INTERNATIONAL TAX AGREEMENTS AMENDMENT BILL 2012 Explanatory Memorandum
INTERNATIONAL TAX AGREEMENTS AMENDMENT BILL 2012
2010-2011-2012
THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA
HOUSE OF REPRESENTATIVES
INTERNATIONAL TAX AGREEMENTS AMENDMENT BILL 2012
EXPLANATORY MEMORANDUM
(Circulated by the authority of the
Deputy Prime Minister and Treasurer, the Hon Wayne Swan MP)
Table of contents
Glossary .................................................................................................. 1
General outline and financial impact ....................................................... 3
Chapter 1 Indian protocol ............................................................... 7
Chapter 2 Australia -- Marshall Islands agreement ..................... 35
Chapter 3 Australia -- Mauritius agreement ................................ 55
Chapter 4 Statement of Compatibility with Human Rights ............ 75
Glossary
The following abbreviations and acronyms are used throughout this
explanatory memorandum.
Abbreviation Definition
Agreements Act 1953 International Tax Agreements Act 1953
ATO Australian Taxation Office
Commissioner Commissioner of Taxation
Indian Agreement Agreement between the Government of
Australia and the Government of the
Republic of India for the Avoidance of
Double Taxation and the Prevention of
Fiscal Evasion with Respect to Taxes on
Income
Indian Protocol Protocol Amending the Agreement between
the Government of Australia and the
Government of the Republic of India for the
Avoidance of Double Taxation and the
Prevention of Fiscal Evasion with Respect to
Taxes on Income
ITAA 1936 Income Tax Assessment Act 1936
ITAA 1997 Income Tax Assessment Act 1997
OECD Organisation for Economic Co-operation and
Development
OECD Model OECD Model Tax Convention on Income and
on Capital
Marshall Islands agreement Agreement between the Government of
Australia and the Government of the
Republic of the Marshall Islands for the
Allocation of Taxing Rights with Respect to
Certain Income of Individuals and to
Establish a Mutual Agreement Procedure in
Respect of Transfer Pricing Adjustments
Mauritius agreement Agreement between the Government of
Australia and the Government of the
Republic of Mauritius for the Allocation of
Taxing Rights with Respect to Certain
Income of Individuals and to Establish a
Mutual Agreement Procedure in Respect of
Transfer Pricing Adjustments
1
General outline and financial impact
New Agreements
Indian Protocol
Schedule 1 to this Bill amends the International Tax Agreements Act 1953
(Agreements Act 1953) to give the force of law in Australia to the
Protocol Amending the Agreement between the Government of Australia
and the Government of the Republic of India for the Avoidance of Double
Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on
Income (Indian Protocol), which was signed in New Delhi on
16 December 2011.
Date of effect: The Indian Protocol must first enter into force. For entry
into force, Australia and India are required to provide notification on the
completion of the necessary domestic procedures. Once the Indian
Protocol enters into force its provisions will take effect in Australia in
three stages:
· in respect of Australian tax on income, profits or gains of any
year of income beginning on or after 1 July next following
entry into force;
· in respect of Article 24A (Non-Discrimination) and Article
26 (Exchange of Information), upon entry into force; and
· in respect of Article 26A (Assistance in the Collection of
Taxes), on a date agreed in an exchange of diplomatic notes.
Proposal announced: This measure was announced on the Treasury
website on 22 December 2011.
Financial impact: Unquantifiable, but potentially positive.
Human rights implications: This Bill does not raise any human rights
issues. See Statement of Compatibility with Human Rights -- Chapter 4,
paragraphs 4.1 to 4.4.
Compliance cost impact: The Indian Protocol is broadly consistent with
international norms and would generally be expected to reduce
compliance costs.
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International Tax Agreements Amendment Bill 2012
Marshall Islands agreement
Schedule 1 to this Bill amends the Agreements Act 1953 to give the force
of law in Australia to the Agreement between the Government of Australia
and the Government of the Republic of the Marshall Islands for the
Allocation of Taxing Rights with Respect to Certain Income of Individuals
and to Establish a Mutual Agreement Procedure in Respect of Transfer
Pricing Adjustments (Marshall Islands Agreement), which was signed in
Majuro on 12 May 2010.
Date of effect: The Marshall Islands Agreement must first enter into
force. For entry into force, Australia and the Marshall Islands are required
to provide notification on the completion of the necessary domestic
procedures. Once the Marshall Islands Agreement enters into force it will
apply in Australia in respect of any income year beginning on or after
1 July in the calendar year next following the date on which it enters into
force.
Proposal announced: This measure was announced in the then Assistant
Treasurer's Media Release No. 105 of 13 May 2010.
Financial impact: Minimal
Human rights implications: This Bill does not raise any human rights
issues. See Statement of Compatibility with Human Rights -- Chapter 4,
paragraphs 4.1 to 4.4.
Compliance cost impact: No significant compliance costs are expected to
result from the entry into force of the Marshall Islands agreement.
Mauritius agreement
Schedule 1 to this Bill amends the Agreements Act 1953 to give the force
of law in Australia to the Agreement between the Government of Australia
and the Government of the Republic of Mauritius for the Allocation of
Taxing Rights with Respect to Certain Income of Individuals and to
Establish a Mutual Agreement Procedure in Respect of Transfer Pricing
Adjustments (the Mauritius Agreement), which was signed in Port Louis
on 8 December 2010.
Date of effect: The Mauritius agreement must first enter into force. For
entry into force, Australia and Mauritius are required to provide
notification on the completion of the necessary domestic procedures.
Once the Mauritius agreement enters into force it will apply in Australia
4
General outline and financial impact
in respect of any income year beginning on or after 1 July in the calendar
year next following the date on which it enters into force.
Proposal announced: This measure was announced in the then Assistant
Treasurer's Media Release No. 022 of 9 December 2010.
Financial impact: Minimal
Human rights implications: This Bill does not raise any human rights
issues. See Statement of Compatibility with Human Rights -- Chapter 4,
paragraphs 4.1 to 4.4.
Compliance cost impact: No significant compliance costs are expected to
result from the entry into force of the Mauritius agreement
Other Amendments
Schedule 1 to this Bill also amends the Agreements Act 1953 to update certain
references to some of Australia's existing taxation agreements.
The notes to the definitions of the Aruban agreement, the Guernsey agreement, the
Jersey agreement and the Malaysian Protocol (No. 3) contained in section 3AAA(1) of
that act will be updated to refer to the Australian Treaty Series number of each of those
agreements. This will assist readers in accessing the text of each of those agreements.
These amendments are of a minor and technical nature and will not result in any
substantive law changes.
5
Indian protocol
Outline of chapter
1.1 Schedule 1 to this Bill amends the International Tax Agreements
Act 1953 (Agreement Act 1953) to define and give the force of law to the
2011 Protocol Amending the Agreement between the Government of
Australia and the Government of the Republic of India for the Avoidance
of Double Taxation and the Prevention of Fiscal Evasion with Respect to
Taxes on Income (Indian Protocol). Subsection 3AAA(1) of the
Agreements Act 1953 will define the Indian Protocol and subsection 5(1)
will give it the force of law in Australia. Subsections 3AAA(1) and 5(1)
refer to the Indian Protocol as the Indian protocol (No. 1). This chapter
explains the rules that apply in the Indian Protocol.
1.2 All references to the articles in the Indian Agreement are to
Articles as amended by the Indian Protocol.
Context of amendments
1.3 The Indian Protocol was signed in New Delhi on
16 December 2011.
1.4 Once in force, the Indian Protocol will amend the Agreement
between the Government of Australia and the Government of the Republic
of India for the Avoidance of Double Taxation and the Prevention of
Fiscal Evasion with Respect to Taxes on Income (the Indian Agreement),
which was signed in 1991.
1.5 The Indian Protocol will improve the administrative framework
for tax cooperation between Australia and India and update the rules for
the taxation of business profits and services to bring them more into line
with international practice. It will also insert rules to protect taxpayers
from tax discrimination.
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International Tax Agreements Amendment Bill 2012
Summary of new law
Main features of the Indian Protocol
1.6 The main features of the Indian Protocol are as follows:
· A permanent establishment of an enterprise of one country is
deemed to exist in the other country, unless otherwise
excluded, where:
- that enterprise furnishes services in the other country,
through employees or other personnel, where the relevant
activities continue for more than 183 days in any 12
month period [Article 5, subparagraph (3)(a) of the Indian
Agreement];
- that enterprise carries on activities in the other country in
the exploration for or exploitation of natural resources
located in that country, for more than 90 days in any 12
month period [Article 5, subparagraph (3)(b) of the Indian
Agreement]; or
- that enterprise operates substantial equipment in the other
country for more than 183 days in any 12 month period
[Article 5, subparagraph (3)(c) of the Indian Agreement].
· Only the business profits attributable to an enterprise's
permanent establishment in the other country may be taxed in
that country [Article 7, paragraph 1 of the Indian Agreement].
· Rules in the Indian Protocol will protect individuals and
entities from tax discrimination in the other country and give
them private rights of appeal. However, Article 24A does
not restrict either country from applying provisions designed
to prevent the avoidance or evasion of taxes (for Australia
such measures include thin capitalisation rules or measures
designed to ensure that taxes can be effectively collected or
recovered and research and development concessions
[Article 24A of the Indian Agreement].
· The Indian Protocol provides for enhanced exchange of
information, including bank information, between the two
taxation authorities. It authorises and requires Australia to
exchange information where the information relates to
federal taxes [Article 26 of the Indian Agreement].
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Indian Protocol
· The Indian Protocol improves the integrity of the tax system
by providing for the mutual assistance in the collection of tax
debts. This would allow the Australian Taxation Office
(ATO), in certain circumstances, to seek assistance from the
Indian tax administration to collect Australian taxation debts
in respect of all federal taxes, and vice versa [Article 26A of the
Indian Agreement].
Comparison of key features of new law and current law
New law Current law
Updates the circumstances, in An enterprise is deemed to have a
Article 5 (Permanent Establishment), `permanent establishment' in a
under which an enterprise is deemed country if:
to have a permanent establishment in · it furnishes services in that
a country. This will occur if the country for more than 90 days in
enterprise: any 12 month period;
· furnishes services (including · it furnishes services in that
consultancy services) in that country, for any period of time,
country for more than 183 days in for an associated enterprise;
any 12 month period.
· substantial equipment is being
· carries on activities in that country used in that country, for any
(including the operation of period of time, by, for or under
substantial equipment) in the contract with the enterprise; or
exploration for or exploitation of
natural resources located in that · it carries on activities in that
country for more than 90 days in country, for any period of time, in
any 12 month period; or connection with the exploration
for or exploitation of natural
· operates substantial equipment in resources in that country.
that country (including in relation
to natural resource activities) for
more than 183 days in any
12 month period.
The business profits of an enterprise In addition to profits that are
of one country will only be taxable in attributable to a permanent
the other country to the extent that establishment in the other country,
they are attributable to a permanent the business profits of an enterprise of
establishment in the other country. one country are taxable in the other
This removes the `force of attraction' country to the extent that they are
rule contained in the Indian attributable to the sale of goods or
Agreement. Therefore the business merchandise, or from other business
profits attributable to a permanent activities, carried on by the enterprise
establishment of an enterprise of one in that other country, that are the
country will no longer include profits same or similar to the sales or
from the sale of goods or activities carried on through that
permanent establishment. This is
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International Tax Agreements Amendment Bill 2012
New law Current law
merchandise, or other business known as the `force of attraction'
activities, within that other country, rule.
that are not conducted through the
permanent establishment but are of
the same or a similar kind to those
carried on through that permanent
establishment.
Includes a comprehensive article No equivalent.
preventing tax discrimination under
tax laws.
Updates the framework for the tax The information that can be
authorities to exchange taxpayer exchanged is restricted to information
information to the current relating to the taxes covered by
international standard. Article 2 (Taxes Covered) of the
Indian Agreement. Other restrictions
can also apply, including restrictions
relating to bank secrecy.
Includes a framework for the No equivalent.
countries to provide mutual assistance
in the collection of taxes.
The Indian Protocol
1.7 A full transcript of the Indian Protocol and detailed explanation
follows:
PROTOCOL AMENDING THE AGREEMENT BETWEEN THE
GOVERNMENT OF AUSTRALIA AND THE GOVERNMENT OF
THE REPUBLIC OF INDIA FOR THE AVOIDANCE OF DOUBLE
TAXATION AND THE PREVENTION OF FISCAL EVASION
WITH RESPECT TO TAXES ON INCOME
(New Delhi, 16 December 2011)
The Government of Australia and the Government of the Republic of India,
Desiring to amend the Agreement between the Government of Australia and the
Government of the Republic of India for the avoidance of double taxation and the
prevention of fiscal evasion with respect to taxes on income signed at Canberra on the
25th day of July 1991 (in this Protocol referred to as "the Agreement"),
Have agreed as follows:
10
Indian Protocol
ARTICLE 1
Article 3 of the Agreement is amended by inserting new sub-paragraph k) in
paragraph (1):
" (k) the term "national", in relation to a Contracting State, means:
(i) any individual possessing the nationality or citizenship of that
Contracting State; and
(ii) any legal person, company, partnership or association deriving
its status as such from the laws in force in that Contracting
State."
ARTICLE 2
Article 5 of the Agreement is amended by omitting paragraph 3 and substituting:
"(3) Notwithstanding the provisions of paragraphs 1 and 2, where an enterprise of a
Contracting State:
(a) furnishes services, including consultancy services, through employees
or other personnel engaged by the enterprise for such purpose, but only
where activities of that nature continue (for the same or connected
project) within that other State for a period or periods aggregating
more than 183 days in any 12 month period;
(b) carries on activities (including the operation of substantial equipment)
in the other State in the exploration for or exploitation of natural
resources situated in that other State for a period or periods exceeding
in the aggregate 90 days in any 12 month period; or
(c) operates substantial equipment in the other State (including as
provided in subparagraph b)) for a period or periods exceeding in the
aggregate 183 days in any 12 month period;
such activities shall be deemed to be carried on through a permanent establishment of
the enterprise situated in that other State, unless the activities are limited to those
mentioned in paragraph 4 which, if exercised through a fixed place of business, would
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International Tax Agreements Amendment Bill 2012
not make this place of business a permanent establishment under the provisions of that
paragraph."
ARTICLE 3
Article 7 of the Agreement is amended by omitting paragraph 1 and substituting:
"(1) The profits of an enterprise of a Contracting State shall be taxable only in that
State unless the enterprise carries on business in the other Contracting State through a
permanent establishment situated therein. If the enterprise carries on business as
aforesaid, the profits of the enterprise may be taxed in the other State but only so much
of them as is attributable to that permanent establishment."
ARTICLE 4
The Agreement is amended by inserting:
Article 24A
NON-DISCRIMINATION
(1) Nationals of a Contracting State shall not be subjected in the other Contracting
State to any taxation or any requirement connected therewith, which is other or more
burdensome than the taxation and connected requirements to which nationals of that
other State in the same circumstances, in particular with respect to residence, are or
may be subjected. This provision shall, notwithstanding the provisions of Article 1,
also apply to persons who are not residents of one or both of the Contracting States.
(2) The taxation on a permanent establishment which an enterprise of a
Contracting State has in the other Contracting State shall not be less favorably levied in
that other State than the taxation levied on enterprises of that other State carrying on
the same activities. This provision shall not be construed as obliging a Contracting
State to grant to individuals who are residents of the other Contracting State any
personal allowances, reliefs and reductions for taxation purposes on account of civil
status or family responsibilities which it grants to its own residents. This provision
shall not be construed as preventing a Contracting State from charging the profits of a
permanent establishment which a company of the other Contracting State has in the
first mentioned State at a rate of tax which is higher than that imposed on the profits of
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Indian Protocol
a similar company of the first mentioned Contracting State, nor as being in conflict
with the provisions of paragraph 3 of Article 7.
(3) Except where the provisions of paragraph 1 of Article 9, paragraph 6 of Article
11 or paragraph 6 of Article 12, apply, interest, royalties and other disbursements paid
by an enterprise of a Contracting State to a resident of the other Contracting State shall,
for the purpose of determining the taxable profits of such enterprise, be deductible
under the same conditions as if they had been paid to a resident of the first-mentioned
State.
(4) Enterprises of a Contracting State, the capital of which is wholly or partly
owned or controlled, directly or indirectly, by one or more residents of the other
Contracting State, shall not be subjected in the first-mentioned State to any taxation or
any requirement connected therewith which is other or more burdensome than the
taxation and connected requirements to which other similar enterprises of the
first-mentioned State are or may be subjected.
(5) The provisions of this Article shall, notwithstanding the provisions of
Article 2, apply to taxes of every kind and description.
(6) This Article shall not apply to any provision of the laws of a Contracting State
which:
(a) is designed to prevent the avoidance or evasion of taxes, including
measures designed to address thin capitalization or to ensure that taxes
can be effectively collected or recovered; or
(b) provides tax incentives to eligible taxpayers for expenditure on
research or development, provided that a company that is a resident of
one Contracting State and is wholly or partly owned by residents of the
other State can access such incentives on the same terms and
conditions as any other company that is a resident of the
first-mentioned State; or
(c) is agreed between the Contracting States through an Exchange of
Notes. "
ARTICLE 5
The Agreement is amended by omitting Article 26 and substituting:
"Article 26
EXCHANGE OF INFORMATION
(1) The competent authorities of the Contracting States shall exchange such
information (including documents or certified copies of the documents) as is
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International Tax Agreements Amendment Bill 2012
foreseeably relevant for carrying out the provisions of this Agreement, or to the
administration or enforcement of the domestic laws concerning taxes of every kind and
description imposed on behalf of the Contracting States, insofar as the taxation
thereunder is not contrary to the Agreement. The exchange of information is not
restricted by Articles 1 and 2.
(2) Any information received under paragraph 1 by a Contracting State shall be
treated as secret in the same manner as information obtained under the domestic laws
of that State and shall be disclosed only to persons or authorities (including courts and
administrative bodies) concerned with the assessment or collection of, the enforcement
or prosecution in respect of, or the determination of appeals in relation to the taxes
referred to in paragraph 1, or the oversight of the above. Such persons or authorities
shall use the information only for such purposes. They may disclose the information in
public court proceedings or in judicial decisions. Notwithstanding the foregoing,
information received by a Contracting State may be used for other purposes when such
information may be used for such other purposes under the laws of both States and the
competent authority of the supplying State authorizes such use.
(3) In no case shall the provisions of paragraphs 1 and 2 be construed so as to
impose on a Contracting State the obligation:
(a) to carry out administrative measures at variance with the laws and
administrative practice of that or of the other Contracting State;
(b) to supply information (including documents or certified copies of the
documents) which is not obtainable under the laws or in the normal
course of the administration of that or of the other Contracting State;
(c) to supply information which would disclose any trade, business,
industrial, commercial or professional secret or trade process, or
information, the disclosure of which would be contrary to public policy
(ordre public).
(4) If information is requested by a Contracting State in accordance with this
Article, the other Contracting State shall use its information gathering measures to
obtain the requested information, even though that other State may not need such
information for its own tax purposes. The obligation contained in the preceding
sentence is subject to the limitations of paragraph 3 but in no case shall such
limitations be construed to permit a Contracting State to decline to supply information
solely because it has no domestic interest in such information.
(5) In no case shall the provisions of paragraph 3 be construed to permit a
Contracting State to decline to supply information solely because the information is
held by a bank, other financial institution, nominee or person acting in an agency or a
fiduciary capacity or because it relates to ownership interests in a person."
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Indian Protocol
ARTICLE 6
The Agreement is amended by inserting:
"Article 26A
ASSISTANCE IN THE COLLECTION OF TAXES
(1) The Contracting States shall lend assistance to each other in the collection of
revenue claims. This assistance is not restricted by Articles 1 and 2. The competent
authorities of the Contracting States may by mutual agreement settle the mode of
application of this Article.
(2) The term "revenue claim" as used in this Article means an amount owed in
respect of taxes of every kind and description, imposed on behalf of the Contracting
States, insofar as the taxation thereunder is not contrary to this Agreement or any other
instrument to which the Contracting States are parties, as well as interest,
administrative penalties and costs of collection or conservancy related to such amount.
(3) When a revenue claim of a Contracting State is enforceable under the laws of
that State and is owed by a person who, at that time, cannot, under the laws of that
State, prevent its collection, that revenue claim shall, at the request of the competent
authority of that State, be accepted for purposes of collection by the competent
authority of the other Contracting State. That revenue claim shall be collected by that
other State in accordance with the provisions of its laws applicable to the enforcement
and collection of its own taxes as if the revenue claim were a revenue claim of that
other State.
(4) When a revenue claim of a Contracting State is a claim in respect of which that
State may, under its law, take measures of conservancy with a view to ensure its
collection, that revenue claim shall, at the request of the competent authority of that
State, be accepted for purposes of taking measures of conservancy by the competent
authority of the other Contracting State. That other State shall take measures of
conservancy in respect of that revenue claim in accordance with the provisions of its
laws as if the revenue claim were a revenue claim of that other State even if, at the time
when such measures are applied, the revenue claim is not enforceable in the
first-mentioned State or is owed by a person who has a right to prevent its collection.
(5) Notwithstanding the provisions of paragraphs 3 and 4, a revenue claim
accepted by a Contracting State for purposes of paragraph 3 or 4 shall not, in that State,
be subject to the time limits or accorded any priority applicable to a revenue claim
under the laws of that State by reason of its nature as such. In addition, a revenue
claim accepted by a Contracting State for the purposes of paragraph 3 or 4 shall not, in
that State, have any priority applicable to that revenue claim under the laws of the other
Contracting State.
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International Tax Agreements Amendment Bill 2012
(6) Proceedings with respect to the existence, validity or the amount of a revenue
claim of a Contracting State shall only be brought before the courts or administrative
bodies of that State. Nothing in this Article shall be construed as creating or providing
any right to such proceedings before any court or administrative body of the other
Contracting State.
(7) Where, at any time after a request has been made by a Contracting State under
paragraph 3 or 4 and before the other Contracting State has collected and remitted the
relevant revenue claim to the first-mentioned State, the relevant revenue claim ceases
to be
(a) in the case of a request under paragraph 3, a revenue claim of the
first-mentioned State that is enforceable under the laws of that State
and is owed by a person who, at that time, cannot, under the laws of
that State, prevent its collection, or
(b) in the case of a request under paragraph 4, a revenue claim of the
first-mentioned State in respect of which that State may, under its laws,
take measures of conservancy with a view to ensure its collection
the competent authority of the first-mentioned State shall promptly notify the
competent authority of the other State of that fact and, at the option of the other State,
the first-mentioned State shall either suspend or withdraw its request.
(8) In no case shall the provisions of this Article be construed so as to impose on a
Contracting State the obligation:
(a) to carry out administrative measures at variance with the laws and
administrative practice of that or of the other Contracting State;
(b) to carry out measures which would be contrary to public policy (ordre
public);
(c) to provide assistance if the other Contracting State has not pursued all
reasonable measures of collection or conservancy, as the case may be,
available under its laws or administrative practice;
(d) to provide assistance in those cases where the administrative burden
for that State is clearly disproportionate to the benefit to be derived by
the other Contracting State."
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Indian Protocol
ARTICLE 7
ENTRY INTO FORCE
The Contracting States shall notify each other in writing through the diplomatic
channel of the completion of their domestic requirements for the entry into force of this
Protocol. The Protocol, which shall form an integral part of the Agreement, shall enter
into force on the date of the last notification, and thereupon shall have effect:
(a) in the case of Australia, with regard to Australian tax, in relation to
income, profits or gains of any year of income beginning on or after 1
July next following the date on which the Protocol enters into force;
(b) in the case of India in respect of income derived in any fiscal year
beginning on or after 1 April next following the date on which the
Protocol enters into force;
(c) for the purposes of Articles 24A (Non-Discrimination) and 26
(Exchange of Information) of the Agreement, from the date of entry
into force of this Protocol;
(d) notwithstanding the provisions of subparagraphs (a), (b) and (c),
Article 26A (Assistance in the Collection of Taxes) of the Agreement
shall have effect from the date agreed in an exchange of notes through
the diplomatic channel.
IN WITNESS WHEREOF the undersigned, being duly authorised, have signed this
Protocol.
DONE in duplicate at New Delhi this sixteenth day of December, 2011, in the English
and Hindi languages, both texts equally authentic, the English text to be the operative
one in any case of doubt.
For the Government of For the Government of the
Australia: Republic of India:
Mr S S Palanimanickam
The Hon Bill Shorten Union Minister of State for Finance
Minister for Employment and and Superannuation
Workplace Relations and Minister for
Financial Services
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International Tax Agreements Amendment Bill 2012
Detailed explanation of the Indian Protocol
Article 1
Amends Article 3 (General Definitions) of the Indian Agreement
1.8 This Article inserts a new subparagraph into Article 3 (General
Definitions) of the Indian Agreement to define the term `national'.
National is defined by reference to an individual's nationality or
citizenship. A legal person, company, partnership or association will also
be a national if it is created, organised or treated as such under the laws of
Australia or India. For example, a company's nationality is determined by
where it is incorporated. [Article 3, subparagraph (1)(k) of the Indian Agreement]
Article 2
Amends Article 5 (Permanent Establishment) of the Indian Agreement
1.9 This article amends the circumstances under which an enterprise
is deemed to have a permanent establishment in a country.
Deemed permanent establishment
Services
1.10 Where an enterprise of one country furnishes services, including
consultancy services, in the other country through its employees or other
personnel engaged by it for that purpose, the enterprise will be deemed to
have a permanent establishment in that other country through which those
services are carried on. This rule only applies, however, where the
relevant activities continue, for the same project or for a connected
project, for a period or periods aggregating more than 183 days in any 12
month period.
1.11 In addition, this rule is subject to the provisions of paragraph 4
of Article 5 of the Indian Agreement which deems that certain activities
that are ordinarily of a preparatory or auxiliary character do not constitute
a permanent establishment. Examples of such activities include the use of
facilities solely for the purpose of storage or display of goods or
merchandise. [Article 5, new subparagraph (3)(a) of the Indian Agreement]
Natural resource activities
1.12 Where an enterprise of one country carries on activities
(including the operation of substantial equipment) in the exploration for or
exploitation of natural resources located in the other country for a period
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Indian Protocol
or periods exceeding in the aggregate 90 days in any 12 month period, the
enterprise will be deemed to have a permanent establishment in that other
country through which those activities are carried on (unless the activities
are of a type described in paragraph 4 of Article 5 of the Indian
Agreement). [Article 5, new subparagraph (3)(b) of the Indian Agreement]
1.13 This rule replaces the corresponding rule in the Indian
Agreement which deems a permanent establishment to exist in relation to
natural resource activities, regardless of the duration of those activities.
Substantial equipment
1.14 An enterprise of a country is deemed to have a permanent
establishment in the other country where it operates substantial equipment
(including in relation to natural resource activities) for a period or periods
exceeding in the aggregate 183 days in any 12 month period (unless the
activities are of a type described in paragraph 4 of Article 5 of the Indian
Agreement).
1.15 Subparagraphs 3b) and c) together reflect Australia's reservation
to the Organisation for Economic Co-operation and Development Model
Tax Convention on Income and on Capital (OECD Model) concerning
activities relating to natural resources and the use of substantial
equipment. Australia`s experience is that the permanent establishment
provision in the OECD Model may be inadequate to deal with high value
mobile activities; in particular those involving the use of such equipment.
1.16 The words `operation' and `operates' have been included to
clarify that only active use of substantial equipment assets will be
captured by subparagraphs 3b) and c). This means that an enterprise that
merely leases substantial equipment to another person for that other
person's own use in a country, would not be deemed to have a permanent
establishment in that country under these provisions.
1.17 For example, if an Indian enterprise itself operates a mobile
crane at an Australian port for more than 183 days in a 12 month period,
the Indian enterprise would be deemed to have a permanent establishment
in Australia under subparagraph 3c). If, however, that Indian enterprise
merely leases the mobile crane to another person and that other person
operates the crane at an Australian port for its own purposes, the Indian
enterprise would not be deemed to have a permanent establishment in
Australia under subparagraph 3c). However, if that other person operates
the substantial equipment for or on behalf of the Indian enterprise in
Australia, the Indian enterprise would be considered to operate the
equipment in Australia.
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International Tax Agreements Amendment Bill 2012
1.18 The meaning of the term `substantial equipment' depends on the
relevant facts and circumstances of each individual case. Factors such as
size, quantity or value of the equipment, or the role of the equipment in
income producing activities, are relevant in determining whether the
equipment is substantial. However, some examples of substantial
equipment would include:
· industrial earthmoving equipment or construction equipment
used in road building, dam building or powerhouse
construction;
· manufacturing or processing equipment used in a factory; or
· oil or drilling rigs, platforms and other structures used in the
petroleum, gas or mining industry.
Article 3
Amends Article 7 (Business Profits) of the Indian Agreement
1.19 This article revises the rules that allow for the taxation by one
country of business profits derived by an enterprise that is a resident of the
other country.
1.20 The business profits of an enterprise that is a resident of one
country will be taxable only in that country unless the profits are
attributable to the carrying on of a business through a permanent
establishment in the other country. To the extent that they are attributable
to a permanent establishment located in the other country, such profits
may also be taxed in that other country.
1.21 This article will remove the `force of attraction' rule contained
in the corresponding article of the existing Indian Agreement. The force
of attraction rule provides that a country may also generally tax income
attributable to certain related sales of goods or merchandise or other
business activities where those sales are made or business activities are
carried on within that country other than through the permanent
establishment.
1.22 The force of attraction rule is inconsistent with current
international treaty practice which generally does not permit source
country taxation of `indirect profits' earned by a foreign enterprise and its
removal will place Australian investors in India on an equal footing with
investors from other countries with similar treaty protection. [Article 7,
paragraph (1) of the Indian Agreement]
20
Indian Protocol
Article 4
Inserts new Article 24A (Non-Discrimination) into the Indian
Agreement
1.23 The Indian Protocol inserts new rules into the Indian Agreement
to prevent tax discrimination. The Australian tax system is generally
non-discriminatory. However, for clarity this Article provides that certain
features of the Australian tax system should not be seen as coming within
the Article's terms.
Discrimination based on nationality
1.24 Article 24A prevents discrimination on the grounds of
nationality by providing that nationals of one country may not be less
favourably treated than nationals of the other country in the same
circumstances. [New Article 24A, paragraph (1) of the Indian Agreement]
1.25 The discrimination that this Article precludes applies to both
taxation and any requirement connected with such taxation. Accordingly,
discrimination in the administration of the tax law is also generally
precluded.
1.26 The term national is defined in new sub-paragraph (k) of
Article 3 of the Indian Agreement (General Definitions) and covers both
an individual who is a national or citizen of one country or the other, and
any legal person, company, partnership or association deriving its status as
such from the laws in force in one country or the other. Accordingly, a
company that is incorporated in Australia would be a national of Australia
while a company that is incorporated under a law of India would be a
national of India for the purposes of this paragraph.
The meaning of `in the same circumstances' and `in particular with
respect to residence'
1.27 The expression `in the same circumstances' refers to persons
who, from the point of the application of the ordinary taxation laws, are in
substantially similar circumstances both in law and in fact.
1.28 Where a person operates in an industry that is subject to
government regulation such as prudential oversight, another person
operating in the same industry but not subject to the same oversight,
would not be in the same circumstances.
1.29 The inclusion of the further clarification `in particular with
respect to residence' makes clear that the residence of the taxpayer is one
of the factors that are relevant in determining whether taxpayers are
21
International Tax Agreements Amendment Bill 2012
placed in similar circumstances. Therefore, different treatment accorded
to an Indian resident compared to an Australian resident will not
constitute discrimination for the purposes of this Article. A potential
breach of paragraph 1 of this Article only arises if two persons who are
residents of the same country are treated differently solely by reason of
one being a national of Australia and the other a national of India.
The meaning of `other or more burdensome' taxation
1.30 The words `more burdensome' taxation refer to the quantum of
taxation while `other' taxation may refer to some form of income tax other
than the form of income tax to which a national of the country is subject
(Woodend Rubber Co. v Commissioner of Inland Revenue [1971] A.C.
321 at 332).
1.31 The phrase `any requirement connected therewith' makes the
Article also applicable to administrative or compliance requirements that a
taxpayer may be called upon to meet where those requirements differ
based on nationality grounds.
Non-residents of Australia/India
1.32 Consistent with paragraph 1 of Article 24 (Non-Discrimination)
of the OECD Model, paragraph 1 of this Article applies to persons who
are residents of neither Australia nor India. Consequently, residents of
third countries who are nationals of either Australia or India are able to
seek the benefits of this provision. Paragraph 1 does not, however,
extend to residents of either country who are not `nationals' (as defined in
sub-paragraph (k) of paragraph 1 of Article 3 (General Definitions) of
either country.
Non-discrimination and permanent establishments
1.33 The tax on permanent establishments of enterprises of the other
country will not be levied less favourably than on the country's own
enterprises carrying on the same activities. This applies to all residents of
a treaty country, irrespective of their nationality, who have a permanent
establishment in the other country. The purpose of this provision is to
prevent discrimination in the treatment of permanent establishments as
compared with resident enterprises. [Article 24A, paragraph (2) of the Indian
Agreement]
1.34 For this paragraph to apply, the comparison must therefore be
made between a permanent establishment and local enterprises carrying
on the same activities. Paragraphs 37 and 38 of the OECD Model
Commentary on Article 24 (Non-discrimination) note, by way of example,
that the legal structure of the permanent enterprise and the regulation of its
22
Indian Protocol
activities may be relevant in determining whether or not those activities
are the same as those of local enterprises.
1.35 Permanent establishments of non-resident enterprises may be
treated differently from resident enterprises as long as the treatment does
not result in more burdensome taxation for the former than for the latter.
That is, a different mode of taxation may be adopted with respect to
non-resident enterprises, to take account of the fact that they often operate
in different conditions to resident enterprises. The provision would not
affect, for example, domestic law provisions that tax a non-resident by
withholding, provided that calculation of the tax payable is not greater
than that applying to a resident taxpayer.
1.36 Paragraph 2 permits a country to charge a higher rate of tax on
the profits of a permanent establishment of a non-resident company than it
charges on the profits of similar resident companies. Such treatment
would not breach this paragraph or paragraph 3 of Article 7 of the Indian
Agreement. This provision is consistent with India's long-standing
differential tax rate treatment between its resident companies and
non-resident companies. [Article 24A, paragraph 2 of the Indian Agreement]
1.37 In determining whether taxation has been less favourably levied,
regard would be had only to the rules applicable to the taxation of the
permanent establishment's own activities, and how those rules compare
with those applicable to the taxation of similar activities carried on by a
local enterprise. As noted in paragraph 41 of the Commentary on Article
24 of the OECD Model, the equal treatment principle in this paragraph
`does not extend to rules that take account of the relationship between an
enterprise and other enterprises (for example, rules that allow
consolidation, transfer of losses or tax-free transfers of property between
companies under common ownership), since the latter rules do not focus
on the taxation of an enterprise's own business activities similar to those
of the permanent establishment'. Accordingly, this paragraph does not
affect Australia's roll-over rules for capital gains, consolidation rules or
loss transfer rules. Nor does it affect rules concerning the allowance of
rebates or credits in relation to dividends, since these do not relate to the
business activities of the permanent establishment.
Non-resident individuals
1.38 Non-resident individuals do not have to be granted the personal
allowances, reliefs or reductions granted on account of civil status or
family responsibilities to residents of the tax treaty countries. [Article 24A,
paragraph (2) of the Indian Agreement]
23
International Tax Agreements Amendment Bill 2012
1.39 This means that Australia will continue to be able to grant
certain tax offsets only to resident individuals, such as the tax offset for
dependents contained in Division 13 of the ITAA 1997.
Deductions for payments to foreign residents
1.40 The treaty partner countries must allow the same deductions for
interest, royalties and other disbursements paid to residents of the other
country as it does for payments to its own residents. However, the treaty
countries are allowed to reallocate profits between related enterprises on
an arm's length basis under Article 9 (Associated Enterprises) and to limit
deductions in accordance with paragraph 6 of Article 11 (Interest), and
paragraph 6 of Article 12 (Royalties). [Article 24A, paragraph (3) of the Indian
Agreement]
Companies owned or controlled abroad
1.41 A country must not give less favourable treatment to companies,
the capital of which is owned or controlled, wholly or partly, directly or
indirectly, by one or more residents of the other country. That is,
Australian companies owned or controlled by Indian residents may not be
given other or more burdensome treatment than locally owned or
controlled Australian companies. [Article 24A, paragraph (4) of the Indian
Agreement]
1.42 Differential tax treatment based on residency is not affected by
this paragraph. Nor does the paragraph require the same treatment of
non-resident shareholders in the company as resident shareholders.
Accordingly, there is no obligation under paragraph 4 or any other
provision of this Article to allow imputation credits to non-resident
shareholders.
Taxes to which this Article applies
1.43 This Article applies to `taxes of every kind and description'. It
is intended that the Article extend to any identical or substantially similar
taxes which are subsequently imposed by either country in addition to, or
in place of, these taxes.
1.44 In the case of Australia, the relevant taxes include the income
tax (including the petroleum resource rent tax, the mineral resource rent
tax and tax on capital gains), the GST and the fringe benefits tax. The
provisions of this Article also apply to taxes imposed by the Australian
states and territories.
1.45 In the case of India, the relevant taxes are all taxes levied by, or
on behalf of, India, its political subdivisions or local authorities. In
24
Indian Protocol
addition to the income tax and the surtax imposed on chargeable profits of
companies, this would also include, for example, Value-Added Tax
(VAT) both levied by the Indian Union Government and India's state
governments. [Article 24A, paragraph (5) of the Indian Agreement]
Exclusions
1.46 Certain provisions of the law of both countries are not restricted
in their application by this Article. The specific exclusion of these
provisions will ensure that they can continue to operate for their intended
purpose. The provisions of the law of Australia and India which are not
restricted in the application by this Article are those that:
· are `designed to prevent the avoidance or evasion of taxes',
including measures designed to address thin capitalisation.
In the case of Australia these laws include, dividend
stripping, transfer pricing, controlled foreign companies and
transferor trust provisions. Although it is commonly
accepted by most Organisation for Economic Co-operation
and Development (OECD) member countries that such
provisions do not contravene Non-Discrimination Articles,
this outcome is specifically provided for in the amended
Indian Agreement by the exclusion of such rules from the
operation of the Article;
· ensure that taxes are effectively collected or recovered. This
preserves the rules relating to the enforcement and operation
of the various aspects of the withholding tax provisions
relating to non-residents. For example, section 26-25
(Interest or royalty) of the ITAA 1997 provides that where
interest and royalties are paid to a non-resident and the payer
fails to deduct withholding tax, the interest or royalty
expense cannot be claimed as a deduction. No similar
measure exists in relation to payments from a resident to
another resident;
· provide tax incentives for research and development
expenditure, provided that a company that is a resident of one
country and is wholly or partly owned by residents of the
other country can access such incentives on the same terms
and conditions as any other company that is a resident of the
first-mentioned country; or
· are agreed in an exchange of notes between the two
Governments to be unaffected by this Article.
[Article 24A, paragraph (6) of the Indian Agreement]
25
International Tax Agreements Amendment Bill 2012
More favourable treatment
1.47 Nothing in this Article prevents either country from treating
residents of the other country more favourably than its own residents.
Article 5
Substitutes new Article 26 (Exchange of Information) into the Indian
Agreement
1.48 The Indian Protocol aligns the information exchange provisions
to the current OECD standard by replacing Article 26 (Exchange of
Information) of the Indian Agreement. The new Article 26 continues to
provide for the exchange of tax information by the tax administrations of
the two countries, but differs from the previous approach in the following
ways:
· the scope is expanded to a wider range of taxes;
· the new provision clarifies that the tax authorities in India
and Australia are obliged to obtain information for the tax
authorities of the other country regardless of whether the first
country has a domestic tax interest in the information sought
or whether the information concerns a resident of either
country;
· bank secrecy laws do not limit the exchange of information;
and
· information received by a tax authority may be used for other
purposes when the laws of both countries permit this and
where the tax authority supplying the information authorises
such use.
Foreseeably relevant information
1.49 Article 26 authorises and limits the exchange of information by
the two competent authorities to information foreseeably relevant to the
administration or enforcement of the relevant taxes. The exchange of
information is not restricted by Article 1 (Personal Scope) of the Indian
Agreement, and may therefore cover persons who are not residents of
Australia or India.
1.50 The change in wording from `necessary' used in Article 26 of
the Indian Agreement to a `foreseeably relevant' standard reflects the
wording in Article 26 (Exchange of Information) of the OECD Model.
26
Indian Protocol
1.51 The standard of foreseeable relevance is intended to ensure that
information may be exchanged to the widest possible extent and, at the
same time, to clarify that competent authorities of Australia and India are
not entitled to request information from the other country which is
unlikely to be relevant to the tax affairs of a taxpayer, or to the
administration and enforcement of tax laws. [Article 26, paragraph (1) of the
Indian Agreement]
Taxes to which this Article applies
1.52 Under the corresponding Article in the Indian Agreement, the
information that could be requested and obtained between the two
countries was limited to information in relation to taxes to which that
agreement applied (generally income taxes).
1.53 Under the Article 26, the range of taxes for which information
may be exchanged has been expanded. The exchange of information is
not restricted by Article 2 (Taxes Covered) of the Indian Agreement. The
Australian competent authority can now request and obtain information
concerning all Australian federal taxes from the Indian competent
authority. This means, for example, that information concerning
Australian indirect taxes (such as the goods and services tax (GST)) may
be requested and obtained from India. [Article 26, paragraph (1) of the Indian
Agreement]
1.54 Similarly, in the case of India, the Indian competent authority
can now request and obtain information concerning all Indian national
taxes from the Australian competent authority.
Use of exchanged information
1.55 The purposes for which the exchanged information may be used
and the persons to whom it may be disclosed are restricted in a manner
which is consistent with the approach taken in the OECD Model.
However, the final sentence of paragraph 2 permits the information to be
used for other purposes when the laws of both countries permit this and
the tax authority supplying the information authorises such use. [Article 26,
paragraph (2) of the Indian Agreement]
1.56 Any information received by a country must be treated as secret
in the same manner as information obtained under the domestic law of
that country, and can only be disclosed to the persons identified in
paragraph 2 of the Article. [Article 26, paragraph (2)of the Indian Agreement]
No domestic tax interest required
1.57 When requested, a country is required to obtain information
under the new Article in the same manner as if it were administering its
27
International Tax Agreements Amendment Bill 2012
domestic tax system, notwithstanding that the country may not require the
information for its own purposes. Australia would recognise this
obligation to obtain relevant information for treaty partner countries, even
in the absence of an explicit provision to this effect. [Article 26, paragraph
(4) of the Indian Agreement]
Limitations
1.58 The country requested to provide information is not obliged to
do so where:
· it would be required to carry out administrative measures at
variance with the law and administrative practice of either
Australia or India; or
· such information is not obtainable under the domestic law or
in the normal course of administration of either Australia or
India.
[Article 26, subparagraphs (3)(a) and (b) of the Indian Agreement]
1.59 Also, in no case is the country receiving the request obliged to
supply information that would:
· disclose any trade, business, industrial, commercial or
professional secret or trade process; or
· be contrary to public policy.
[Article 26, subparagraph (3)(c)]
1.60 Paragraph 5 ensures that paragraph 3 of Article 26 cannot be
used to prevent the supply of information solely because the information
is held by entities including banks, other financial institutions, trusts,
foundations, nominees. The addition of this paragraph will not have any
practical application for Australia, since Australian domestic tax law
already permits the Commissioner to obtain information from banks and
financial institutions in order to meet obligations under exchange of
information articles in tax treaties or Tax Information Exchange
Agreements. [Article 26, paragraph 5 of the Indian Agreement]
Information that existed prior to the entry into force of the Indian
Protocol
1.61 Once the new Article 26 is effective, the competent authorities
can exchange information that relates to transactions or events occurring
prior to entry into force of the Indian Protocol. This approach conforms to
28
Indian Protocol
the international practice contained in paragraph 10.3 of the OECD Model
Commentary on Article 26 (Exchange of Information).
Article 6
Inserts new Article 26A (Assistance in Collection of taxes) into the
Indian Agreement
1.62 The Indian Protocol inserts rules into the Indian Agreement to
provide for assistance in the collection of taxes. Australia and India will
be authorised and required to provide assistance to each other in the
collection of revenue claims. This assistance is not to be restricted by the
terms of Article 1 (Personal Scope) of the Indian Agreement. Assistance
must therefore be provided as regards a revenue claim owed to either
country by any person, whether or not a resident of Australia or India.
The form of the assistance is set out in paragraphs 3 and 4 of this Article.
[Article 26A, paragraph (1) of the Indian Agreement]
1.63 The term `revenue claim' is defined for the purposes of this
Article to mean an amount owed in respect of taxes of every kind and
description, imposed on behalf of Australia or India. A revenue claim
may cover any Indian tax, or any Australian federal tax, but only insofar
as the imposition of such taxes is not contrary to the amended agreement
or any other instrument in force between Australia and India. It also
applies to interest, administrative penalties and costs of collection or
conservancy related to such amount. [Article 26A, paragraph (2) of the Indian
Agreement]
Enforceable revenue claims
1.64 Assistance in collection will only be provided by Australia in
relation to a revenue claim that is enforceable in India. Similarly, India is
not required to provide assistance in collection in respect of an Australian
revenue claim that is not enforceable in Australia. A revenue claim will
be enforceable where the requesting country has the right, under its
domestic law, to collect the revenue claim. Further, the revenue claim
must be owed by a person who, at that time, under the law of that country,
has no administrative or judicial rights to prevent its collection.
1.65 The way in which the revenue claim of the requesting country is
to be collected by the requested country is stipulated. Other than in
relation to time limits and priority (see paragraphs 1.68 to 1.71), the
requested country is required to collect the revenue claim as though it
were its own revenue claim. This obligation applies even if, at that time,
the requested country has no need to undertake collection actions related
to that taxpayer for its own tax purposes. [Article 26A, paragraph (3) of the
Indian Agreement]
29
International Tax Agreements Amendment Bill 2012
1.66 Where a request from India or Australia concerns a tax that does
not exist in the other country, the country that received the request will
follow the procedure applicable to a claim for a similar domestic tax or
any other appropriate procedure if no similar tax exists.
Measures of conservancy
1.67 Australia or India 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. An example of a
conservancy measure is the seizure or the freezing of assets before final
judgment to guarantee that the assets will still be available when
collection can subsequently take place.
1.68 If requested to do so by India, Australia is required to take
measures of conservancy in respect of the revenue claim in accordance
with the provisions of Australian law as if the revenue claim were an
Australian revenue claim. Although Australia does not have specific
conservancy measures, the Commissioner may apply for a Mareva
injunction, which would prevent the taxpayer and the taxpayer's
associates from dealing with certain assets. [Article 26A, paragraph (4) of the
Indian Agreement]
Time limits
1.69 The requested country's domestic law time limitations beyond
which a revenue claim cannot be enforced or collected do not apply to a
revenue claim in respect of which the other country has made a request for
assistance in collection. Rather, the time limits of the requesting country
apply. [Article 26A, paragraph (5) of the Indian Agreement]
1.70 This paragraph follows the OECD provision but has no practical
effect in Australia as there is currently no time limit imposed on the
collection of a revenue claim.
Priority of claims
1.71 Any rules of Australia and India which give priority to tax debts
over the claims of other creditors do not apply to a revenue claim of the
other country. This restriction applies regardless of the fact that the
requested country must generally treat the claim as its own revenue claim.
1.72 The words `by reason of its nature as such' in paragraph 5
indicate that any time limits and priority rules to which the paragraph
applies are only those that are specific to unpaid taxes. Consequently,
paragraph 5 does not prevent the application of general rules concerning
30
Indian Protocol
time limits or priority which would apply to all debts, such as rules giving
priority to a claim by reason of that claim having arisen or having been
registered before another one. [Article 26A, paragraph (5) of the Indian
Agreement]
Restriction on judicial and administrative proceedings
1.73 Any legal or administrative objection concerning the existence,
validity or the amount of a revenue claim of the requesting country is to
be exclusively dealt with in that country. For example, no legal or
administrative proceedings, such as a request for judicial review, may be
initiated in Australia with respect to the existence, validity or amount of
an Indian revenue claim. [Article 26A, paragraph (6) of the Indian Agreement]
Change in circumstances
1.74 Where the relevant conditions in paragraph 3 or 4 of this Article
are no longer satisfied after a request for assistance has been made, but
before the revenue claim has been collected and remitted by the requested
country, the competent authority of the requesting country is required to
promptly notify the competent authority of the other country of that fact.
[Article 26A, paragraph (7) of the Indian Agreement]
1.75 An example of such a situation would be where a request for
assistance in collection has been made by India, but the revenue claim
ceases to be enforceable in India prior to its collection by Australia.
1.76 Following such notification, the requested country has the
option to ask the requesting country to either suspend or withdraw its
request for assistance. If the request is suspended, the suspension applies
until such time as the requesting country informs the other country that the
conditions necessary for making a request as regards the revenue claim
are again satisfied or that it withdraws its request. [Article 26A, paragraph (7)
of the Indian Agreement]
Limitations
1.77 The requested country is permitted to refuse the request for
assistance in certain circumstances.
1.78 The first limitation on the obligations of the country receiving
the request is that it is not required to exceed the bounds of its own
domestic laws and administrative practice or those of the other country in
fulfilling its obligations under this Article. [Article 26A, subparagraph (8)(a) of
the Indian Agreement]
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International Tax Agreements Amendment Bill 2012
1.79 However, this does not prevent Australia from applying
administrative measures to collect an Indian revenue claim, even though
invoked solely to provide assistance in the collection of Indian taxes.
1.80 The second limitation provides that the country is not required to
satisfy a request where it would require the carrying out of measures that
are contrary to public policy, such as where providing assistance may
affect the vital interests of the country itself. [Article 26A, subparagraph (8)(b)
of the Indian Agreement]
1.81 The third limitation provides that neither country is obliged to
satisfy a request for assistance if the other country has not pursued all
reasonable measures of collection or conservancy that are available under
its own laws or administrative practice. [Article 26A, subparagraph (8)(c) of the
Indian Agreement]
1.82 The final limitation allows either country to reject a request for
assistance on the basis of practical administrative considerations such as
when the costs of recovering a revenue claim would exceed the amount of
the revenue claim itself. [Article 26A, subparagraph (8)(d) of the Indian
Agreement]
Article 7
Date of entry into force of the Indian protocol
1.83 This Article provides for the entry into force of the Indian
Protocol, which will form an integral part of the Indian Agreement. The
Indian Protocol will enter into force on the last date on which diplomatic
notes are exchanged notifying that the domestic processes to approve the
Indian Protocol in the respective countries have been completed. In
Australia, enactment of the legislation giving the force of law in Australia
to the Indian Protocol, along with tabling the protocol in Parliament, are
prerequisites to the exchange of diplomatic notes. [Article 7 of the Indian
Protocol]
Date of application for Australian taxes
1.84 Once it enters into force, the Indian Protocol will apply in
Australia with regard to Australian tax, in relation to income, profits or
gains of any year of income beginning on or after 1 July next following
the date on which the Indian Protocol enters into force. [Article 7, paragraph
(a) of the Indian Protocol]
Date of application for Indian taxes
1.85 The Indian Protocol will apply in India in respect of income
derived in any fiscal year beginning on or after 1 April next following the
32
Indian Protocol
date on which the Indian Protocol enters into force. [Article 7, paragraph (b)
of the Indian Protocol]
Non-Discrimination and Exchange of Information
1.86 Article 24A (Non-Discrimination) and Article 26 (Exchange of
Information) are intended to have effect from the date of entry into force
of the Indian Protocol. [Article 7, paragraph (c) of the Indian Protocol]
Assistance in Collection
1.87 Article 26A (Assistance in the Collection of Taxes) shall have
effect from a date agreed in a subsequent Exchange of Notes through the
diplomatic channel between Australia and India. [Article 7, paragraph (d) of
the Indian Protocol]
33
Australia -- Marshall Islands agreement
Outline of chapter
2.1 Schedule 1 to this Bill amends the International Tax Agreements
Act 1953 (Agreement Act 1953) to define and give the force of law to the
2010 Agreement between the Government of Australia and the
Government of the Republic of the Marshall Islands for the Allocation of
Taxing Rights with Respect to Certain Income of Individuals and to
Establish a Mutual Agreement Procedure in Respect of Transfer Pricing
Adjustments (the Marshall Islands agreement). Subsection 3AAA (1) of
the Agreements Act 1953 will define the Marshall Islands agreement and
subsection 5(1) will give it the force of law in Australia. This chapter
explains the rules that apply in the Marshall Islands agreement.
Context of amendments
2.2 The Marshall Islands agreement was signed in Majuro on
12 May 2010. There is no pre-existing agreement of this type between
Australia and the Republic of the Marshall Islands (the Marshall Islands).
Summary of new law
Main features of the Marshall Islands agreement
2.3 The main features of the Marshall Islands agreement are as
follows:
· Income from pensions and retirement annuities will generally
be taxed only in the country of residence of the recipient,
provided the income is subject to tax in that country.
· Income from government service will generally be taxed only
in the country that pays the remuneration. 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.
35
International Tax Agreements Amendment Bill 2012
· Payments made from abroad to visiting students and business
apprentices for the purposes of their maintenance, education
or training will be exempt from tax in the country visited.
2.4 A non-binding administrative mechanism will be established to
assist taxpayers to seek resolution of transfer pricing disputes.
Comparison of key features of new law and current law
New law Current law
Australian source pensions and Australian source income of foreign
retirement annuities derived by residents is generally subject to
residents of the Marshall Islands will Australian tax.
be exempt from Australian tax,
provided they are taxed in the
Marshall Islands.
Certain income derived by residents Australian source income of foreign
of the Marshall Islands from residents is generally subject to
government service in Australia will Australian tax.
be exempt from Australian tax.
Certain payments received by visiting Some payments received by foreign
students and business apprentices students and business apprentices
from the Marshall Islands will be may be taxable in Australia,
exempt from Australian tax. depending on the circumstances
The competent authorities of No equivalent.
Australia and the Marshall Islands
will endeavour to resolve taxpayers'
transfer pricing disputes arising from
transfer pricing adjustments that
contravene the arm's length principle.
The Marshall Islands agreement
2.5 A full transcript of the Marshall Islands agreement and detailed
explanation follows:
AGREEMENT BETWEEN THE GOVERNMENT OF AUSTRALIA
AND THE GOVERNMENT OF THE REPUBLIC OF THE
MARSHALL ISLANDS FOR THE ALLOCATION OF TAXING
RIGHTS WITH RESPECT TO CERTAIN INCOME OF
INDIVIDUALS AND TO ESTABLISH A MUTUAL AGREEMENT
PROCEDURE IN RESPECT OF TRANSFER PRICING
ADJUSTMENTS
36
Australia --Marshall Islands agreement
(Majuro, 12 May 2010)
Agreement between the Government of Australia and the Government of the Republic
of the Marshall Islands for the allocation of taxing rights with respect to certain income
of individuals and to establish a mutual agreement procedure in respect of transfer
pricing adjustments.
The Government of Australia and the Government of the Republic of the Marshall
Islands ("the Contracting States"),
Recognising that the Contracting States have concluded an Agreement for the
Exchange of Information with Respect to Taxes, and
Desiring to conclude an Agreement for the allocation of taxing rights with respect to
certain income of individuals and to establish a mutual agreement procedure in respect
of transfer pricing adjustments,
Have agreed as follows:
ARTICLE 1
PERSONS COVERED
This Agreement shall apply to persons who are residents of one or both of the
Contracting States.
ARTICLE 2
TAXES COVERED
1 The existing taxes to which this Agreement shall apply are:
(a) in Australia, the income tax imposed under the federal law of
Australia; (hereinafter referred to as "Australian tax").
37
International Tax Agreements Amendment Bill 2012
(b) in the Republic of the Marshall Islands, income tax imposed under the
national laws of the Republic of the Marshall Islands; (hereinafter
referred to as "Marshall Islands tax").
2 This Agreement shall also apply to any identical or substantially similar taxes
which are imposed after the date of signature of this Agreement in addition to, or in
place of, the existing taxes. The competent authorities of the Contracting States shall
notify each other within a reasonable period of time of any substantial changes to the
taxation laws covered by this Agreement.
3 This Agreement shall not apply to taxes imposed by states, municipalities,
local authorities or other political subdivisions, or possessions of a Contracting State.
ARTICLE 3
DEFINITIONS
1 For the purposes of this Agreement, unless the context otherwise requires:
(a) the term "Australia", when used in a geographical sense, excludes all
external territories other than:
(i) the Territory of Norfolk Island;
(ii) the Territory of Christmas Island;
(iii) the Territory of Cocos (Keeling) Islands;
(iv) the Territory of Ashmore and Cartier Islands;
(v) the Territory of Heard Island and McDonald Islands; and
(vi) the Coral Sea Islands Territory,
and includes any area adjacent to the territorial limits of Australia
(including the Territories specified in this subparagraph) in
respect of which there is for the time being in force,
consistently with international law, a law of Australia dealing
with the exploration for or exploitation of any of the natural
resources of the exclusive economic zone or the seabed and
subsoil of the continental shelf;
38
Australia --Marshall Islands agreement
(b) the term "the Republic of Marshall Islands" means; any land territory
within the territorial limits of the Republic of the Marshall Islands, and
includes the internal waters and territorial sea of the Republic of the
Marshall Islands;
(c) the term "competent authority" means in the case of Australia, the
Commissioner of Taxation or an authorised representative of the
Commissioner and, in the case of the Republic of the Marshall Islands;
the Secretary of Finance or an authorised representative of the
Secretary of Finance,
(d) the term "Contracting State" means Australia or the Republic of the
Marshall Islands, as the context requires;
(e) the term "national", in relation to a Contracting State, means any
individual possessing the nationality or citizenship of that Contracting
State;
(f) the term "person" includes an individual, a company and any other
body of persons;
(g) the term "tax" means Australian tax or Marshall Islands tax as the
context requires; and
(h) the term "transfer pricing adjustment" means an adjustment made by
the competent authority of a Contracting State to the profits of an
enterprise as a result of applying the domestic law concerning taxes
referred to in Article 2 of that State regarding transfer pricing.
2 As regards the application of this Agreement at any time by a Contracting
State, any term not defined therein shall, unless the context otherwise requires, have
the meaning that it has at that time under the law of that State, for the purposes of the
taxes to which this Agreement applies, with any meaning under the applicable tax laws
of that State prevailing over a meaning given to the term under other laws of that State.
ARTICLE 4
RESIDENT
1 For the purposes of this Agreement, the term "resident of a Contracting State"
means:
39
International Tax Agreements Amendment Bill 2012
(a) in the case of Australia, a person who is a resident of Australia for the
purposes of Australian tax; and
(b) in the case of the Republic of the Marshall Islands, a person who is a
resident of Marshall Islands for the purposes of Marshall Islands Tax;
and
2 A person is not a resident of a Contracting State for the purposes of this
Agreement if the person is liable to tax in that State in respect only of income from
sources in that State or, in the case of the Republic of the Marshall Islands, is not
subject to the most comprehensive taxation provided under the national tax laws of the
Republic of the Marshall Islands.
3 Where by reason of the preceding provisions of this Article a person, being an
individual, is a resident of both Contracting States, then the person's status shall be
determined as follows:
(a) the individual shall be deemed to be a resident only of the State in
which a permanent home is available to that individual; if a permanent
home is available in both States, or in neither of them, that individual
shall be deemed to be a resident only of the State with which the
individual's personal and economic relations are closer (centre of vital
interests);
(b) if the State in which the individual has their centre of vital interests
cannot be determined, the individual shall be deemed to be a resident
only of the State of which the individual is a national;
(c) if the individual is a national of both States or of neither of them, the
competent authorities of the Contracting States shall endeavour to
resolve the question by mutual agreement.
4 Where, by reason of paragraph 1, a person other than an individual is a resident
of both Contracting States, then it shall be deemed to be a resident only of the State in
which its place of effective management is situated.
ARTICLE 5
PENSIONS AND RETIREMENT ANNUITIES
1 Pensions (including government pensions) and retirement annuities paid to an
individual who is a resident of a Contracting State shall be taxable only in that State.
40
Australia --Marshall Islands agreement
However, pensions and retirement annuities arising in a Contracting State may be
taxed in that State where such income is not subject to tax in the other Contracting
State.
2 The term "retirement annuity" means:
(a) in the case of Australia, a superannuation annuity payment within the
meaning of the taxation laws of Australia;
(b) in the case of the Republic of the Marshall Islands, a superannuation
annuity payment within the meaning of the taxation laws of the
Republic of the Marshall Islands.
(c) any other similar periodic payment agreed upon by the competent
authorities.
ARTICLE 6
GOVERNMENT SERVICE
1 (a) Salaries, wages and other similar remuneration, other than a pension or
retirement annuity, paid by a Contracting State or a political subdivision or a local
authority thereof to an individual in respect of services rendered to that State or
subdivision or authority shall be taxable only in that State.
(b) However, such salaries, wages and other similar remuneration shall be taxable only
in the other Contracting State if the services are rendered in that State and the
individual is a resident of that State who:
(i) is a national of that State; or
(ii) did not become a resident of that State solely for the purpose of
rendering the services.
2 Notwithstanding the provisions of paragraph 1, salaries, wages and other
similar remuneration in respect of services rendered in connection with any trade or
business carried on by a Contracting State or a political subdivision or a local authority
thereof may be taxed in accordance with the laws of a Contracting State.
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International Tax Agreements Amendment Bill 2012
ARTICLE 7
STUDENTS
Payments which a student or business apprentice, who is or was immediately before
visiting a Contracting State a resident of the other Contracting State and who is
temporarily present in the first-mentioned State solely for the purpose of their
education or training, receives for the purpose of their maintenance, education or
training shall not be taxed in that State, provided such payments arise from sources
outside that State.
ARTICLE 8
MUTUAL AGREEMENT PROCEDURE IN RESPECT OF TRANSFER
PRICING ADJUSTMENTS
1 Where a resident of a Contracting State considers the actions of the other
Contracting State results or will result in a transfer pricing adjustment not in
accordance with the arm's length principle, the resident may, irrespective of the
remedies provided by the domestic law of those States, present a case to the competent
authority of the first-mentioned State. The case must be presented within 3 years of the
first notification of the adjustment.
2 The competent authorities shall endeavour to resolve any difficulties or doubts
arising as to the application of the arm's length principle by a Contracting State
regarding transfer pricing adjustments. They may also communicate with each other
directly for the purposes of this Article.
42
Australia --Marshall Islands agreement
ARTICLE 9
EXCHANGE OF INFORMATION
The competent authorities of the Contracting States shall exchange such information as
is foreseeably relevant for carrying out the provisions of this Agreement. Information
may be exchanged by the competent authorities for the purposes of this Article in
accordance with the provisions of the Agreement on the Exchange of Information with
Respect to Taxes concluded by the Contracting States (whether or not this Agreement,
in whole or in part, forms part of the domestic law of either Contracting State).
ARTICLE 10
ENTRY INTO FORCE
1 The Contracting States shall notify each other, in writing, through the
diplomatic channel of the completion of their constitutional and legal procedures for
the entry into force of this Agreement. This Agreement shall enter into force on the
date of the last notification, and shall, provided an Agreement for the Exchange of
Information with Respect to Taxes is in force between the Contracting States,
thereupon have effect:
(a) in respect of Australian tax, for any year of income beginning on or
after 1 July in the calendar year next following the date on which this
Agreement enters into force; and
(b) in respect of the Republic of the Marshall Islands, for any year of
income beginning on or after 1 October in the calendar year next
following the date on which this Agreement enters into force;
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International Tax Agreements Amendment Bill 2012
ARTICLE 11
TERMINATION
1 This Agreement shall continue in effect indefinitely, but either of the
Contracting States may give to the other Contracting State through the diplomatic
channel written notice of termination.
2 Such termination shall become effective:
(a) in respect of Australian tax, in the year of income beginning on or after
1 July in the calendar year next following that in which the notice of
termination is given;
(b) in respect of Marshall Islands tax, in the year of income beginning on
or after 1 October in the calendar year next following that in which the
notice of termination is given.
3 Notwithstanding the provisions of paragraph 1 or 2, this Agreement shall, on
receipt through the diplomatic channel of written notice of termination of the
Agreement for the Exchange of Information with Respect to Taxes between the
Contracting States, terminate and cease to be effective on the first day of the month
following the expiration of a period of six (6) months after the date of receipt of such
notice.
IN WITNESS WHEREOF the undersigned, being duly authorised by their
respective Governments, have signed this Agreement.
DONE at Majuro in duplicate, on this 12th day of May 2010.
For the Government of For the Government of the Republic
Australia: of the Marshall Islands:
Susan Cox Brenson Wase
Ambassador Acting Finance Minister
44
Australia --Marshall Islands agreement
Detailed explanation of new law
2.6 This Bill gives effect to the Marshall Islands Agreement, which
deals with the allocation of taxing rights with respect to certain income of
individuals.
Article 1 -- Persons Covered
2.7 This Article establishes the scope of the application of the
Marshall Islands agreement by providing for it to apply to persons who
are residents of one or both of the countries. [Article 1]
2.8 The application of the Marshall Islands agreement to persons
who are dual residents (that is, residents of both countries) is dealt with in
Article 4 (Resident).
Article 2 -- Taxes Covered
2.9 This Article specifies the existing taxes of each country to which
the Marshall Islands agreement applies. This is, in the case of Australia,
the federal income tax. [Article 2, subparagraph 1(a)]
2.10 For the Marshall Islands, the Marshall Islands agreement applies
to the national income tax. [Article 2, subparagraph 1(b)]
2.11 The application of the Marshall Islands agreement will be
automatically extended to any identical or substantially similar taxes
which are subsequently imposed by either country in addition to, or in
place of, the existing taxes. The competent authorities of Australia and
the Marshall Islands are required to notify each other in the event of a
substantial change to the taxation laws of the respective countries, within
a reasonable period of time after any such changes. [Article 2, paragraph 2]
2.12 The Marshall Islands agreement shall not apply to taxes imposed
by states, municipalities, local authorities or other political subdivisions or
possessions of either country. [Article 2, paragraph 3]
Article 3 -- Definitions
Definition of Australia
2.13 The definition of `Australia' follows corresponding definitions
in Australia's modern tax treaties. `Australia' is defined to include certain
external territories and areas of the continental shelf. [Article 3,
subparagraph 1(a)]
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International Tax Agreements Amendment Bill 2012
Definition of the Marshall Islands
2.14 The Marshall Islands is defined to mean any land territory
within the territorial limits of the Republic of the Marshall Islands, and
includes the internal waters and territorial sea of the Republic of the
Marshall Islands. [Article 3, subparagraph 1(b)]
Definition of competent authority
2.15 The competent authority is the person or institution specifically
authorised to perform certain actions under the Marshall Islands
agreement. For example, to notify each other of any significant changes
to the tax law of their respective countries (Article 2 (Taxes Covered)), to
communicate for the purposes of Article 8 (Mutual Agreement Procedure)
and to exchange information in accordance with Article 9 (Exchange of
Information).
2.16 In the case of Australia, the competent authority is the
Commissioner of Taxation or an authorised representative of the
Commissioner [Article 3, subparagraph 1(b)]. In the case of Marshall Islands,
it is the Secretary of Finance or an authorised representative of the
Secretary of Finance. [Article 3, subparagraph 1(c)]
Definition of Contracting State
2.17 Contracting State means Australia or the Marshall Islands, as
the context requires. [Article 3, subparagraph 1(d)]
Definition of national
2.18 National means any individual possessing the nationality or
citizenship of Australia or the Marshall Islands. [Article 3, subparagraph 1(e)]
Definition of person
2.19 Person includes an individual, a company and any other body of
persons. [Article 3, subparagraph 1(f)]
Definition of tax
2.20 The term tax means either Australian tax or Marshall Islands
tax, depending on the context. [Article 3, subparagraph 1(g)]
Definition of transfer pricing adjustment
2.21 A transfer pricing adjustment is an adjustment made by the tax
authorities of Australia or Marshall Islands to the profits of an enterprise,
46
Australia --Marshall Islands agreement
based on the application of domestic transfer pricing laws [Article 3,
subparagraph 1(h)]. For Australia, such laws are contained in Division 13 of
Part III of the Income Tax Assessment Act 1936 (ITAA 1936) and
Subdivision 815A of the Income Tax Assessment Act 1997 (ITAA 1997).
Terms not specifically defined
2.22 A term that is not specifically defined in the Marshall Islands
agreement shall have (unless the context requires otherwise) the meaning
that it has under the domestic taxation law of the country applying the
Marshall Islands agreement at the time of its application. In that case, the
term's domestic taxation law meaning will have precedence over any
meaning it may have under that country's other domestic laws. [Article 3,
paragraph 2]
Article 4 -- Resident
2.23 This Article sets out the basis upon which the residence of a
person is to be determined for the purposes of the Marshall Islands
agreement. Residence is a criterion for determining each country's taxing
rights and is a necessary condition for the provision of relief under the
Marshall Islands agreement. In the case of Australia, a person's residence
is determined according to Australia's taxation law [Article 4,
subparagraph 1(a)]. In the case of the Marshall Islands, residence is
determined according to Marshall Islands' taxation law [Article 4,
subparagraph 1(b)].
Special residency rules
2.24 A person is not a resident of a country, for the purposes of the
Marshall Islands agreement, if that person is liable to tax in that country in
respect only of income from sources 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 Marshall Islands
agreement. Accordingly, the Marshall Islands will not have to forego tax
in accordance with the Marshall Islands agreement on income derived by
Norfolk Island residents (which will not be subject to Australian tax).
Dual residents
2.25 Tie-breaker rules are included for determining residency of a
person, for the purposes of the Marshall Islands agreement, if a person
qualifies as a dual resident, that is, a resident of both countries in
accordance with paragraph 1 of Article 4. These rules, in order of
application are:
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International Tax Agreements Amendment Bill 2012
· if the individual has a permanent home available in only one
of the countries, the person is deemed to be a resident solely
of that country for the purposes of the Marshall Islands
agreement [Article 4, subparagraph 3(a)];
· if the individual has a permanent home available in both
countries or in neither, then the person's personal or
economic relations with Australia and the Marshall Islands is
taken into account, and the person is deemed for the purposes
of the Marshall Islands agreement to be a resident only of the
country with which they have the closer personal and
economic relations [Article 4, subparagraph 3(a)];
· residency will be determined on the basis of an individual's
nationality where the foregoing tests are not determinative
[Article 4, subparagraph 3(b)]; or
· if the individual is a `national' of both countries, or of
neither, the competent authorities will endeavour to resolve
the question by mutual agreement [Article 4, subparagraph 3(c)].
2.26 A person other than an individual, such as a company or other
body of persons, that is a dual resident will be deemed to be a resident of
the country in which its effective place of management is situated.
[Article 4, paragraph 4]
2.27 In relation to Australia, a dual resident remains a resident for the
purposes of Australian domestic law. Accordingly, that person remains
liable to tax in Australian as a resident, insofar as the Marshall Islands
agreement allows.
Article 5 -- Pensions and Retirement Annuities
2.28 Pensions and retirement annuities are taxable only by the
country of which the recipient is a resident, provided such income is
subject to tax in that country. If such income is not subject to tax in that
country, the income may be taxed by the country from which the relevant
payments were made. [Article 5, paragraph 1]
Meaning of retirement annuity
2.29 In the case of Australia, retirement annuity means a
superannuation annuity payment within the meaning of the taxation laws
of Australia. That is, a superannuation annuity as defined by
regulation 995-1.01 of the Income Tax Assessment Regulations 1997,
which took effect from 1 July 2007. [Article 5, subparagraph 2(a)]
48
Australia --Marshall Islands agreement
2.30 In the case of Marshall Islands, a `retirement annuity' means
superannuation annuity payment within the meaning of the taxation laws
of the Marshall Islands. [Article 5, subparagraph 2 (b)]
Article 6 -- Government Service
2.31 Salary and wage type income, other than government service
pensions or annuities, paid to an individual for services rendered to a
government of one of the countries (including a political subdivision or
local authority), is to be taxed only in that country [Article 6,
subparagraph 1(a)]. However, such remuneration will be taxable only in the
other country if the services are rendered in that other country and:
· the recipient is a resident of, and a national of, that other
country; or
· the recipient is a resident of that other country and did not
become a resident of that country solely for the purpose of
rendering the services (for example, if the recipient is a
permanent resident of that other country).
[Article 6, subparagraph 1(b)]
Business income
2.32 However, salaries, wages and other similar remuneration in
respect of services rendered in connection with a trade or business carried
on by any governmental authority is excluded from the scope of the
Article. Such remuneration will remain subject to the domestic taxation
laws of the two countries. [Article 6, paragraph 2]
Article 7 -- Students
Exemption from tax
2.33 Article 7 applies to students or business apprentices who are
temporarily present in one of the countries solely for the purpose of their
education or training if they are, or immediately before the visit, were,
resident in the other country. In these circumstances, payments from
abroad received by the students or business apprentices solely for their
maintenance, education or training will be exempt from tax in the country
visited. This will apply even though the student or apprentice may qualify
as a resident of the country visited during the period of their visit.
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International Tax Agreements Amendment Bill 2012
Employment income
2.34 Where, however, a Marshall Islands 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.
2.35 For business apprentices, this Article only applies where the
apprentice's remuneration consists solely of subsistence payments to
cover training or maintenance. Remuneration for service, that is, salary
equivalents, falls for consideration under domestic taxation law.
2.36 In the case of a Marshall Islands business apprentice visiting
Australia solely for training purposes, it may therefore be necessary to
distinguish between remuneration for service and a payment for the
apprentice's maintenance or training. The quantum of the payment will
be relevant in such cases.
2.37 A payment for maintenance or training would not be expected to
exceed the level of expenses likely to be incurred to ensure the
apprentice's maintenance and training (that is, a subsistence payment). 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. Likewise, if that business apprentice undertakes
any other employment in Australia, the income earned from that
employment may be subject to tax in Australia.
2.38 In these situations, the payments received from abroad for the
student or apprentice's maintenance, education or training will not,
however, be taken into account in determining the tax payable on the
employment income that is subject to tax in Australia. No Australian tax
would be payable on the employment income if the student or apprentice
qualifies as a resident of Australia during the visit and the taxable income
of the student or apprentice does not exceed the tax-free threshold
applicable to Australian residents for tax purposes.
Article 8 -- Mutual Agreement Procedure in Respect of Transfer Pricing
Adjustments
2.39 Article 8 provides for consultation between the competent
authorities of the two countries for the purpose of endeavouring to resolve
disputes concerning transfer pricing adjustments purportedly made not in
accordance with the arm's length principle. [Article 8, paragraph 2]
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Australia --Marshall Islands agreement
2.40 The term `arm's length principle' refers to the requirement that
businesses price their related party international dealings according to
what truly independent parties acting independently would reasonably be
expected to have done in the same situation. The Commissioner of
Taxation would apply the arm's length principle when reviewing business
transactions in the context of Division 13 of Part III of the ITAA 1936.
2.41 A person wishing to use this mutual agreement procedure must
present their case to the competent authority of their country of residence
within three years of the first notification of the transfer pricing
adjustment. This procedure operates independently of, and in addition to,
domestic legal remedies available to taxpayers. [Article 8, paragraph 1]
Article 9 -- Exchange of Information
2.42 Article 9 authorises and limits the exchange of information by
the competent authorities to information that is foreseeably relevant to the
administration of the Marshall Islands agreement.
2.43 The exchange of information is subject to the provisions of the
Agreement on the Exchange of Information with Respect to Taxes, which
was signed by the two countries on 12 May 2010. That agreement
provides for exchange of information that is foreseeably relevant to the
administration of the taxation laws of the two countries. It also contains
safeguards to protect taxpayers' rights. For example:
· confidentiality rules to ensure that information exchanged is
only disclosed to authorised recipients; and
· limitations to ensure that the competent authorities do not
exceed domestic laws and administrative procedures in the
course of obtaining and supplying information.
Article 10 -- Entry into Force
Date of entry into force
2.44 The Marshall Island agreement will enter into force on the date
of the last exchange of diplomatic notes notifying that the domestic
procedures to give it the force of law have been completed. In Australia,
enactment of the legislation giving the Marshall Islands agreement the
force of law along with tabling the Marshall Islands agreement in
Parliament are prerequisites to the exchange of diplomatic notes. Entry
into force is also conditional upon the related Agreement on the Exchange
of Information with Respect to Taxes between the two countries being in
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International Tax Agreements Amendment Bill 2012
force at that time. That Agreement entered into force on 25 November
2011.
Date of application in Australia
2.45 Following entry into force, the Marshall Islands agreement will
take effect in Australia in respect of any income year beginning on or after
1 July in the calendar year next following the date on which it enters into
force. [Article 10, subparagraph 1(a)]
Date of application in Marshall Islands
2.46 Following entry into force, the Marshall Islands agreement will
take effect in Marshall Islands in respect of any income year beginning on
or after 1 October in the calendar year next following the date on which it
enters into force. [Article 10, subparagraph 1(b)]
Article 11 -- Termination
2.47 The Marshall Islands agreement is to continue in effect
indefinitely. However, either country may give the other country written
notice of termination of the agreement through the diplomatic channel.
[Article 11, paragraph 1]
Cessation in Australia
2.48 In the event of either country terminating the Marshall Islands
agreement, it would cease to be effective in Australia in the year of
income beginning on or after 1 July in the calendar year next following
that in which the notice of termination is given. [Article 11,
subparagraph 2(a)]
Cessation for Marshall Islands
2.49 The Marshall Islands agreement would correspondingly cease to
be effective in Marshall Islands for any year of income beginning on or
after 1 October in the calendar year next following that in which the
notice of termination is given. [Article 11, paragraph 2(b)]
Cessation in other circumstances
2.50 The Marshall Islands agreement will also terminate and cease to
be effective if the Agreement for the Exchange of Information with
Respect to Taxes between Australia and the Marshall Islands is
terminated. In that event, the Marshall Islands agreement would terminate
on the first day of the month following the expiration of six months after
52
Australia --Marshall Islands agreement
receipt of notification of termination of the Agreement for the Exchange of
Information with Respect to Taxes. [Article 11, paragraph 3]
53
Australia -- Mauritius agreement
Outline of chapter
3.1 Schedule 1 to this Bill amends the International Tax Agreements
Act 1953 (Agreement Act 1953) to define and give the force of law to the
2010 Agreement between the Government of Australia and the
Government of the Republic of Mauritius for the Allocation of Taxing
Rights with Respect to Certain Income of Individuals and to Establish a
Mutual Agreement Procedure in Respect of Transfer Pricing Adjustments
(Mauritius agreement). Subsection 3AAA(1) of the Agreements Act 1953
will define the Mauritius agreement and subsection 5(1) will give it the
force of law in Australia. This chapter explains the rules that apply in the
Mauritius agreement.
Context of amendments
3.2 The Mauritius agreement was signed in Port Louis on
8 December 2010. There is no pre-existing agreement of this type
between Australia and the Republic of Mauritius (Mauritius).
Summary of new law
Main features of the Mauritius agreement
3.3 The main features of the Mauritius agreement are as follows:
· Income from pensions and retirement annuities will generally
be taxed only in the country of residence of the recipient,
provided the income is subject to tax in that country.
· Income from government service will generally be taxed only
in the country that pays the remuneration. 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.
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International Tax Agreements Amendment Bill 2012
· Payments made from abroad to visiting students and business
apprentices for the purposes of their maintenance, education
or training will be exempt from tax in the country visited.
· A non-binding administrative mechanism will be established
to assist taxpayers to seek resolution of transfer pricing
disputes.
Comparison of key features of new law and current law
New law Current law
Australian source pensions and Australian source income of foreign
retirement annuities derived by residents is generally subject to
residents of Mauritius will be exempt Australian tax.
from Australian tax, provided they
are taxed in Mauritius.
Certain income derived by residents Australian source income of foreign
of Mauritius from government service residents is generally subject to
in Australia will be exempt from Australian tax.
Australian tax.
Certain payments received by visiting Some payments received by foreign
students and business apprentices students and business apprentices
from Mauritius will be exempt from may be taxable in Australia,
Australian tax. depending on the circumstances.
The competent authorities of No equivalent.
Australia and Mauritius will
endeavour to resolve taxpayers'
transfer pricing disputes arising from
transfer pricing adjustments that
contravene the arm's length principle.
The Mauritius agreement
3.4 A full transcript of the Mauritius agreement and detailed
explanation follows:
AGREEMENT BETWEEN THE GOVERNMENT OF AUSTRALIA
AND THE GOVERNMENT OF THE REPUBLIC OF MAURITIUS
FOR THE ALLOCATION OF TAXING RIGHTS WITH RESPECT
TO CERTAIN INCOME OF INDIVIDUALS AND TO ESTABLISH
A MUTUAL AGREEMENT PROCEDURE IN RESPECT OF
TRANSFER PRICING ADJUSTMENTS
(Port Louis, 8 December 2010)
56
Australia --Mauritius agreement
The Government of Australia and the Government of the Republic of
Mauritius,
Recognising that the two Governments have concluded an Agreement on
the Exchange of Information with Respect to Taxes, and
Desiring to conclude an Agreement for the allocation of taxing rights with
respect to certain income of individuals and to establish a mutual
agreement procedure in respect of transfer pricing adjustments,
Have agreed as follows:
ARTICLE 1
PERSONS COVERED
This Agreement shall apply to persons who are residents of one or both of the
Contracting States.
ARTICLE 2
TAXES COVERED
1 The existing taxes to which this Agreement shall apply are:
(a) in Australia, the income tax imposed under the federal law of
Australia; (hereinafter referred to as "Australian tax").
(b) in Mauritius, the income tax;(hereinafter referred to as "Mauritius
tax").
2 This Agreement shall also apply to any identical or substantially similar taxes
which are imposed after the date of signature of this Agreement in addition to, or in
place of, the existing taxes. The competent authorities of the Contracting States shall
57
International Tax Agreements Amendment Bill 2012
notify each other within a reasonable period of time of any substantial changes to the
taxation laws covered by this Agreement.
3 This Agreement shall not apply to taxes imposed by states, municipalities,
local authorities or other political subdivisions, or possessions of a Contracting State.
ARTICLE 3
DEFINITIONS
1 For the purposes of this Agreement, unless the context otherwise requires:
(a) the term "Australia", when used in a geographical sense, excludes all
external territories other than:
(i) the Territory of Norfolk Island;
(ii) the Territory of Christmas Island;
(iii) the Territory of Cocos (Keeling) Islands;
(iv) the Territory of Ashmore and Cartier Islands;
(v) the Territory of Heard Island and McDonald Islands; and
(vi) the Coral Sea Islands Territory,
and includes any area adjacent to the territorial limits of Australia (including the
Territories specified in this subparagraph) in respect of which there is for the time
being in force, consistently with international law, a law of Australia dealing with the
exploration for or exploitation of any of the natural resources of the exclusive
economic zone or the seabed and subsoil of the continental shelf;
(b) the term "Mauritius" means the Republic of Mauritius and includes;
(i) all the territories and islands which, in accordance with the
laws of Mauritius, constitute the State of Mauritius;
(ii) the territorial sea of Mauritius; and
(iii) any area outside the territorial sea of Mauritius which in
accordance with the international law has been or may
hereafter be designated under the laws of Mauritius as an area,
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Australia --Mauritius agreement
including the Continental Shelf, within which the rights of
Mauritius with respect to the sea, the sea-bed and sub-soil and
their natural resources may be exercised;
(c) the term "competent authority" means,
(i) in the case of Australia, the Commissioner of Taxation or an
authorised representative of the Commissioner; and
(ii) in the case of Mauritius, the Director General of Mauritius
Revenue Authority or an authorised representative of the
Director General;
(d) the term "Contracting State" means Australia or Mauritius, as the
context requires;
(e) the term "national", in relation to a Contracting State, means any
individual possessing the nationality or citizenship of that Contracting
State;
(f) the term "person" includes an individual, a company and any other
body of persons;
(g) the term "tax" means Australian tax or Mauritius tax, as the context
requires; and
(h) the term "transfer pricing adjustment" means an adjustment made by
the competent authority of a Contracting State to the profits of an
enterprise as a result of applying the domestic law concerning taxes
referred to in Article 2 of that State regarding transfer pricing.
2 As regards the application of this Agreement at any time by a Contracting
State, any term not defined therein shall, unless the context otherwise requires, have
the meaning that it has at that time under the law of that State, for the purposes of the
taxes to which this Agreement applies, with any meaning under the applicable tax laws
of that State prevailing over a meaning given to the term under other laws of that State.
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ARTICLE 4
RESIDENT
1 For the purposes of this Agreement, the term "resident of a Contracting State"
means:
(a) in the case of Australia, a person who is a resident of Australia for the
purposes of Australian tax; and
(b) in the case of Mauritius, a person who, under the income tax law of
Mauritius, is liable to tax therein by reason of his residence.
2 A person is not a resident of a Contracting State for the purposes of this
Agreement if the person is liable to tax in that State in respect only of income from
sources in that State.
3 Where by reason of the preceding provisions of this Article a person, being an
individual, is a resident of both Contracting States, then the person's status shall be
determined as follows:
(a) the individual shall be deemed to be a resident only of the State in
which a permanent home is available to that individual; if a permanent
home is available in both States, or in neither of them, that individual
shall be deemed to be a resident only of the State with which the
individual's personal and economic relations are closer (centre of vital
interests);
(b) if the State in which the individual has their centre of vital interests
cannot be determined, the individual shall be deemed to be a resident
only of the State of which the individual is a national;
(c) if the individual is a national of both States or of neither of them, the
competent authorities of the Contracting States shall endeavour to
resolve the question by mutual agreement.
4 Where, by reason of paragraph 1, a person other than an individual is a resident
of both Contracting States, then it shall be deemed to be a resident only of the State in
which its place of effective management is situated.
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Australia --Mauritius agreement
ARTICLE 5
PENSIONS AND RETIREMENT ANNUITIES
1 Pensions (including government pensions) and retirement annuities paid to an
individual who is a resident of a Contracting State shall be taxable only in that State.
However, pensions and retirement annuities arising in a Contracting State may be
taxed in that State where such income is not subject to tax in the other Contracting
State.
2 The term "retirement annuity" means:
(a) in the case of Australia, a superannuation annuity payment within the
meaning of the taxation laws of Australia;
(b) in the case of Mauritius, a stated sum payable periodically at stated
times during life or during a specified or ascertainable period of time
under an obligation to make the payment in return for adequate and
full consideration in money or money's worth; and
(c) any other similar periodic payment agreed upon by the competent
authorities.
ARTICLE 6
GOVERNMENT SERVICE
1 (a) Salaries, wages and other similar remuneration, other than a pension
or retirement annuity, paid by a Contracting State or a political subdivision or a local
authority thereof to an individual in respect of services rendered to that State or
subdivision or authority shall be taxable only in that State.
(b) However, such salaries, wages and other similar remuneration shall be
taxable only in the other Contracting State if the services are rendered in that State and
the individual is a resident of that State who:
(i) is a national of that State; or
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International Tax Agreements Amendment Bill 2012
(ii) did not become a resident of that State solely for the purpose of
rendering the services.
2 Notwithstanding the provisions of paragraph 1, salaries, wages and other
similar remuneration in respect of services rendered in connection with any trade or
business carried on by a Contracting State or a political subdivision or a local authority
thereof may be taxed in accordance with the laws of a Contracting State.
ARTICLE 7
STUDENTS
Payments which a student or business apprentice, who is or was immediately
before visiting a Contracting State a resident of the other Contracting State and who is
temporarily present in the first-mentioned State solely for the purpose of their
education or training, receives for the purpose of their maintenance, education or
training shall not be taxed in that State, provided such payments arise from sources
outside that State.
ARTICLE 8
MUTUAL AGREEMENT PROCEDURE IN RESPECT OF TRANSFER
PRICING ADJUSTMENTS
1 Where a resident of a Contracting State considers the actions of the other
Contracting State results or will result in a transfer pricing adjustment not in
accordance with the arm's length principle, the resident may, irrespective of the
remedies provided by the domestic law of those States, present a case to the competent
authority of the first-mentioned State. The case must be presented within three years
of the first notification of the adjustment.
2 The competent authorities shall endeavour to resolve any difficulties or doubts
arising as to the application of the arm's length principle by a Contracting State
regarding transfer pricing adjustments. They may also communicate with each other
directly for the purposes of this Article.
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Australia --Mauritius agreement
ARTICLE 9
EXCHANGE OF INFORMATION
The competent authorities of the Contracting States shall exchange such information as
is foreseeably relevant for carrying out the provisions of this Agreement. Information
may be exchanged by the competent authorities for the purposes of this Article in
accordance with the provisions of the Agreement on the Exchange of Information with
Respect to Taxes concluded by the Contracting States (whether or not this Agreement,
in whole or in part, forms part of the domestic law of either Contracting State).
ARTICLE 10
ENTRY INTO FORCE
The Government of Australia and the Government of the Republic of Mauritius shall
notify each other, in writing, through the diplomatic channel of the completion of their
constitutional and legal procedures for the entry into force of this Agreement. This
Agreement shall enter into force on the date of the last notification, and shall, provided
an Agreement on the Exchange of Information with Respect to Taxes is in force
between Australia and the Republic of Mauritius, thereupon have effect:
(a) in respect of Australian tax, for any year of income beginning on or
after 1 July in the calendar year next following the date on which this
Agreement enters into force; and
(b) in respect of Mauritius tax, for any year of income beginning on or
after 1 January in the calendar year next following the date on which
this Agreement enters into force .
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International Tax Agreements Amendment Bill 2012
ARTICLE 11
TERMINATION
1 This Agreement shall continue in effect indefinitely, but either of the
Contracting States may, after the expiration of 3 years from the date of its entry into
force, give to the other Contracting State through the diplomatic channel written notice
of termination.
2 Such termination shall become effective:
(a) in respect of Australian tax, in the year of income beginning on or after
1 July in the calendar year next following that in which the notice of
termination is given;
(b) in respect of Mauritius tax, in the year of income beginning on or after
1 January in the calendar year next following that in which the notice
of termination is given.
3 Notwithstanding the provisions of paragraph 1 or 2, this Agreement shall, on
receipt through the diplomatic channel of written notice of termination of the
Agreement on the Exchange of Information with Respect to Taxes between the
Contracting States, terminate and cease to be effective on the first day of the month
following the expiration of a period of six months after the date of receipt of such
notice.
IN WITNESS WHEREOF the undersigned, being duly authorised by their respective
Governments, have signed this Agreement.
DONE in duplicate at Port Louis, this 8th day of December 2010.
For the Government of For the Government of the Republic
Australia: of Mauritius:
Cathy Johnstone Pravind Jugnauth
High Commissioner Vice Prime Minister and Minister of
Finance and Economic Development
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Australia --Mauritius agreement
Detailed explanation of new law
3.5 This Schedule gives effect to the Mauritius agreement, which
deals with the allocation of taxing rights with respect to certain income of
individuals.
Article 1 -- Persons Covered
3.6 This Article establishes the scope of the application of the
Mauritius agreement by providing for it to apply to persons who are
residents of one or both of the countries. [Article 1]
3.7 The application of the Mauritius agreement to persons who are
dual residents (that is, residents of both countries) is dealt with in Article 4
(Resident).
Article 2 -- Taxes Covered
3.8 This Article specifies the existing taxes of each country to which
the Mauritius agreement applies. This is, in the case of Australia, the
federal income tax. [Article 2, subparagraph 1(a)]
3.9 For Mauritius, the Mauritius agreement applies to income tax.
[Article 2, subparagraph 1(b)]
3.10 The application of the Mauritius agreement will be
automatically extended to any identical or substantially similar taxes
which are subsequently imposed by either country in addition to, or in
place of, the existing taxes. The competent authorities of Australia and
Mauritius are required to notify each other in the event of a substantial
change to the taxation laws of the respective countries, within a
reasonable period of time after any such changes. [Article 2, paragraph 2]
3.11 The Mauritius agreement shall not apply to taxes imposed by
states, municipalities, local authorities or other political subdivisions or
possessions of either country. [Article 2, paragraph 3]
Article 3 -- Definitions
Definition of Australia
3.12 The definition of `Australia' follows corresponding definitions
in Australia's modern tax treaties. `Australia' is defined to include certain
external territories and areas of the continental shelf. [Article 3,
subparagraph 1(a)]
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International Tax Agreements Amendment Bill 2012
Definition of Mauritius
3.13 Mauritius is defined to mean the Republic of Mauritius and
includes all the territories and islands that constitute the State of
Mauritius; the territorial sea of Mauritius; and area outside the territorial
sea of Mauritius which in accordance with the international law has been
designated under the laws of Mauritius as an area, including the
Continental Shelf, within which the rights of Mauritius with respect to the
sea, the seabed and subsoil and their natural resources may be exercised.
[Article 3, subparagraph 1(b)]
Definition of competent authority
3.14 The competent authority is the person or institution specifically
authorised to perform certain actions under the Mauritius agreement. For
example, to notify each other of any significant changes to the tax law of
their respective countries (Article 2 (Taxes Covered)), to communicate for
the purposes of Article 8 (Mutual Agreement Procedure) and to exchange
information in accordance with Article 9 (Exchange of Information).
3.15 In the case of Australia, the competent authority is the
Commissioner of Taxation (Commissioner) or an authorised
representative of the Commissioner. In the case of Mauritius, it is the
Director General of Mauritius Revenue Authority or an authorised
representative of the Director General. [Article 3, subparagraph 1(c)]
Definition of Contracting State
3.16 Contracting State means Australia or Mauritius, as the context
requires. [Article 3, subparagraph 1(d)]
Definition of national
3.17 National means any individual possessing the nationality or
citizenship of Australia or Mauritius. [Article 3, subparagraph 1(e)]
Definition of person
3.18 Person includes an individual, a company and any other body of
persons. [Article 3, subparagraph 1(f)]
Definition of tax
3.19 The term tax means either Australian tax or Mauritius tax
depending on the context. [Article 3, subparagraph 1(g)]
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Australia --Mauritius agreement
Definition of transfer pricing adjustment
3.20 A transfer pricing adjustment is an adjustment made by the tax
authorities of Australia or Mauritius to the profits of an enterprise, based
on the application of domestic transfer pricing laws [Article 3,
subparagraph 1(h)]. For Australia, such laws are contained in Division 13 of
Part III of the Income Tax Assessment Act 1936 (ITAA 1936) and
Subdivision 815A of the Income Tax Assessment Act 1997 (ITAA 1997).
Terms not specifically defined
3.21 A term that is not specifically defined in the Mauritius
agreement shall have (unless the context requires otherwise) the meaning
that it has under the domestic taxation law of the country applying the
Mauritius agreement at the time of its application. In that case, the term's
domestic taxation law meaning will have precedence over any meaning it
may have under that country's other domestic laws. [Article 3, paragraph 2]
Article 4 -- Resident
3.22 This Article sets out the basis upon which the residence of a
person is to be determined for the purposes of the Mauritius agreement.
Residence is a criterion for determining each country's taxing rights and is
a necessary condition for the provision of relief under the Mauritius
agreement. In the case of Australia, a person's residence is determined
according to Australia's taxation law [Article 4, subparagraph 1(a)]. In the
case of Mauritius, residence is determined according to Mauritius'
taxation law [Article 4, subparagraph 1(b)].
Special residency rules
3.23 A person is not a resident of a country, for the purposes of the
Mauritius agreement, if that person is liable to tax in that country in
respect only of income from sources in that country [Article 4, paragraph 2].
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 Mauritius agreement. Accordingly, Mauritius will not have to
forego tax in accordance with the Mauritius agreement on income derived
by Norfolk Island residents (which will not be subject to Australian tax).
Dual residents
3.24 Tie-breaker rules are included for determining residency of a
person, for the purposes of the Mauritius agreement, if the person
qualifies as a dual resident, that is, a resident of both countries in
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International Tax Agreements Amendment Bill 2012
accordance with paragraph 1 of Article 4. These rules, in order of
application are:
· if the individual has a permanent home available in only one
of the countries, the person is deemed to be a resident solely
of that country for the purposes of the Mauritius agreement
[Article 4, subparagraph 3(a)];
· if the individual has a permanent home available in both
countries or in neither, then the person's economic relations
with Australia and Mauritius are taken into account, and the
person is deemed for the purposes of the Mauritius
agreement to be a resident only of the country with which
they have the closer personal and economic relations [Article 4,
subparagraph 3(a)];
· residency will be determined on the basis of an individual's
nationality where the foregoing tests are not determinative
[Article 4, subparagraph 3(b)]; or
· if the individual is a `national' of both countries, or of
neither, the competent authorities will endeavour to resolve
the question by mutual agreement [Article 4, subparagraph 3(c)].
3.25 A person other than an individual, such as a company or other
body of persons, that is a dual resident will be deemed to be a resident of
the country in which its effective place of management is situated [Article 4,
paragraph 4].
3.26 In relation to Australia, a dual resident remains a resident for the
purposes of Australian domestic law. Accordingly, that person remains
liable to tax in Australian as a resident, insofar as the Mauritius agreement
allows.
Article 5 -- Pensions and Retirement Annuities
3.27 Pensions and retirement annuities are taxable only by the
country of which the recipient is a resident, provided such income is
subject to tax in that country. If such income is not subject to tax in that
country, the income may be taxed by the country from which the relevant
payments were made. [Article 5, paragraph 1]
Meaning of retirement annuity
3.28 In the case of Australia, retirement annuity means a
superannuation annuity payment within the meaning of the taxation laws
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Australia --Mauritius agreement
of Australia. That is, a superannuation annuity as defined by regulation
995-1.01 of the Income Tax Assessment Regulations 1997, which took
effect from 1 July 2007. [Article 5, subparagraph 2(a)]
3.29 In the case of Mauritius, a `retirement annuity' means a stated
sum payable periodically at stated times during life or during a specific or
ascertainable period of time under an obligation to make the payment in
return for adequate and full consideration in money or money's worth.
[Article 5, subparagraph 2 (b)]
Article 6 -- Government Service
3.30 Salary and wage type income, other than government service
pensions or annuities, paid to an individual for services rendered to a
government of one of the countries (including a political subdivision or
local authority), is to be taxed only in that country [Article 6, subparagraph
1(a)]. However, such remuneration will be taxable only in the other
country if the services are rendered in that other country and:
· the recipient is a resident of, and a national of, that other
country; or
· the recipient is a resident of that other country and did not
become a resident of that country solely for the purpose of
rendering the services (for example, if the recipient is a
permanent resident of that other country)
[Article 6, subparagraph 1(b)]
Business income
3.31 However, salaries, wages and other similar remuneration in
respect of services rendered in connection with a trade or business carried
on by any governmental authority is excluded from the scope of the
Article. Such remuneration will remain subject to the domestic taxation
laws of the two countries. [Article 6, paragraph 2]
Article 7 -- Students
Exemption from tax
3.32 Article 7 applies to students or business apprentices who are
temporarily present in one of the countries solely for the purpose of their
education or training if they are, or immediately before the visit were,
resident in the other country. In these circumstances, payments from
abroad received by the students or business apprentices solely for their
maintenance, education or training will be exempt from tax in the country
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International Tax Agreements Amendment Bill 2012
visited. This will apply even though the student or apprentice may qualify
as a resident of the country visited during the period of their visit.
Employment income
3.33 Where, however, a Mauritian 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.
3.34 For business apprentices, this Article only applies where the
apprentice's remuneration consists solely of subsistence payments to
cover training or maintenance. Remuneration for service, that is, salary
equivalents, falls for consideration under domestic taxation law.
3.35 In the case of a Mauritian business apprentice visiting Australia
solely for training purposes, it may therefore be necessary to distinguish
between remuneration for service and a payment for the apprentice's
maintenance or training. The quantum of the payment will be relevant in
such cases.
3.36 A payment for maintenance or training would not be expected to
exceed the level of expenses likely to be incurred to ensure the
apprentice's maintenance and training (that is, a subsistence payment). 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. Likewise, if that business apprentice undertakes
any other employment in Australia, the income earned from that
employment may be subject to tax in Australia.
3.37 In these situations, the payments received from abroad for the
student or apprentice's maintenance, education or training will not,
however, be taken into account in determining the tax payable on the
employment income that is subject to tax in Australia. No Australian tax
would be payable on the employment income if the student or apprentice
qualifies as a resident of Australia during the visit and the taxable income
of the student or apprentice does not exceed the tax-free threshold
applicable to Australian residents for tax purposes.
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Australia --Mauritius agreement
Article 8 -- Mutual Agreement Procedure in Respect of Transfer Pricing
Adjustments
3.38 Article 8 provides for consultation between the competent
authorities of the two countries for the purpose of endeavouring to resolve
disputes concerning transfer pricing adjustments purportedly made not in
accordance with the arm's length principle. [Article 8, paragraph 2]
3.39 The term `arm's length principle' refers to the requirement that
businesses price their related party international dealings according to
what truly independent parties acting independently would reasonably be
expected to have done in the same situation. The Commissioner of
Taxation would apply the arm's length principle when reviewing business
transactions in the context of Division 13 of Part III of the ITAA 1936 and
Subdivision 815A of the ITAA 1997.
3.40 A person wishing to use this mutual agreement procedure must
present their case to the competent authority of their country of residence
within three years of the first notification of the transfer pricing
adjustment. This procedure operates independently of, and in addition to,
domestic legal remedies available to taxpayers. [Article 8, paragraph 1]
Article 9 -- Exchange of Information
3.41 Article 9 authorises and limits the exchange of information by
the competent authorities to information that is foreseeably relevant to the
administration of the Mauritius agreement.
3.42 The exchange of information is subject to the provisions of the
Agreement on the Exchange of Information with Respect to Taxes between
Australia and Mauritius, which was signed by the two countries on
8 December 2010. That agreement provides for exchange of information
that is foreseeably relevant to the administration of the taxation laws of
the two countries. It also contains safeguards to protect taxpayers' rights.
For example:
· confidentiality rules to ensure that information exchanged is
only disclosed to authorised recipients; and
· limitations to ensure that the competent authorities do not
exceed domestic laws and administrative procedures in the
course of obtaining and supplying information.
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International Tax Agreements Amendment Bill 2012
Article 10 -- Entry into Force
Date of entry into force
3.43 The Mauritius agreement will enter into force on the date of the
last exchange of diplomatic notes notifying that the domestic procedures
to give it the force of law have been completed. In Australia, enactment
of the legislation giving the Mauritius agreement the force of law along
with tabling the Mauritius agreement in Parliament are prerequisites to the
exchange of diplomatic notes. Entry into force is also conditional upon
the related Agreement on the Exchange of Information with Respect to
Taxes between the two countries being in force at that time. That
Agreement entered into force on 25 November 2011.
Date of application in Australia
3.44 Following entry into force, the Mauritius agreement will take
effect in Australia in respect of any income year beginning on or after
1 July in the calendar year next following the date on which it enters into
force. [Article 10, paragraph (a)]
Date of application in Mauritius
3.45 Following entry into force, the Mauritius agreement will take
effect in Mauritius in respect of any income year beginning on or after
1 January in the calendar year next following the date on which it enters
into force. [Article 10, paragraph (b)]
Article 11 -- Termination
3.46 The Mauritius agreement is to continue in effect indefinitely, but
either country may, after the expiration of 3 years from the date of its
entry into force, give the other country written notice of termination of the
agreement through the appropriate channel. [Article 11, paragraph 1]
Cessation in Australia
3.47 In the event of either country terminating the Mauritius
agreement, it would cease to be effective in Australia in the year of
income beginning on or after 1 July in the calendar year next following
that in which the notice of termination is given. [Article 11,
subparagraph 2(a)]
Cessation for Mauritius
3.48 The Mauritius agreement would correspondingly cease to be
effective in Mauritius for any year of income beginning on or after 1
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Australia --Mauritius agreement
January in the calendar year next following that in which the notice of
termination is given. [Article 11, paragraph 2(b)]
Cessation in other circumstances
3.49 The Mauritius agreement will also terminate and cease to be
effective if the Agreement for the Exchange of Information with Respect
to Taxes between Australia and Mauritius is terminated. In that event, the
Mauritius agreement would terminate on the first day of the month
following the expiration of six months after receipt of notification of
termination of the Agreement for the Exchange of Information with
Respect to Taxes. [Article 11, paragraph 3]
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Statement of Compatibility with Human
Rights
Prepared in accordance with Part 3 of the Human Rights
(Parliamentary Scrutiny) Act 2011
International Tax Agreement Amendment Bill 2012
4.1 This Bill is compatible with the human rights and freedoms
recognised or declared in the international instruments listed in section 3
of the Human Rights (Parliamentary Scrutiny) Act 2011.
Overview
4.2 This Bill amends the International Tax Agreements Act 1953
(Agreements Act 1953) to give the force of law in Australia to the
following treaties:
· the Protocol Amending the Agreement between the
Government of Australia and the Government of the Republic
of India for the Avoidance of Double Taxation and the
Prevention of Fiscal Evasion with Respect to Taxes on
Income (Indian Protocol), which was signed in New Delhi on
16 December 2011;
· the Agreement between the Government of Australia and the
Government of the Republic of the Marshall Islands for the
Allocation of Taxing Rights with Respect to Certain Income
of Individuals and to Establish a Mutual Agreement
Procedure in Respect of Transfer Pricing Adjustments
(Marshall Islands agreement), which was signed in Majuro
on 12 May 2010; and
· the Agreement between the Government of Australia and the
Government of the Republic of Mauritius for the Allocation
of Taxing Rights with Respect to Certain Income of
Individuals and to Establish a Mutual Agreement Procedure
in Respect of Transfer Pricing Adjustments (the Mauritius
agreement), which was signed in Port Louis on 8 December
2010.
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[Click here and insert the name of the Bill]
Human rights implications
4.3 This Bill does not engage any of the applicable rights or
freedoms.
Conclusion
4.4 This Bill is compatible with human rights as it does not raise any
human rights issues.
Assistant Treasurer, the Hon David Bradbury
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