The Minister for Revenue and Financial Services: Ms Kelly O’Dwyer, introduced the International Tax Agreements Amendment Bill 2016 in the House of Representatives on Thursday 1.9.2016. It proposes to amend the International Tax Agreements Act 1953 to give the force of law in Australia to the double tax agreement (DTA) between Australia and Germany that was signed on 12 November 2015. It replaces the existing 1972 treaty.
[APH website – Bill Tracker] [APH – Bill] [APH – EM]
Key features include:
- Several of the BEPS recommended treaty provisions form part of the new minimum standards in the DTA on treaty shopping (intended to put an end to the use of conduit companies to channel investments) and effective mutual agreement procedures (intended to ensure that the fight against double non-taxation does not result in double taxation) to which OECD and G20 countries have committed.
- The DTA includes the treaty provisions which form part of the minimum standards for protecting against treaty shopping (included in the BEPS Action 6 from the 2015 Final Report) and ensuring effective mutual agreement procedures (included in the Action 14 2015 Final Report), as well as many of the other treaty provisions recommended in the 2015 BEPS Final Reports on Actions 2 (Neutralising the Effects of Hybrid Mismatch Arrangements), 6 (Preventing the Granting of Treaty Benefits in Inappropriate Circumstances), 7 (Preventing the Artificial Avoidance of Permanent Establishment Status) and 14 (Making Dispute Resolution Mechanisms More Effective).
- Dividends, interest and royalties may generally be taxed in both countries, but there are limits on the tax that the country in which they are sourced may charge on such income flowing to residents of the other country who are the beneficial owners of the income. Those tax limitations range from 0% to 15% for dividends, 10% for interest, and 5% for royalties.
- The DTA includes of a range of integrity provisions that enables the respective tax authorities to exchange taxpayer information and provide mutual assistance to each other in the collection of both countries’ outstanding tax debts.
Once the DTA enters into force, it will take effect in Australia in 3 stages:
- in respect of withholding tax on income that is derived by a non-resident, in relation to income derived on or after 1 January next following entry into force;
- in respect of FBT, in relation to fringe benefits provided on or after 1 April next following entry into force;
- in respect of other Australian tax, in relation to income, profits or gains of any year of income beginning on or after 1 July next following entry into force.
[LTN 169, 1/9/16]
Extract from EM
Outline of chapter
1.1 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 Agreement between Australia and the Federal Republic of Germany for the Elimination of Double Taxation with respect to Taxes on Income and on Capital and the Prevention of Fiscal Evasion and Avoidance and its Protocol (the German agreement), which were signed at Berlin on 12 November 2015.
Context of amendments
1.2 The German agreement was signed at Berlin on 12 November 2015. Once in force, it will replace the Agreement between the Commonwealth of Australia and the Federal Republic of Germany for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income and Capital and to Certain Other Taxes and its Protocol (the German 1972 agreement), which entered into force on 15 February 1975.
1.3 The German agreement modernises the bilateral tax arrangements between Australia and the Federal Republic of Germany (Germany) for the purpose of eliminating double taxation.
It also aims to prevent fiscal evasion and avoidance, through the inclusion of a range of integrity provisions and by enabling the respective tax authorities to exchange taxpayer information and provide mutual assistance to each other in the collection of both countries’ outstanding tax debts.
It broadly follows the Organisation for Economic Cooperation and Development (OECD) Model Tax Convention on Income and on Capital (OECD Model) and, in doing so, broadly reflects current Australian and international tax policy settings.
1.4 Accordingly, the German agreement establishes greater legal and fiscal certainty within which cross-border trade and investment between Australia and Germany can be carried on and promoted.
Tax evasion and avoidance
1.5 Australia is a longstanding supporter of international cooperation to prevent tax evasion and avoidance. This Bill reinforces Australia’s support for international tax transparency and cooperation between revenue authorities to help prevent tax evasion and avoidance and improve global tax compliance. This is consistent with ongoing international efforts to improve tax system integrity.
1.6 As a member of both the G20 and the OECD, Australia has committed to the implementation of the OECD/G20 Base Erosion and Profit Shifting Project (the BEPS Project).
1.7 The BEPS Project 2015 Final Reports on:
- Action 2 (Neutralising the Effects of Hybrid Mismatch
- Arrangements),
- Action 6 (Preventing the Granting of Treaty Benefits in
- Inappropriate Circumstances [Treaty Shopping]),
- Action 7 (Preventing the Artificial Avoidance of Permanent
- Establishment Status) and
- Action 14 (Making Dispute Resolution Mechanisms More
- Effective),
recommended a range of integrity provisions be adopted in bilateral tax treaties to address base erosion and profit shifting practices, as well as other treaty provisions intended to make tax treaty dispute resolution mechanisms more effective.
Several of these recommended treaty provisions form part of the new minimum standards on treaty shopping (intended to put an end to the use of conduit companies to channel investments) and effective mutual agreement procedures (intended to ensure that the fight against double non-taxation does not result in double taxation) to which OECD and G20 countries have committed.
1.8 The German agreement includes the treaty provisions which form part of the minimum standards for protecting against treaty shopping (included in the Action 6 2015 Final Report) and ensuring effective mutual agreement procedures (included in the Action 14 2015 Final Report), as well as many of the other treaty provisions recommended in the 2015 Final Reports on Actions 2, 6, 7 and 14.
1.9 The following table summarises the provisions of the German agreement that reflect BEPS Project treaty recommendations.
German agreement provisions | BEPS Project 2015 Final Reports |
Title | Action 6 |
Preamble | Action 6 |
Paragraph 2 of Article 1 (Persons Covered) | Action 2 |
Paragraphs 5, 6, 7, 9, 10 and subparagraph 8(a) of Article 5 (Permanent Establishment) | Action 7 |
Paragraph 8 of Article 7 (Business Profits) | Action 14 |
Paragraphs 2 and 3 of Article 9 (Associated Enterprises) | Action 14 |
Subparagraph 2(a) and paragraph 3 of Article 10 (Dividends) | Action 6 |
Paragraph 4 of Article 13 (Alienation of Property) | Action 6 |
Paragraph 2 of Article 23 (Limitation of Benefits) | Action 6 |
Paragraphs 1, 2, 3 and 5 of Article 25 (Mutual Agreement Procedure) | Action 14 |