Australia and Norway treaty - key points
The convention between Australia and the Kingdom of Norway for the avoidance of double taxation with respect to taxes on income and the prevention of fiscal evasion (the 2006 Norwegian Convention), signed in Canberra on 8 August 2006 replaces the existing convention between Australia and the Kingdom of Norway signed in 1982 and its associated protocol.
The 2006 Norwegian Convention came into force on 12 September 2007.
For Australian withholding tax on income derived by a non-resident, the 2006 Norwegian Convention has effect in relation to income derived on or after 1 January 2008. For other Australian taxes covered by the convention, the convention has effect in respect of income, profits or gains of years of income beginning on or after 1 July 2008.
For Norwegian taxes covered by the 2006 Norwegian Convention, the convention has effect in respect of income relating to the 2008 calendar year (including accounting periods beginning in any such year) and subsequent years.
The Exchange of Information Article (Article 26) has effect from 12 September 2007.
The Mutual Assistance in Collection Article (Article 27) will have effect from a date to be agreed in an exchange of notes through the diplomatic channel.
Income from real property may be taxed by the country in which the property is situated. Australian real property has its domestic law meaning and includes certain other items such as rights to explore and mine natural resources.
Business profits (including income derived from the performance of professional services and other non-employment activities) are taxable only in the country of residence of the recipient, unless they are derived by a resident of one country through a 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.
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. However, profits of an enterprise derived from the operation of ships or aircraft may be taxed in the country where the ship or aircraft is operated to the extent that those profits are derived directly or indirectly from ship or aircraft operations confined solely to places in that country.
The Associated Enterprises Article (Article 9) authorises the reallocation of profits between related enterprises in Australia and Norway, on an arm's length basis, where the commercial or financial arrangements between the enterprises differ from those that might be expected to operate between unrelated enterprises dealing wholly independently with one another. Where a reallocation of profits is made to adjust upwards the profits of an enterprise of one country, the other country may also make correlative adjustments.
Dividends, interest and royalties may generally be taxed in the country in which the beneficial owners of such income are residents and may also be subject to tax in the country from which such income is paid up to certain limits.
Source country taxation on dividends is limited to 15%, except as follows:
- No source country tax is payable on dividends where the beneficial owner of the dividends is a company that is a resident of the other country and has owned shares representing at least 80% of the voting power of the company paying the dividend for the preceding 12 months (subject to certain additional conditions).
- A 5% rate limit applies to dividends where the beneficial owner of the dividends is a company that holds directly at least 10% of the voting power of the company paying the dividend.
The dividend rate limits apply to the gross amount of the dividend and to both franked and unfranked dividends.
Source country taxation on interest is limited to 10%. However, no tax will be chargeable in the source country on interest derived:
- from the investment of official reserve assets by the government of the other country, its monetary institutions or a bank performing central banking functions in that country, or
- by a financial institution that is unrelated to, and dealing wholly independently with, the payer.
Source country tax on royalties is limited to 5%.
The definition of royalty now includes payments or credits in respect of the use of, or right to use, some or all of the radiofrequency spectrum specified in a spectrum licence, but not payments or credits in respect of the use of, or right to use, industrial, commercial or scientific equipment.
Income, profits or gains from the alienation of real property and from the alienation of shares or other interests in land rich entities, business assets of permanent establishments or those otherwise attributable to a permanent establishment may generally be taxed by the country in which the property or permanent establishment is situated. Gains of a capital nature arising from the alienation of other property will generally be taxable only in the country of residence.
Income from employment (other than directors' fees, pensions and annuities, remuneration for government service and entertainers and sports persons) are taxed in the country of residence of the employee, unless the employment is exercised the other country. In such a case, the income generally may be taxed in the country where the services are performed. However, where the services are performed during short visits to one country by a resident of the other country (who is employed by a resident of that other country) the income will generally be exempt in the country visited.
Directors' fees and other similar payments derived by a person in his or her capacity as a member of a board of directors (or similar body) of a company may be taxed in the country in which the company is a resident.
Income derived by entertainers and sportspersons from their entertainment or sports activities may be taxed in the country in which the activities are performed. However, if the visit is mainly supported by public funds of the other country, the income is taxable only in the country of which the person is a resident.
Pensions and annuities will generally be taxed only in the country of residence of the recipient.
Government service pensions will generally be taxed only in the country that pays the pension. However, such pensions will be taxable only in the other country if the individual is a resident of, and a national of, that other country.
Salaries and wages (but not pensions or annuities) from government service will generally be taxed only in the country that pays the remuneration. However, the remuneration shall be taxed only in the other country if the services are rendered in that other country by a resident of that other country and that person is either a national of that other country, or did not become a resident of that other country solely for the purpose of rendering the services.
Payments made from abroad to visiting students for the purpose of their maintenance or education will be exempt from tax in the country visited, provided that the student is (or was immediately before visiting) a resident of the other country and is visiting solely for the purpose of their education.
Income (including certain employment income) from offshore activities relating to the exploration or exploitation of the seabed or subsoil or of natural resources of a country will generally be taxed by the country in which the activities are performed (by virtue of those activities being deemed to be the carrying on of a business through a permanent establishment in that country). However, where the activities are carried on during certain short visit(s) (not exceeding 30 days in any 12 month period) to one country by a resident of the other country, the activity is not deemed to be the carrying on of a business through a permanent establishment.
Other income (that is, income not dealt with by other articles, including income from countries other than Australia and Norway) derived by a resident of one country is taxed only in the country of residence, unless it is derived from sources in the other country. Where other income is derived from sources in the other country, it may also be taxed in that country.
Source rules effectively deem income, profits or gains derived by a resident of a country which may be taxed in the other country under the 2006 Norwegian Convention to have a source in that other country.
Double taxation relief for income which is taxed by both countries in accordance with the 2006 Norwegian Convention is required to be provided by the taxpayer's country of residence as follows (and subject to the domestic law allowing credit for tax paid in the other country):
- in Australia, by allowing a credit against Australian tax payable for the Norwegian tax on income derived by a resident of Australia from sources in Norway, and
- in Norway, by allowing a deduction against Norwegian tax for the Australian tax paid on income derived by a resident of Norway from sources in Australia.
In Australia, effect will be given to the double tax relief obligations by the application of the general foreign tax credit provisions or by the relevant exemption provisions of Australia's domestic law.
Rules in the new treaty will protect nationals from tax discrimination in the other country and will give them private rights of appeal. However, the article does not apply to anti-avoidance rules (including thin capitalisation, transfer pricing and controlled foreign companies measures), rebates or credits for dividends paid by resident companies, research and development concessions, consolidation rules or capital gains deferral rules.
Consultation and exchange of information between the tax authorities of both countries is authorised by the 2006 Norwegian Convention. The convention authorises and requires Australia to exchange information where the information relates to taxes administered by the Commissioner of Taxation.
The 2006 Norwegian 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, therefore, seek assistance from the Norwegian tax authorities to collect Australian tax debts.
More information relating to this and other Australian tax treaties can be found on the Treasury website
Visit the International tax agreements homepage.