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Edited version of private ruling
Authorisation Number: 1011575525715
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Ruling
Subject: Dividend withholding tax exemption
Question 1
Are the dividends paid by the Australian company to the country X company not subject to Australian tax pursuant to an Article of the double tax agreement (DTA) between Australia and country X (the country X convention)?
Answer
Yes. The dividends paid by the Australian company to the country X company are not subject to Australian tax pursuant to an Article of the country X convention.
This ruling applies for the following periods:
Year ended 30 June 2011
Year ended 30 June 2012
The scheme commences on:
1 July 2010
Relevant facts and circumstances
The Australian company pays dividends to the country X company. The country X company is beneficially entitled to the dividends.
The Australian company is an Australian resident for the purposes of Australian tax.
The Australian company is a wholly owned subsidiary of the country X company.
The Australian company was established in early year Q.
The Australian company was established and is maintained for the sole purpose of producing one movie. The movie was filmed in Australia.
The country X company:
· is a resident of the country X for the purposes of the country X convention (a resident of the country X)
· was established in year R
· is an unlisted company
· is owned by a single individual
· carries on a business of film production, and
· does not carry on business in Australia through a permanent establishment situated in Australia.
Relevant legislative provisions
International Tax Agreements Act 1953 Schedule 2 Article 10
International Tax Agreements Act 1953 Schedule 2 Article 10(2)
International Tax Agreements Act 1953 Schedule 2 Article 10(3)
International Tax Agreements Act 1953 Schedule 2 Article 10(5)
International Tax Agreements Act 1953 Schedule 2 Article 16
International Tax Agreements Act 1953 Schedule 2 Article 16(2)
International Tax Agreements Act 1953 Schedule 2 Article 16(2)(c)
International Tax Agreements Act 1953 Schedule 2 Article 16(5)
International Tax Agreements Act 1953 Schedule 2A.
Reasons for decision
Summary
The dividends paid by the Australian company to the country X company are not subject to Australian tax pursuant to an Article of the country X convention.
Detailed reasoning
The country X convention is contained in a Schedule to the International Tax Agreements Act 1953 (the Agreements Act). The Schedule to the Agreements Act contains the country X Protocol which amends the country X convention.
An Article of the country X convention relates to the taxation of dividends.
An Article provides that dividends paid by a company which is a resident of Australia for the purposes of Australian tax to which a resident of the country X is beneficially entitled may be taxed in Australia.
An Article provides that dividends shall not be taxed in Australia if the person who is beneficially entitled to the dividends is a company which is a resident of the country X and has owned shares representing 80% or more of the voting power of the company paying the dividends for a 12 month period ending on the date the dividend is declared and:
· is a qualified person by reason of an Article; or
· is entitled to benefits with respect to the dividends under another Article.
An Article provides that the above provisions of another Article shall not apply if the person beneficially entitled to the dividends is a resident of the country X and carries on business in Australia through a permanent establishment situated in Australia and the dividends are effectively connected with that permanent establishment.
An Article of the country X convention relates to the limitation of benefits.
An Article provides that a company is a qualified person for a taxable year if:
· the principal class of its shares is listed on a recognised stock exchange and is regularly traded on one or more recognised stock exchanges; or
· at least 50% of the aggregate vote and value of the shares in the company is owned directly or indirectly by five or fewer companies that are qualified persons under an Article.
An Article provides that a resident of the country X which is not a qualified person pursuant to an Article shall be granted benefits of the convention if the competent authority of Australia determines that the establishment, acquisition or maintenance of such person and the conduct of its operations did not have as one of its principal purposes the obtaining of benefits under the convention.
Application to your circumstances
The Australian company pays dividends to the country X company.
The country X company is beneficially entitled to the dividends. It is a resident of the country X. It does not carry on business in Australia through a permanent establishment situated in Australia. Hence, pursuant to an Article of the country X convention, the provisions of an Article of the convention apply to the dividends.
The Australian company is a resident of Australia for the purposes of Australian tax. The country X company is a resident of the country X and is beneficially entitled to the dividends. Hence, pursuant to an Article of the country X convention, the dividends may be taxed in Australia.
The country X company which is beneficially entitled to the dividends is a company that is a resident of the country X and wholly owns the Australian company.
None of the country X company's shares are listed on a stock exchange or are owned directly or indirectly by a company. Hence, the country X company is not a qualified person by reason of an Article of the country X convention.
The country X company was established in year R. The country X company was established and is maintained to carry on a business of film production. The country X company established the Australian company in early year Q. The country X company established and maintains the Australian company for the sole purpose of producing one movie.
On the basis of these facts, it is accepted that the country X company was established and is maintained for the sole purpose of carrying on a business of film production and that the country X company conducts its operations in the country X and in Australia through the Australian company only for this purpose.
Hence, pursuant to an Article of the country X convention, it is determined that the establishment and maintenance of the country X company and the conduct of the country X company's operations in the country X and in Australia through the Australian company did / does not have as one of its principal purposes the obtaining of benefits under the country X convention.
Therefore, pursuant to an Article of the country X convention, the dividends paid by the Australian company to the country X company are not subject to Australian tax.
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