The Agreements Act 1953 is amended to insert the text of the Convention as a Schedule to that Act. These provisions will facilitate cross-border secondments within an enterprise or company group and will simplify the taxation affairs of the receiving enterprise and the employee. 2.322 As discussed in paragraphs 2.89 to 2.96, in certain circumstances treaty benefits under the Convention apply to income flowing through MITs. ATO staff, taxpayers and tax professionals will need to be made aware of the entry into force of the Jersey Agreement. Instead of the tiebreaker rule in paragraph 3 of the Article applying, the company will be deemed to be the resident of the country in which it is incorporated provided that it has its primary stock exchange listing in that country. 4.13 In the case of Australia, the competent authority is the Commissioner of Taxation (Commissioner) or an authorised representative of the Commissioner. This provision is designed to overcome that practical difficulty. Where units in one MIT are held by another MIT (investor MIT), the investor MIT will be regarded as an Australian resident that is the owner of the beneficial interests in the first MIT where the investor MIT satisfies the requirements of paragraph 7 to be treated as an individual resident in Australia with respect to all the income it receives. This exemption complements that provided in respect of interest derived by States, their political subdivisions and local authorities (including government investment funds) under Article 11 (Interest). 2.29 Relief under the Convention will not apply to a beneficiary who is presently entitled to the royalty income but who is not an Australian resident for purposes of the Convention. [Article 24, subparagraph 5e)], 2.353 The domestic law research and development provisions are excluded from the operation of Article 24. 4.28 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 referred to in paragraph 1 of Article 6 of the Jersey Agreement is excluded from the scope of the Article. 2.237 Under the Convention, payments made for the use of, or right to use, the radiofrequency spectrum specified in a spectrum licence are treated as royalties. 5.73 No material additional costs to taxpayers have been identified as likely to arise from the Convention. If New Zealand also treats the third State legal entity as a company for its tax purposes, paragraph 2 of Article 1 (Persons Covered) would not apply but the outcome would still be the same; that is, no benefits under the Convention. [Article10, paragraphs 1 and2], 2.186 A rate limit of 5percent will apply for dividends paid in respect of company shareholdings that do not qualify for the intercorporate dividend exemption under paragraph 3 of this Article, but constitute a direct voting interest of at least 10percent. The provision recognises that appropriate differences in taxation treatment are not precluded because of the differing circumstances. Unlike the equivalent provision in the existing New Zealand Agreement, paragraph3 will also apply to league competitions that involve clubs from a third country, such as the Super 14 rugby competition. 2.325 The discrimination that this Article precludes applies to both taxation and any requirement connected with such taxation. Only the profits derived by each subsidiary from its own activities would be attributed to each companys permanent establishment. [Article 14, paragraph 2], 2.265 This Article differs from those in Australias recent treaties by extending the short-term visit exemption to cases where the remuneration is borne or deductible in determining the profits attributable to a permanent establishment which the employer has in that country. 2.22 This outcome will arise irrespective of whether the source country sees the income, profits or gains as the income, profits or gains of the beneficiary, member or participant under the tax law of that country. For both Australia and NewZealand, resident status is determined by reference to the persons liability to tax as a resident under the laws of the respective country. This is to address situations where resident and non-resident enterprises may be carrying on the same activities but the circumstances in which they do so are very different. While source country tax on interest will generally continue to be limited to 10percent, there will be no withholding tax charged on interest derived by a financial institution that is resident in the other country. [Article 2, paragraph 2]. Extends the definition of real property to include natural resources (including living resources) and standing timber. The application of this Article extends to income generated from promotional and associated kinds of activities engaged in by the entertainer or sportsperson while present in the visited country. However, paragraph 7 of Article 24 (Non-Discrimination) provides that that Article applies to all NewZealand taxes apart from any taxes that may be imposed by local authorities. 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. The key changes in a new treaty include: a reduction of the dividend withholding tax limit from 15percent to zero for dividends paid on portfolio investment by government bodies, and for intercorporate dividends on nonportfolio holdings of more than 80 per cent subject to certain conditions; 5percent dividend withholding tax limit for other intercorporate non-portfolio holdings and 15percent dividend withholding tax limit for all other dividends; a reduction in the interest withholding tax limit from 10percent to zero where interest is paid to: government bodies and central banks; or. 2.266 Paragraph 4 of this Article provides a specific rule in respect of secondments. The new rules also provide that information received may be used for non-tax purposes when the laws of both countries permit this and the supplying tax authority authorises such use. 2.384 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. are agreed in an Exchange of Notes between the two Governments to be unaffected by the Article. Income derived by entertainers and sportspersons may generally be taxed by the country in which the activities are performed. The 2003 Australia-UK Double Taxation Convention has been modified by the Multilateral Instrument ( MLI). A most favoured nation provision applies if NewZealand subsequently provides better treatment in respect of such interest in another treaty. 2.63 Where a term is not specifically defined within the Convention, that term (unless used in a context that requires otherwise) is to be taken to have the same interpretative meaning as it has under the domestic taxation law of the country applying the Convention at the time of its application. Activities will be regarded as connected where, for example, different stages of a single project are carried out by different subsidiaries within a group of companies or where the nature of the work carried on by the associated enterprises in respect of such project is the same. However, Article 24 does not restrict either country from applying provisions designed to prevent avoidance or evasion of taxes (for Australia such measures include thin capitalisation, dividend stripping, transfer pricing and controlled foreign companies measures), rebates or credits for dividends paid by resident companies, research and development concessions, consolidation rules or capital gains deferral rules [Article 24]. 2.260 In the event that the operation of this Article should result in an item of income or gain being subjected to tax in both States, the country of which the person deriving the income or gain is a resident (as determined in accordance with Article 4 (Resident)) would be obliged by Article 23 (Elimination of Double Taxation) to provide double tax relief for the tax imposed by the other country. 2.141 Under Australian law the place where an interest in land, natural resources or standing timber, such as a lease, is situated (situs) is not necessarily where the underlying property is situated. [Article 17, paragraph 2]. In that case, the interest is deemed to arise in the country in which the permanent establishment is situated. In this example, the interest income would be ineligible for the benefits of the Convention. Paragraph 6 of this Article provides for arbitration to be used to assist in resolving those cases. 5.41 In the case of interest arising in New Zealand and paid to an Australian financial institution, the exemption from withholding tax only applies where the Approved Issuer Levy (if applicable) has been paid. As noted above, paragraph 2 of Article 1 applies on an item of income basis. The exchange of information is not restricted by Article 1 (Personal Scope) of the existing Belgian Agreement, and may therefore cover persons who are not residents of Australia or Belgium. For other Australian taxes, on income, profits or gains: of any year of income beginning on or after 1July next following the date on which the Convention enters into force. Deals specifically with items of income (including profits or gains) derived by or through a fiscally transparent entity under the laws of either Australia or NewZealand. Jointly, the two agreements will promote greater economic and administrative cooperation between the two countries. 2.37 As with the existing New Zealand Agreement, the Convention generally does not cover Australias goods and services tax (GST), customs duties, state taxes and duties and estate tax and duties. Income from government service will generally be taxed only in the country that pays the remuneration. [Article30, subsubparagraph 1a)(iii)], 2.430 In New Zealand, the Convention will apply in respect of withholding tax on income that is derived by a non-resident in relation to income derived on or after the first day of the second month next following the date on which the Convention enters into force. [Article 24, paragraph2]. If the MIT is listed and regularly traded on one or more recognised stock exchanges as defined in sub-subparagraph l)(i) of paragraph 1 of Article3 (General Definitions) or at least 80 per cent by value of the beneficial interests in the MIT are owned by residents of Australia, it is treated as entitled to treaty benefits with respect to all of its income arising in New Zealand. 2.229 The definition of royalties in this Article reflects most elements of the definition in Australias domestic income tax law. 2.248 Income, profits or gains from the alienation of real property may be taxed by the country in which the property is situated. This is especially important where there is no data available or the available data is not of sufficient quality to rely on the traditional transaction methods for the attribution of the arms length profits. The Commissioner would apply the arms length principle when reviewing business transactions in the context of Division 13 of Part III of the ITAA 1936. 2.338 Unlike paragraph 3 of Article 24 (Non-Discrimination) of the OECD Model, the Article is not just limited to those benefits conferred by a country relating to civil status or family responsibilities of the individual. [Article 25, paragraph 2]. the shareholding giving rise to the dividends is effectively connected with a permanent establishment in the first country. Thus for example, if New Zealand agreed in a future treaty with another country to grant an interest withholding tax exemption for financial institutions, without a requirement that AIL be paid, or agreed to a withholding tax rate lower than 10percent in the event AIL was not paid, New Zealand would be obliged to negotiate with Australia to provide similar outcomes for Australian financial institutions. 2.267 The term secondment to the other Contracting State is defined in paragraph 5 of this Article. For fringe benefits tax, on fringe benefits provided: on or after 1April next following the date on which the Convention enters into force. This change will provide closer alignment with the OECD Model and more consistent treatment for similar activities; and. This doesnot necessarily mean that income, profits or gains derived by thesebodies from sources in NewZealand will be subject to tax in NewZealand as sovereign immunity principles may apply. if the individual has an habitual abode in both Australia and NewZealand or in neither, the individual shall be deemed to be a resident of the country of which they are a national. [Article 18, paragraph 3], 2.296 Salary and wage type income, other than government service pensions, paid to an individual for services rendered to a government (including a political subdivision or local authority) of one of the countries, is to be taxed only in that country. Dividend withholding tax is limited to 15percent for all dividends. Accordingly, it is not possible for nonresidents to offset excess franking credits against their Australian source income or to seek a refund of any excess imputation credits. The zero rate will also apply to interest derived by governments, their political subdivisions and local authorities (including government investment funds). It applies to requests for exchange of information in respect of federal taxes of both Australia and Belgium received on or after that date. 2.88 The final criterion does not apply to DLC arrangements where the companies which are a party to the arrangement are prevented from providing such guarantees or financial support under a regulatory framework applicable to one or both companies; for example, if providing such cross-guarantees would breach the Australian Prudential Regulation Authoritys capital adequacy standards for approved deposit institutions. [Article 26, paragraph 2], 2.391 When requested, a country is required to obtain information in the same manner as if it were administering its domestic tax system, notwithstanding that the country may not require the information for its own purposes. If, however, that NewZealand 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 NewZealand enterprise would not be deemed to have a permanent establishment in Australia under subparagraph c) of paragraph 4. 4.20 The same term may have different meaning and a varied scope within different Acts relating to specific taxation measures. where the domestic taxation law of one of the States exempts the income from its tax. Tax treaties are therefore an important tool in dealing with international profit shifting through transfer pricing. In such cases, the 10percent rate limit will apply. If the case comes under paragraph 1 of Article 24 (Non-Discrimination) of the Convention, the person may present a case to the competent authority of the country of which the person is a national. Where the Commissioner cannot ascertain the arms length consideration, it is deemed to be such an amount as the Commissioner determines. Transfer pricing adjustments are generally limited to seven years. 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. 2.309 This Article does not apply in the situation where business profits are not taxed in the country of source because of the absence of a permanent establishment. In the above diagram, a New Zealand resident pays interest income to another New Zealand entity, NZ Co. Aus Co, an Australian resident shareholder holds shares in NZ Co. Australia treats NZ Co as a company for tax purposes and as the entity that derives the interest income. However, services provided through employees for periods not exceeding five days are generally disregarded for this purpose; it carries on activities (including the operation of substantial equipment) in the exploration for or exploitation of natural resources for a period or periods exceeding in the aggregate 90days in any 12-month period; or. [Article 10, subparagraph2a)], 2.187 All other cases, the Convention provides that the source country may tax dividends that are beneficially owned by residents of the other country, but will limit its tax to 15 per cent of the gross amount of the dividend. In that case, the terms domestic taxation law meaning will have precedence over the meaning it may have under that countrys other domestic laws. Compliance cost impact: This amendment is expected to have a low overall compliance cost impact, comprised of a low implementation impact and a low decrease in ongoing compliance costs. In the above diagram, dividend income is paid to an Australian partnership from NewZealand. 2.175 This Article allocates taxing rights in respect of dividends flowing between Australia and NewZealand. This may allow, for example, the competent authorities to agree to apply an agreed solution to a broader range of taxpayers, notwithstanding that the original uncertainty may have arisen in connection with an individual case that comes under the procedure outlined in paragraphs 1 and 2 of this Article. 2.317 This Article also requires New Zealand to provide NewZealand residents relief by way of a credit against their NewZealand tax liability for Australian tax paid under Australian lawsand inaccordance with the Convention, on income which is taxablein NewZealand. provides that such income will be deemed to be beneficially owned by a resident of the latter country. In this example, the royalty income paid to the trust on which the Australian resident beneficiaries are assessable under Australian income tax law would be eligible for the benefits of the Convention. However, it is not intended that a person would be prevented from having unresolved factual issues arising in their case submitted for arbitration merely because another person is pursuing appeals through the domestic courts on similar issues. 2.64 The same term may have a differing meaning and a varied scope within different Acts relating to specific taxation measures. the managed investment trust shall be treated as an individual resident of Australia and as the beneficial owner of all the income it receives. 5.103 The Jersey Agreement is consistent with the Governments tax treaty policy and implements the policy objectives stated above. He continues to receive his New Zealand pension. 5.55 The NonDiscrimination Article will prevent tax discrimination against Australian nationals and businesses operating in New Zealand and vice versa. 2.377 Unlike the mutual agreement procedure, which may be invoked where a taxpayer considers that taxation not in accordance with the treaty will or may result, the arbitration mechanism is only available in respect actual taxation contrary to the Convention which has resulted from the actions of either Australia or New Zealand, or both. The existing treaty maintains the domestic tax law treatment where the taxation treatment of the income, profit or gain from the disposal of property is not subject to specific rules in the treaty. Financial impact: Treasury has estimated the revenue impact of the Second Protocol which updates the Exchange of Information Article in the tax treaty as unquantifiable. 2.172 It would generally be necessary for the affected enterprise to apply to the competent authority of the country not initiating the reallocation of profits for an appropriate compensatory adjustment to reflect the reallocation of profits made by the other treaty partner country. 2.286 In the course of negotiations, the delegations noted: With respect to the second sentence of paragraph 1 of Article 18 (Pensions), it is understood that the term to the extent that such income would not be subject to tax in the other State if the recipient were a resident of that other State includes instances where amounts would ordinarily not be included in assessable income under the domestic law of that other State if such amounts are ordinarily payable to residents of that other State and, in the case of payments arising in Australia, includes the deductible amount based on the undeducted purchase price of a pension or annuity, the tax free components of a superannuation benefit and any superannuation benefit amounts to which a nil rate of tax would apply (such as the amount of the taxable component of the element taxed in a superannuation fund which falls below the low rate cap and to which a zero per cent tax rate applies).
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