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House of Representatives

Income Tax (International Agreements) Amendment Bill 1977

Income Tax (International Agreements) Amendment Act 1977

Explanatory Memorandum

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

Introductory Note

The main purpose of this Bill is to give the force of law in Australia to:

·
An agreement between Australia and Greece for the avoidance of double taxation of income derived from international air transport that was signed in Canberra on 5 May 1977.
·
A comprehensive double taxation agreement between Australia and Belgium that was signed in Canberra on 13 October 1977.

The Bill also specifies that interest and royalties derived from Belgium by residents of Australia, and in respect of which, under the agreement, Belgium 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.

Agreement with Greece

The agreement between Australia and Greece is limited to the taxation of profits from international traffic of airlines of either country. It reserves the right to tax such profits solely to the country in which the airline operator has its place of effective management. This agreement corresponds with similar-purpose agreements between Australia and France and Australia and Italy that were signed on 27 March 1969 and 13 April 1972 respectively, copies of which are included as Schedules Seven and Eight to the Principal Act. Its provisions give relief comparable with that provided in relation to international airline profits in Australia's comprehensive double taxation agreements.

Agreement with Belgium

The comprehensive agreement between Australia and Belgium sets 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 Belgium 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.
·
Income from real property is taxable in full in the country in which the property is situated.
·
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 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, advanced study 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 his or her maintenance or education.
·
Dual residents of both countries are, according to specified criteria, to be treated for the purposes of the agreement 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, by allowance of credit against Australian tax for the Belgian tax on interest and royalties, where that tax is limited by the agreement, and on dividends received by individuals - dividends received by Australian companies from Belgium and all other categories of income received by Australian residents from Belgium being freed from Australian tax by Australian tax law;
-
in Belgium, by allowance of credit against Belgian tax for the limited Australian tax on dividends, interest and royalties and, while taking other income into account in determining the rate of Belgian tax on taxable income, by exempting that other income from Belgian tax. In the case of a Belgian company which owns shares in an Australian company, and which is subject to Australian tax on its profits, dividends paid to a Belgian company will be exempt from corporate income tax in Belgium on the same basis as if the two companies had been residents of Belgium.

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


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