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House of Representatives

Income Tax (International Agreements) Amendment Bill 1976

Income Tax (International Agreements) Amendment Act 1976

Explanatory Memorandum

(Circulated by authority of the Treasurer, the Hon. Phillip Lynch, M.P.)

Introductory Note

The main purpose of this Bill is to give the force of law in Australia to comprehensive double taxation agreements between Australia and the Netherlands and Australia and France which were signed in Canberra on 17 March 1976 and 13 April 1976 respectively.

The Bill also specifies that interest and royalties derived from the Netherlands or France by residents of Australia, and in respect of which, under the new agreements, the Netherlands or France limits its tax to 10 per cent, will not, by reason of the payment of that limited tax, be exempt from Australian tax. Australia will instead allow credit for the limited tax against the Australian tax on this income.

The agreements set out the basis on which, and the extent to which, income derived in each country by residents of the other, is to be taxed in each country and the basis on which relief from double taxation is to be effected where income may be taxed by both countries. The main features of the arrangements with the two countries are as follows:

·
Industrial or commercial (business) profits, if they are derived by a resident of one country from a branch or other "permanent establishment" in the other country, may be taxed in the latter country; otherwise they are to be taxed only in the country of residence.
·
Dividends, interest and royalties will be subject to tax in the country of source but there is a ceiling on the tax that that country may charge of 15 per cent for dividends and 10 per cent for interest and royalties. Australian shareholders in French companies will be allowed a special tax credit normally allowed only to French shareholders.
·
Income from real property is taxable in full in the country in which the property is situated.
·
Profits from international operations of ships and, in the case of the Netherlands agreement, aircraft will be taxed only in the country of residence of the operator. (An existing agreement with France provides to this effect in relation to airline profits.)
·
Income from independent personal services will be taxed only in the country of residence of the recipient unless the income is attributable to a fixed base of the recipient in the other country.
·
Income from dependent personal services, i.e., employees' remuneration, will generally be taxable in the country where the services are performed. However, where the services are performed during a short visit to one country by a resident of the other country, the income will be taxed only in the country of residence of the recipient.
·
Government officials are to be taxed by their home country.
·
Directors' fees will generally be taxed in the country of residence of the paying company.
·
Income derived by public entertainers (including athletes) from their activities as such are to be taxed by the country in which the activities take place.
·
Pensions and annuities will generally be taxed only in the country of residence of the recipient.
·
Remuneration derived by teachers and professors from teaching or research during visits of up to two years' duration may be taxed only in the country of residence.
·
A student resident in one country who is temporarily present in the other country solely for the purpose of receiving an education will be exempt from tax in the latter country in respect of payments made from abroad for the purposes of maintenance or education.
·
Dual residents of both countries are, according to specified criteria, to be treated for the purposes of the agreements as being residents of only one country.
·
Associated enterprises may be taxed on the basis of dealings at arm's length.
·
Exchange of information and consultation between the taxation authorities of each country is authorised.
·
Double taxation relief to be allowed by the country of residence in respect of income taxed in the other country will be:

·
in Australia, (both agreements) by allowance of credit against Australian tax for the foreign tax on interest and royalties, where that tax is limited by the relevant agreement, and on dividends received by individuals - dividends received by companies and all other categories of income being freed from Australian tax by Australian tax law;
·
in the Netherlands, by allowance of credit against Netherlands tax for the limited Australian tax on dividends, interest and royalties and for the Australian tax on entertainers and, while taking other income into account in determining the rate of Netherlands tax on taxable income, by exempting that other income from Netherlands tax;
·
in France, by allowance of credit against French tax for the limited Australian tax on dividends, interest and royalties and for the Australian tax on directors and entertainers and, while taking other income into account in determining the rate of French tax on taxable income, by exempting that other income from French tax.

Notes on the clauses of the Bill are given below and these are followed by explanations of the articles of each agreement.


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