Explanatory Memorandum(Circulated by authority of the Treasurer, the Hon. Peter Costello, M.P.)
What do we mean by double taxation?
The agreement between ACIO and TECO is primarily concerned with relieving juridical double taxation. This can be described broadly as the situation where the same income derived by a taxpayer during the same period of time is subjected to comparable taxes under the taxation laws of both territories.
Why is the agreement necessary?
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. The agreement will, when given effect to by the authorities of both territories, supplement the unilateral double tax relief provisions in each territory's respective domestic law. It will also clarify the taxation position of income flows between Australia and Taiwan.
What is the purpose of the agreement?
The agreement is 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 territories 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 the agreement, 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 Australia and Taiwan 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.
How is the legislation structured?
The agreement will appear as a Schedule to the International Tax Agreements Act 1953 (IntTAA). The IntTAA gives the force of law in Australia to the terms of the agreement. The provisions of the Income Tax Assessment Act 1936 (ITAA) are incorporated into and read as one with the IntTAA. In any cases of inconsistency, the IntTAA provisions (including the terms of the agreement) generally override the ITAA provisions.