ATO Interpretative Decision
ATO ID 2006/69
Income Tax
Assessability of dividends received from shares held in Netherlands companiesFOI status: may be released
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This ATO ID has been amended to remove references in the Reasons for Decision to repealed legislation dealing with foreign tax credit rules. With effect from 1 July 2008 the foreign tax credit will be replaced by a foreign tax offset.
This ATO ID contains references to repealed provisions, some of which may have been re-enacted or remade. The ATO ID is current in relation to the re-enacted or remade provisions.
Australia's tax treaties and other agreements except for the Taipei Agreement are set out in the Australian Treaty Series. The citation for each is in a note to the applicable defined term in sections 3AAA or 3AAB of the International Tax Agreements Act 1953.
Status of this decision: Decision Current
This ATOID provides you with the following level of protection:
If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.
Issue
Are the dividends received from shares held in Netherlands companies by a resident taxpayer assessable income under subsection 6-10(4) of the Income Tax Assessment Act 1997 (ITAA 1997)?
Decision
Yes. The dividends received from shares held in Netherlands companies by a resident taxpayer are assessable income under subsection 6-10(4) of the ITAA 1997.
Facts
The taxpayer is a resident of Australia for taxation purposes.
The taxpayer owns shares in a number of companies which are resident in the Netherlands.
The taxpayer receives dividends from these shares from which Netherlands withholding tax was deducted.
Reasons for Decision
Section 6-10 of the ITAA 1997 provides that a taxpayer's assessable income includes statutory income amounts that are not ordinary income but are included in assessable income by another provision. The assessable income of an Australian resident includes statutory income from all sources, whether in or out of Australia (subsection 6-10(4) of the ITAA 1997).
Section 10-5 of the ITAA 1997 lists those provisions about assessable income. Included in this list is subsection 44(1) of the Income Tax Assessment Act 1936 (ITAA 1936) which deals with dividends. Subsection 44(1) of the ITAA 1936 provides that the assessable income of a resident shareholder of a company (whether the company is a resident or a non resident) shall include dividends paid by the company out of profits derived by it from any source.
In determining liability to Australian tax on foreign source income, it is necessary to consider not only the income tax laws but also any applicable double tax agreement contained in the International Tax Agreements Act 1953 (Agreements Act).
Section 4 of the Agreements Act incorporates that Act with the ITAA 1936 and ITAA 1997 so that those Acts are read as one.
Schedule 10 to the Agreements Act contains the tax treaty and the protocol between Australia and the Kingdom of the Netherlands (Netherlands Agreement). Schedule 10A to the Agreement Act contains the Second Protocol to the Netherlands Agreement (Second Protocol). The Netherlands Agreement and the Protocols operate to avoid the double taxation of income received by Australian and Netherlands residents.
Article 10(1) of the Netherlands Agreement provides that dividends paid by a Netherlands company to a resident of Australia may be taxed in Australia.
Article 10(2) of the Netherlands Agreement provides that the dividends may also be taxed in the Netherlands but that the rate of tax is not to exceed 15% of the gross amount of the dividends.
Article 23(1) of the Netherlands Agreement provides that, subject to the provisions of the law of Australia, a credit for any tax paid in the Netherlands will be allowed against Australian tax payable on income from Netherlands sources.
Paragraph 5 of the Protocol of the Netherlands Agreement at paragraph (5) states that where income derived by a resident of Australia under Article 10 of the Netherlands Agreement may be taxed in the Netherlands, such income shall be deemed to be income from sources in the Netherlands for the purposes of Article 23(1) of the Netherlands Agreement.
The dividends received by the taxpayer from Netherlands form part of their assessable income under subsection 6-10(4) of the ITAA 1997.
As foreign tax has been paid in relation to this income a foreign tax credit will be allowed. If the Netherlands tax paid on the dividends is less than the Australian tax that will be payable, the taxpayer will be entitled to a full credit for the Netherlands tax paid.
Date of decision: 27 February 2006Year of income: Year ended 30 June 2002 Year ended 30 June 2003 Year ended 30 June 2004 Year ended 30 June 2005
Legislative References:
Income Tax Assessment Act 1936
subsection 44(1)
section 6-10
subsection 6-10(4)
section 10-5 International Tax Agreements Act 1953
section 4
Schedule 10
Schedule 10A
Schedule 10, Article 10
Schedule 10, Article 10(1)
Schedule 10, Article 10(2)
Schedule 10, Article 23(1)
Keywords
Dividend income
Double tax agreements
Foreign income
Foreign tax credits
Netherlands
ISSN: 1445-2782