Explanatory Memorandum(Circulated by authority of the Treasurer, the Hon. Ralph Willis, M.P.)Note: References to paragraph numbers contained in the explanation of the Agreement relate to the relevant paragraph of the Article under discussion.
Australia's DTAs are primarily concerned with relieving juridical double taxation, which can be described broadly as subjecting the same income derived by a taxpayer during the same period of time to comparable taxes under the taxation laws of two different countries.
Relief from double taxation is desirable because of the harmful effects double taxation can have on the expansion of trade and the movement of capital and people between countries. A DTA supplements the unilateral double tax relief provisions in the respective treaty partner countries' domestic law and clarifies the taxation position of income flows between them.
Australia's DTAs are designed to:
- Prevent double taxation and provide a level of security about the tax rules that will apply to particular international transactions by:-
- allocating taxing rights between the contracting countries over different categories of income;
- specifying rules to resolve dual claims in relation to the residential status of a taxpayer and the source of income; and
- providing, where a taxpayer considers that taxation treatment has not been in accordance with the terms of a DTA, an avenue for the taxpayer to present a case for determination to the relevant taxation authorities.
- Prevent avoidance and evasion of taxes on various forms of income flows between the treaty partners by:-
- providing for the allocation of profits between related parties on an 'arm's length' basis;
- generally preserving the application of domestic law rules that are designed to address transfer pricing and other international avoidance practices; and
- providing for exchanges of information between the respective tax authorities.
DTAs to which Australia is a partner appear as Schedules to the IT(IA)A. The IT(IA)A gives the force of law in Australia to those DTAs. The provisions of the ITAA are incorporated into and read as one with the IT(IA)A. In any cases of inconsistency, the IT(IA)A provisions (including the terms of the DTAs) generally override the ITAA provisions.
To accommodate the coverage provided in the DTA with New Zealand of the possible double taxation of fringe benefits the IT(IA)A will be amended by the Bill to incorporate the FBTAA and to provide that in cases of inconsistency the International Tax Agreements Act provisions (including the terms of the DTA), generally override the FBTAA provisions.