australia new zealand double tax agreement explanatory memorandum

5.100 The Jersey Agreement will constrain Government policy flexibility in relation to the taxation of Jersey individuals. 2.346 This Article will not affect the operation of any provision of domestic tax legislation which does not permit the deferral of tax arising on the transfer of an asset where the transfer of the asset by the transferee would take the asset beyond the taxing jurisdiction of the country. Australia would therefore have the right to tax the profits relating to the carriage of these passengers. Such remuneration will remain subject to the domestic taxation laws of the two countries. As Bruce is present and performing services for less than five days, his four days in NewZealand are disregarded when determining whether Sushi Co has a permanent establishment in NewZealand. The provisions of the Income Tax Assessment Act 1936 (ITAA 1936), the Income Tax Assessment Act 1997 (ITAA 1997) and the Fringe Benefits Tax Assessment Act 1986 (FBTAA 1986) are incorporated into and read as one with the Agreements Act 1953. [Article 27, paragraph 7]. financial institutions, provided, in the case of interest paid from NewZealand, that the 2percent approved issuer levy (AIL) has been paid. Presentation of a case does not deprive the person of access to, or affect their rights in relation to, other legal remedies available under the domestic laws of the countries. [Article3, subsubparagraph1l)(iii)]. For example, goods and services tax definitions are sometimes broader than income tax definitions. This has significance for Articles where the concept of permanent establishment is relevant, for example, in determining the right of a country to tax income (that is, income from employment under Article 14) or the country in which income arises (for example, interest). [Article 24, paragraph 6], 2.345 The enforcement and operation of the various aspects of the withholding tax provisions relating to non-residents are preserved by this Article. This would generally be determined in accordance with Article 14 (Income from Employment) or Article 19 (Government Service). The Commentary cites the following criteria as relevant for the purpose of making the distinction: Contracts for the supply of know-how concern information of the kind described in paragraph 11 of the Commentary that already exists, or concern the supply of that type of information after its development or creation and include specific provisions concerning the confidentiality of that information. The existing treaty does not allow taxpayers to seek arbitration. These jurisdictions are self-governing states and are not covered by the definition of NewZealand. However, subject to specified conditions, there is a conventional provision for exemption from tax in the country being visited where visits of only a short-term nature are involved. It allows New Zealand to tax the Australian residents income in the reverse situation. Australian source income of foreign residents is generally subject to Australian tax. other New Zealand taxes, for income years beginning on or after 1 April next following that in which the notice of termination is given. As such, in this example, the dividend income would be eligible for the benefits of the Convention. Australia can justify these particular provisions within this context, and therefore it is likely that any impact on tax policy flexibility is minimal. In the case of New Zealand, it includes partnerships, complying trusts and foreign trusts. For example, where the matter subject to interpretation is an income tax matter, but definitions exist in either the ITAA 1936 or the Income Tax Assessment Act 1997 (ITAA 1997) and the A New Tax System (Goods and Services Tax) Act 1999, the income tax definition would be the relevant definition to be applied. 4.13 In the case of Australia, the competent authority is the Commissioner of Taxation (Commissioner) or an authorised representative of the Commissioner. For example: confidentiality rules to ensure that information exchanged is only disclosed to authorised recipients; and. 2.277 They include accommodation allowances or housing benefits but do not include a benefit arising from the acquisition of an option over shares under an employee share scheme. 2.123 The OECD Model Commentary recognises that time thresholds in Article5 may give rise to abuses and notes that countries concerned with this issue may adopt solutions in bilateral negotiations to prevent such abuse. However, Australia may continue to tax capital gains of former residents in accordance with domestic law. The effect of lowering the withholding tax rate is a lowering of the cost of new technology and intellectual property, which may encourage the development of Australias economy through use of the most up-to-date technology and processes. This provision ensures that such payments are subject to tax as a royalty payment under the terms of the Royalties Article. 2.26 Where the same income is taxed in the hands of different persons under this provision, paragraph 3 of Article 23 (Elimination of Double Taxation) ensures that relief from double taxation is provided. On 27 May 2019, the Australian Taxation Office (ATO) and the New Zealand (NZ) Inland Revenue (IR) released their joint administrative approach to interpreting the dual resident provisions in the Multilateral Instrument. The term entertainer is intended to have a broad meaning and would include, for example, actors and musicians as well as other performers whose activities have an entertainment character, such as comedians, talk show hosts, participants in chess tournaments or racing drivers. The term income in this context is intended to have a broad meaning and includes items of profit or gains which are dealt with under the income tax law. are agreed in an Exchange of Notes between the two Governments to be unaffected by the Article. 2.119 For example, if a NewZealand enterprise itself operates a mobile crane at an Australian port for more than 183 days in a 12monthperiod, the NewZealand enterprise would be deemed to have a permanent establishment in Australia under subparagraph c) of paragraph4. Provides for relief of double taxation in respect of such income. An effect of this paragraph is to preserve, in the case of Australia, the application of Division 15 of Part III of the ITAA1936 (Insurance with Non-residents). 2.371 Articles XXII (Consultation) and XXIII (Dispute Settlement and Enforcement) of the GATS provide for discussion and resolution of disputes. This means that the Australian Government, the state governments and local councils of Australia will be residents for the purpose of the Convention. Those royalties are deemed to be sourced in the country in which the permanent establishment is situated. Financial impact: Treasury has estimated the revenue impact of the Second Protocol which updates the Exchange of Information Article in the tax treaty as unquantifiable. [Article 14, paragraphs 1 and 2]. An enterprise is deemed to be a permanent establishment if: it carries on activities connected with the exploration for or exploitation of natural resources or standing timber; it carries on supervisory activities for more than six months in connection with a building site, or construction, installation or assembly project; or. However, reductions in NewZealand withholding taxes can be expected to result in an increase in the amount of Australian tax revenue through reduced Foreign Income Tax Offsets claimed and increases in Australian taxable income. House website. 5.48 These provisions remove the need for each individual investor in a MIT to claim treaty benefits from New Zealand on their own behalf as is required under the existing treaty, which significantly reduces compliance complexity and costs for Australian investors. The Jersey Agreement will also have an impact on Australian residents (including non-individuals) that wish to contest a transfer pricing taxation adjustment made by the Jersey tax authorities. United States Income Tax Treaties 2.260 In the event that the operation of this Article should result in an item of income or gain being subjected to tax in both States, the country of which the person deriving the income or gain is a resident (as determined in accordance with Article 4 (Resident)) would be obliged by Article 23 (Elimination of Double Taxation) to provide double tax relief for the tax imposed by the other country. This is to take account of the fact that the same income may be regarded as derived by the entity in one country, while the other country considers that, notwithstanding that it is received by the entity, it is derived by the participants. [Article 10, paragraph 5]. Income from government service will generally be taxed only in the country that pays the remuneration. 2.269 Accordingly, Australia would also be entitled to tax that remuneration, in accordance with the general rule of the ITAA 1997 that a resident of Australia remains subject to tax on worldwide income. NZ-Australia double tax agreement now in force Eligibility for the treaty benefits will also be subject to the application of the respective anti-avoidance measures contained in the specific Article (in this example, paragraph 9 of Article 10 (Dividends)). the remuneration is not borne by a permanent establishment which the employer has in the country being visited. Staff from the ATO, clients and tax professionals will need to be made aware of the entry into force and changes from the previous treaty. However, the remuneration shall only be taxed in the other country where the services are rendered in that other country by a resident of that other country who is a national of that other country or did not become a resident of that other country for the purpose of rendering the services. Where dividends are fully franked they are exempt from withholding tax. The definition of MIT for this purpose is contained in subparagraph m) of paragraph 1 of Article 3 (General Definitions) and is discussed in paragraph 2.60. 2.307 Where the income may be taxed in both countries in accordance with this provision, the country of residence of the recipient of the income is obliged by Article 23 (Elimination of Double Taxation) to provide double taxation relief. The first consultation is to occur no later than the end of the fifth year after entry into force of the Convention. 2.92 It is often practically difficult for the many investors in widely held MITs to individually claim treaty benefits in the source country. To be a permanent establishment within the primary meaning of that term, the following requirements must be met: there must be a place of business; the place of business must be fixed (both in terms of physical location and in terms of time); and. Explanatory Memoranda 2.293 While certain pensions and lump sums are not subject to tax in a country as a result of the Convention, this does not prevent them from being taken into account when determining entitlements to assistance or obligations in that country. In the Australian context, this would mean, for example, that Norfolk Island residents, who are generally only subject to Australian tax on Australian source income, are not residents of Australia for the purposes of the Jersey Agreement. 4.30 Where, however, a Jersey student visiting Australia solely for educational purposes undertakes employment in Australia, for example, part-time work with a local employer, the income earned by that student as a consequence of that employment may be subject to tax in Australia. Treats certain business profits, such as profits from agriculture, forestry and fishing, as income from real property, and ensures that arms length profits are taxed on a net basis. This is of particular relevance where, due to inadequate information, the correct amount of profits attributable on the arms length principle basis to a permanent establishment cannot be determined, or can only be ascertained with extreme difficulty. [Article 10, paragraph 9]. This additional sentence is intended to overcome limitations imposed under Belgian internal law on the ability of the Belgian tax administration to obtain information, especially information from banks and other financial institutions for the purposes of the taxation of their clients. Equivalent portable payments arising in NewZealand is intended to cover similar payments made by the NewZealand Government to recipients living overseas. The wording in this provision in the Convention reflects NewZealands treaty practice and the wording used in the United Nations Model Double Taxation Convention between the Developed and Developing Countries. 5.79 The then Assistant Treasurer and Minister for Competition Policy and Consumer Affairs Press Release No. International Tax Agreements Amendment Bill (No. 2) australia new zealand double tax agreement explanatory memorandum This is to prevent the situation where enterprises structure their business so that most of their activities fall within the exceptions with a view to avoiding taxation in that country. 2.402 Where NewZealand makes a revenue claim, the Commissioner will apply the provisions of Division 263 in Schedule 1 to the Taxation Administration Act 1953 for the administration and collection of that claim. 2.237 Under the Convention, payments made for the use of, or right to use, the radiofrequency spectrum specified in a spectrum licence are treated as royalties. Hello. Closely aligns Article 26 (Exchange of Information) to the current OECD standard. [Article 25, paragraph 7]. 5.44 Australian residents required to meet the cost of Australian royalty withholding tax on royalty payments made to New Zealand residents will benefit from the reduced royalty withholding tax rate of 5per cent. 2.358 Nothing in this Article prevents either country from treating residents of the other country more favourably than its own residents. This reflects Australias reservation to Article 9 (Associated Enterprises) of the OECD Model. [Article 25, paragraph 6], 2.381 The arbitration mechanism contained in paragraphs 6 and 7 of this Article shall have effect from the date agreed in a subsequent Exchange of Notes through the diplomatic channel. If Kent Co had owned the shares held by Milford in Dubbo Co directly, then an exemption would apply to the dividends paid on thoseshares under subparagraph a) of paragraph 3 of Article10 of the 2003AustraliaUnited Kingdom Convention. In the case of Australia, effect will be given to the double tax relief obligations arising under the Convention by application of the general foreign income tax offset provisions of Australias domestic law, or the relevant exemption provisions of that law where applicable. Lump sums may be taxed in both countries. Often, it is difficult to ascribe a market value to such shares, as they do not carry rights to financial entitlements (except in certain situations) and it is also difficult to assess how the DLC voting share affects the proportion of interests of all shareholders. 2.437 The Convention would correspondingly cease to be effective in New Zealand for the purposes of: withholding tax on income derived by a non-resident, in relation to income derived on or after the first day of the second month next following that in which the notice of termination is given; and. [Article 24, paragraph7, Article26, paragraph 1 and Article 27, paragraph 2], 2.39 For NewZealand, the Convention applies to income tax, including the fringe benefits tax. 4.20 The same term may have different meaning and a varied scope within different Acts relating to specific taxation measures. [Article 6, paragraph 2]. The definition more specific to the type of tax should be applied in such cases. EM. The amendments made by this Bill will take effect from the date of RoyalAssent. This Exchange of Notes is expected to occur when Australia and New Zealand have established the underlying procedures governing the arbitration mechanism. australia new zealand double tax agreement explanatory memorandum Such terminations are very rare in international tax treaty practice, however, and could be expected to be resisted by the business community and others who benefit from the treaty. 2.171 Where a reallocation of profits is made (either under this Article or, by virtue of paragraph 2, under domestic law) so that the profits of an enterprise of one country are adjusted upwards, economic double taxation (that is, taxation of the same income in the hands of different persons) would arise if the profits so reallocated continued to be subject to tax in the hands of an associated enterprise in the other country. From 1996, most Explanatory Memoranda are available online through [Article13, paragraph 6]. 2.373 In some instances, the competent authorities will not reach agreement on a solution to a particular case. Remuneration for service, that is, salary equivalents, falls for consideration under domestic taxation law. This also provided an opportunity to update the text in accordance with modern OECD practice, which a second limited amending Protocol would not permit. 2.367 The competent authorities may also consult together with a view to eliminating double taxation in cases where the Convention does not provide a solution. When will the Convention enter into force, and from what date will the Convention have effect? [Article27, paragraph 7]. In these circumstances, the Convention provides that the income will be treated as derived by the participants and eligible for such treaty benefits as would be granted to the beneficiary, member or participant. Assume provisions regulating an Australian industry require that at least two-thirds of the directors of a company operating in that industry be Australian citizens. Assume, for example, that the country of source treats a partnership as a company and the country of residence of a partner treats it as fiscally transparent. The rate of royalty withholding tax is limited to 10percent of the gross payment. Article XVII (National Treatment) of the GATS requires a party to accord the same treatment to services and service suppliers of other parties as it accords to its own like services and service suppliers. Profits derived from the transport of the goods loaded in Hobart and discharged in Melbourne would be profits from the carriage of goods shipped in and discharged at a place in, Permissible rate of source country taxation, Exemption for certain cross-border intercorporate dividends, Under subparagraph b) of paragraph 3 of this Article, an exemption applies to. 5.32 The Convention provides benefits to Australian business and to the Australian revenue by ensuring certainty of legislative outcomes based on the treaty. This doesnot necessarily mean that income, profits or gains derived by thesebodies from sources in NewZealand will be subject to tax in NewZealand as sovereign immunity principles may apply. Profits derived from the operation of ships and aircraft in international traffic are generally to be taxed only in the country of residence of the operator [Article8]. The Australian partnership includes Australian partners (Y and Z Co) who are residents of Australia for the purposes of the treaty. 5.22 In particular, relying on the existing tax treaty means arrangements between Australia and New Zealand would not benefit from the move to lower withholding tax rate limits provided under Australias most recent tax treaties. Such treatment applies whether the real property is held directly or indirectly through a chain of interposed entities. [Article 13, paragraph 3], 2.252 For the purposes of this Article, the term international traffic does not include any transportation which commences at a place in a country and returns to another place in that country, after travelling through international airspace or waters (for example, so-called voyages to nowhere by cruise ships). [Article 27, subparagraph 8e)]. [Article 5, paragraph8]. Relying on the existing treaty would also mean there would be no protection for Australian nationals or business in the event of tax discrimination. 2.61 Section 12400 of Schedule 1 to the Taxation Administration Act1953 defines the term managed investment trust. [Article 6, paragraph 4]. In such case Kent Co is considered to be entitled to equivalent benefits to those provided under paragraph 3. 2.21 The third situation deals with cases where income is derived from sources in one country through a third country entity which is treated as fiscally transparent in the other country. Multilateral Instrument | Australian Taxation Office Australia: tax treaties - GOV.UK As paragraph 2 of this Article is subordinate to paragraph 1, the examples listed will only constitute a permanent establishment if the, Building site or construction or installation project, Agricultural, pastoral or forestry property, Manufacturing or processing on behalf of others, Where income from real property is taxable. As the Australian beneficiaries are only entitled to half of the income, only the half of that royalty income attributable to the Australian resident beneficiaries would be eligible for the benefits of the Convention. This rule corresponds to the operation of Article 8 (Shipping and Air Transport) in relation to profits from the international operation of ships or aircraft. In both cases, Winton Co and Osaka Co are considered to be entitled to equivalent benefits to those provided under paragraph 3. The Convention is Australias fourth comprehensive tax treaty with NewZealand. Consistent with the OECD Model Commentary on Article 8 (Shipping, Inland Waterways Transport and Air Transport), paragraph 1 also covers profits from activities directly connected with such operations as well as profits from activities which are not directly connected with the operation of the enterprises ships or aircraft in international traffic but which are ancillary to such operation. Thus for example, if New Zealand agreed in a future treaty with another country to grant an interest withholding tax exemption for financial institutions, without a requirement that AIL be paid, or agreed to a withholding tax rate lower than 10percent in the event AIL was not paid, New Zealand would be obliged to negotiate with Australia to provide similar outcomes for Australian financial institutions. 2.231 Payments for the use of, or the right to use industrial, commercial or scientific equipment, do not appear in the definition under the Convention. If the remuneration is similar to the amounts paid to persons who provide similar services who are not business apprentices (that is, salary equivalent), this would generally indicate that the payments constitute income from employment that would fall for consideration under domestic taxation law. 2.403 Australia or New Zealand may request the other country to take measures of conservancy even where it cannot yet ask for assistance in collection, such as where the revenue claim is not yet enforceable or when the debtor still has the right to prevent its collection. Other than in relation to time limits and priority (seeparagraphs2.405 to 2.408), the requested country is required to collect the revenue claim as though it were its own revenue claim. 2.311 Double taxation does not arise in respect of income flowing between Australia and New Zealand: where the terms of the Convention provide for the income to be taxed only in one country; or. 2.325 The discrimination that this Article precludes applies to both taxation and any requirement connected with such taxation. This is designed to address arrangements along the lines of those contained in Aktiebolaget Volvo v Federal Commissioner of Taxation (1978) 8 ATR 747; 78 ATC 4316, where instead of amounts being payable for the exclusive right to use the property they were made for the undertaking that the right to use the property will not be granted to anyone else. 2.225 The phrase for the purposes of its tax, which appears in paragraph 7 of Article 12, refers to the case where a person is a resident of a country under its domestic tax law, even if the person is deemed to be a resident only of the other country for the purposes of the Convention by virtue of paragraph 2, 3 or 5 of Article 4 (Resident). 2.347 Under Australias domestic tax legislation, permanent establishments generally enjoy the same tax treatment as resident enterprises. 2.217 The source rules which determine where interest arises for the purposes of this Article are set out in paragraph 7. 5.9 On 28 January 2008, the then Assistant Treasurer and Minister for Competition Policy and Consumer Affairs announced the commencement of negotiations to revise the 1995 New Zealand tax treaty and its 2005 amending Protocol to enhance the mutual conduct of business. [Article9, paragraph 3], 2.173 The treaty specifies a time limit for the adjustment of the profits of the enterprise under paragraph 1 or 2 of this Article. New Zealand payers of interest to nonresident lenders can elect (if they meet the required conditions) to pay the Approved Issuer Levy instead of non-resident withholding tax. 5.93 The Jersey Agreement was signed in conjunction with the Agreement between the Government of Australia and the Government of Jersey for the Exchange of Information with Respect to Taxes (the Jersey Information Exchange Agreement), which will promote greater cooperation between the taxation authorities of the two countries to prevent tax avoidance and evasion. The existing treaty does not provide any such protection. By reason of this definition, Australia preserves its taxing rights, for example, over mineral exploration and mining activities carried on by non-residents on the seabed and subsoil of the relevant continental shelf areas (under section6AA of the ITAA 1936, certain sea installations and offshore areas are to be treated as part of Australia).

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