2006 France Convention provides for mutual assistance in the collection of tax debts, which will allow one country to seek the assistance of the other country in collecting the first country's tax debts in certain circumstances. In the case of Australia, the Australian Taxation Office can, in certain circumstances, seek assistance from the French tax administration to collect Australian tax debts [Article 26].
Australian expatriates who are temporarily resident in France are protected from paying French capital tax on non-French property [Article 28].
Australian and French partnership taxation is asymmetric. The 2006 France Convention, therefore, includes a Partnerships Article to provide Australian partners of French partnerships greater access to treaty benefits [Article 29].
Last Modified: Thursday, 13 August 2009