Disclaimer This edited version has been archived due to the length of time since original publication. It should not be regarded as indicative of the ATO's current views. The law may have changed since original publication, and views in the edited version may also be affected by subsequent precedents and new approaches to the application of the law. You cannot rely on this record in your tax affairs. It is not binding and provides you with no protection (including from any underpaid tax, penalty or interest). In addition, this record is not an authority for the purposes of establishing a reasonably arguable position for you to apply to your own circumstances. For more information on the status of edited versions of private advice and reasons we publish them, see PS LA 2008/4. |
Edited version of your private ruling
Authorisation Number: 1012074784699
This edited version of your ruling will be published in the public register of private binding rulings after 28 days from the issue date of the ruling. The attached private rulings fact sheet has more information.
Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. If you have any concerns about this ruling you wish to discuss, you will find our contact details in the fact sheet.
Ruling
Subject: Interest Withholding Tax
The arrangement involves a foreign resident financial institution (the taxpayer) investing in Australian bonds and receiving interest income from those Australian bonds.
The taxpayer beneficially owns the interest. It is unrelated to, and dealing wholly independently with the payer of the interest. The interest income is not paid as part of an arrangement involving back-to-back loans, and is also not effectively connected with a permanent establishment in Australia of the taxpayer.
Question 1
Will withholding tax of 10% be applicable to all interest income arising in Australia from the Australian bonds where the interest income is beneficially owned by a foreign resident financial institution.
Answer
No
This ruling applies for the following periods:
2010 Income Year
2011 Income Year
2012 Income Year
The scheme commences on:
May 2010
Reasons for decision
The taxpayer is not a resident of Australia and for the purposes of the double tax agreement between Australia and the other Contracting State, the taxpayer is a resident of the other Contracting State. The interest received from the Australian bonds by the taxpayer is from Australian sources.
In determining the liability to Australian tax on Australian sourced income received by a foreign resident, it is necessary to refer to Article 11 of the double tax agreement.
Australia will have no taxing right under Article 11(2) of the double tax agreement in respect of the interest paid to the taxpayer where:
· Pursuant to Article 11(3)(b), the taxpayer satisfies the definition of 'financial institution';
· Pursuant to Article 11(1), the taxpayer is beneficially entitled to, or beneficially owns the interest;
· Pursuant to Article 11(3)(b), the taxpayer is unrelated to, and dealing wholly independently with the payer of the interest;
· Pursuant to Article 11(4), the interest arising in Australia is not paid as part of an arrangement involving 'back-to-back' loans; and
· Pursuant to Article 11(6), the interest arising in Australia is not effectively connected with a permanent establishment in Australia of the taxpayer.
Taxation Ruling TR 2005/5 applies to this arrangement.
Based on the information provided, the taxpayer satisfies each of the requirements listed above. Pursuant to Article 11(3)(b) of the double tax agreement, as discussed in TR 2005/5, withholding tax of 10% will not be applicable to the interest income arising in Australia from the Australian bonds derived beneficially by the taxpayer.