ATO Interpretative Decision
ATO ID 2008/3
Income Tax
Assessability of dividends under Article 10.3 of the UK Convention: determination made under Article 10.3(c) of the UK Convention.FOI status: may be released
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This ATO ID contains references to repealed provisions, some of which may have been re-enacted or remade.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.
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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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
Under Article 10.3 of the tax treaty between Australia and the United Kingdom of Great Britain and Northern Ireland contained in Schedule 1 to the International Tax Agreements Act 1953 (the UK Convention), are unfranked dividends paid by an Australian resident subsidiary to the taxpayer, a United Kingdom (UK) resident company, not taxed in Australia where the taxpayer has owned all the shares of the Australian resident subsidiary since 1990 and the Australian competent authority has made a determination under Article 10.3(c) of the UK Convention?
Decision
Yes. Unfranked dividends paid by the Australian resident subsidiary to the taxpayer are not taxed in Australia where the taxpayer has owned shares representing 80 per cent or more of the voting power of the Australian resident subsidiary for a 12 month period ending on the date of the dividend is declared, Article 10.3(a) or (b) of the UK Convention are not satisfied and the Australian competent authority has made a determination under Article 10.3(c) of the UK Convention.
Facts
The taxpayer is a UK resident company. One of the taxpayer's wholly-owned subsidiaries is an Australian resident. The taxpayer has held and continues to hold its investment in its Australian resident subsidiary since 1990.
All the shares in the taxpayer were held by a UK resident company the shares of which have been listed on the London Stock Exchange since 1993.
In 2000, another UK resident company that was a wholly owned subsidiary of a company, the shares of which are listed on Country A Stock Exchange acquired all the shares of the UK resident listed company
The taxpayer continued to own all the shares in the Australian resident company.
During the income year, the Australian resident company paid unfranked dividends to the taxpayer, which is the company that is beneficially entitled to and the beneficial owner of the dividends.
The Australian competent authority has determined under Article 10.3(c) of the UK Convention and in accordance with Australian law, that the establishment, acquisition or maintenance of the taxpayer and the conduct of its operations did not have as one of its principal purposes the obtaining of benefits under the UK Convention.
Reasons for Decision
Article 10.3(c) of the UK Convention provides that dividends paid by a company that is a resident of Australia shall not be taxed in Australia if:
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- the person who is beneficially entitled to the dividends is a company that is a resident of the UK that 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
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- the company that is the beneficial owner of the dividends does not meet the requirements of Articles 10.3(a) or 10.3(b) but the Australian competent authority determines, in accordance with the law of Australia, that the establishment, acquisition or maintenance of the company and the conduct of its operations did not have as one of its principal purposes the obtaining of benefits under the UK Convention.
In the present case, the taxpayer:
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- is a UK resident company,
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- is beneficially entitled to and beneficial owner of the dividends;
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- has owned since 1990 all the shares in the Australian resident company paying the dividends;
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- does not have its principal class of shares listed and regularly traded on one or more recognised stock exchanges; and
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- is not owned directly or indirectly by one or more companies whose principle class of shares are similarly listed and regularly traded.
Furthermore, the Australian competent authority has made a determination under Article 10.3(c) of the UK Convention.
Accordingly, the taxpayer satisfies the requirements of Article 10.3 of the UK Convention. The unfranked dividends paid by the Australian resident subsidiary to the taxpayer will not be subject to tax in Australia.
Date of decision: 12 December 2007Year of income: Year ended 30 June 2007
Legislative References:
International Tax Agreements Act 1953
Schedule 1, Article 10.3
Schedule 1, Article 10.3(a)
Schedule 1, Article 10.3(b)
Schedule 1, Article 10.3(c)
ATO ID 2008/4
Keywords
Double tax agreements
International tax
Non resident dividend withholding tax
Unfranked dividends
United Kingdom
ISSN: 1445-2782