australia new zealand double tax agreement explanatory memorandum

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. 3.1 This Bill amends the International Tax Agreements Act 1953 (Agreements Act 1953). This is to prevent the situation where enterprises structure their business so that most of their activities fall within the exceptions with a view to avoiding taxation in that country. 2.57 In the case of a resident of Australia, any penalty or interest component of a liability determined under the domestic taxation law of NewZealand with respect to income that NewZealand is entitled to tax under the Convention would not be a creditable NewZealand tax for the purposes of paragraph 1 of Article 23 (Elimination of Double Taxation). In such cases the dividends paid by the dual resident company out of profits arising in one of the countries may be taxed in the country in which those profits arise in accordance with domestic law of that country. Identifiable costs to revenue associated with reductions in the rates of withholding tax and the change in taxing rights for pensions have been estimated as $142million over the forward estimates. 4.27 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, subparagraph1(a)]. [Article 19, paragraph 2]. 2.395 Under this Article, the competent authorities can exchange information that relates to transactions or events occurring prior to entry into force of the Convention. 5.12 Australian taxpayers would also suffer from having no protection from discrimination in the event New Zealands tax system sought to impose more burdensome taxation on Australians, as the existing New Zealand treaty does not contain a NonDiscrimination Article. A country may not make an adjustment of the profits for a year of income where a period of seven years has expired from the date on which the enterprise completed the filing requirements for that year of income in that country. 2.95 For these purposes, unitholders that are residents of Australia for treaty purposes and are liable to tax in Australia on income received by a MIT would be regarded as residents of Australia that are owners of the beneficial interests in the MIT. However, where the dividends are beneficially owned by a resident of the other country, the limits provided for in paragraphs 2 and 3 apply as if the company were a resident solely of the country in which the profits out of which the dividends are paid arise. Webthe AustralianNew Zealand Double Tax Agreement (AusNZ DTA) deals with this subject. The liability of the Australian resident to taxation on such capital gains will be determined in accordance with Australias domestic law. Income derived by entertainers and sportspersons may generally be taxed by the country in which the activities are performed. reduce or eliminate double taxation caused by overlapping tax The MLI was given the force of law in Australia by the Treasury Laws Amendment (OECD Multilateral Instrument) Act 2018, which 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. Income derived from a country through an entity organised in that country will not be eligible for treaty benefits if the income is treated as derived by a resident entity under the tax laws of that country. 2.225 The phrase for the purposes of its tax, which appears in paragraph 7 of Article 12, refers to the case where a person is a resident of a country under its domestic tax law, even if the person is deemed to be a resident only of the other country for the purposes of the Convention by virtue of paragraph 2, 3 or 5 of Article 4 (Resident). Certain payments received by visiting students and business apprentices from Jersey will be exempt from Australian tax. 2.162 Transport activities will also include profits from the use, maintenance and rental of containers (including trailers and related equipment) used in the transport of goods, where directly connected or ancillary to the operation of ships or aircraft in international traffic. A person may be regarded as liable to tax as a resident even where the country does not in fact impose tax. This Exchange of Notes is expected to occur when Australia and New Zealand have established the underlying procedures governing the arbitration mechanism. [Article 4, paragraph 6]. [Article3, subparagraph 1i)]. 2.361 A person wishing to use this procedure may present a case to the competent authority of the country of which the person is a resident. 2.83 Such persons are not denied all of the benefits of the Convention, only relief or exemption from tax. 2.435 The Convention is to continue in effect until terminated. Australia and New Zealand can agree in respect of existing laws or laws that are enacted in the future. 5.93 The Jersey Agreement was signed in conjunction with the Agreement between the Government of Australia and the Government of Jersey for the Exchange of Information with Respect to Taxes (the Jersey Information Exchange Agreement), which will promote greater cooperation between the taxation authorities of the two countries to prevent tax avoidance and evasion. The inclusion of rights to standing timber in the definition reflects New Zealands strong policy preference. Only the profits derived by each subsidiary from its own activities would be attributed to each companys permanent establishment. [Article 24, subparagraph5a) and paragraph 6]. As Bruce is present and performing services for less than five days, his four days in NewZealand are disregarded when determining whether Sushi Co has a permanent establishment in NewZealand. the income earned by that student as a consequence of that employment may, as provided for in Article 14 (Income from Employment), be subject to tax in Australia. 5.11 Taxpayers would also suffer from greater uncertainty in their tax affairs if other aspects of the tax treaty were not updated. 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. 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. [Article 30, subsubparagraph1b)(ii)], 2.432 Paragraph 2 of this Article establishes that the provisions allowing for arbitration (paragraphs 6 and 7 in Article 25 (MutualAgreement Procedure)) shall have effect from a date agreed in asubsequent Exchange of Notes between Australia and New Zealand. 2.362 Presentation of a case by a person to a competent authority must be made within three years of the first notification of the action which the taxpayer considers gives rise to taxation not in accordance with the Convention. The offset is subject to the normal limits discussed in paragraph 2.313 on paragraph 1 of Article 23. 5.83 The Bill and explanatory materials were the subject of confidential consultation with the Tax Treaties Advisory Panel. As Jasons salary is borne by Tasman Banks permanent establishment in Wellington, and the other conditions of paragraph 2 are met, the income will be taxed only in New Zealand. The MIT satisfies the conditions in paragraph 7 of Article4 (, The meaning of in the same circumstances and in particular with respect to residence, Non-discrimination and permanent establishments, Deductions for payments to foreign residents, [Article 24, subparagraph5a) and paragraph 6], Transfers of losses within company groups, Rebates, credits and exemptions paid for dividends by a company, It is understood that paragraph g) of paragraph 5 of Article 24 (, Methods of communication between competent authorities, General Agreement on Trade in Services dispute resolution process, Information held by institutions such as banks, other financial institutions or nominees, Information that exists prior to the entry into force of this Convention, Article 27 Assistance in the Collection of Taxes, Restriction on judicial and administrative proceedings, Article 28 Members of Diplomatic Missions and Consular Posts, Diplomatic Privileges and Immunities Act 1967, Consular Privileges and Immunities Act 1972, Obligation for Australia and New Zealand to consult every five years, Date of application for New Zealand taxes, Exchange of Information and Assistance in Collection, Termination of the existing New Zealand Agreement, Second Protocol amending the Agreement between Australia and the Kingdom of Belgium for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income signed at Canberra on 13 October 1977 as amended by the Protocol signed at Canberra on 20 March 1984, Agreement between Australia and the Kingdom of Belgium for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income signed at Canberra on 13 October 1977 as amended by the Protocol signed at Canberra on 20 March 1984, Substitutes new Article 26 (Exchange of Information) into the Agreement, [Article I, paragraph 2 of new Article 26], [Article I, paragraph 4 of new Article 26], Information held by institutions such as banks, other financial institutions, trusts, foundations and nominees, [Article I, paragraph 5 of new Article 26], Information that exists prior to the entry into force of the Second Protocol, Date of entry into force of the Second Protocol, Second Protocol part of the existing tax treaty, Mutual Agreement Procedure in Respect of Transfer Pricing Adjustments, Definition of transfer pricing adjustment, Article 5 Pensions and Retirement Annuities, Article 8 Mutual Agreement Procedure in Respect of Transfer Pricing Adjustments, The existing Australia-New Zealand tax treaty, Australias trade and investment relationship with New Zealand, Option 1: Retain the existing AustraliaNewZealand tax treaty, Option 2: A second limited amending Protocol rely on the existing tax treaty and Protocol measures, Difficulties in quantifying the impacts of tax treaties, Renegotiation provides a better outcome for all stakeholders, Compliance and administrative cost reduction benefits, International Tax Agreements Amendment Bill (No. In the case of Jersey, the competent authority is the Treasury and Resources Minister or an authorised representative of the Minister. The scope of the Article is not confined to such items of income arising in one of the countries it extends also to income from sources in a third country. As the pension would not have been subject to New Zealand tax if Nicholas had remained a New Zealand resident, the pension will also not be subject to Australian tax now that Nicholas is a resident of Australia. 2.109 Nevertheless, a fixed place of business that is used for primary production purposes, such as a farm or forestry property, will constitute a permanent establishment. In the Australian context, this also means, for example, that Norfolk Island residents, who are generally subject to Australian tax on Australian source income only, are not residents of Australia for the purposes of the Convention. In the case of Australia, effect will be given to the double tax relief obligations arising under the Convention by application of the general foreign income tax offset provisions of Australias domestic law, or the relevant exemption provisions of that law where applicable. This will ensure the treaty is reviewed at regular intervals, unlike the existing treaty which does not provide for a review period. 3.13 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. [Article 13, paragraph 7]. 5.22 In particular, relying on the existing tax treaty means arrangements between Australia and New Zealand would not benefit from the move to lower withholding tax rate limits provided under Australias most recent tax treaties. 5.49 Article 13 (Alienation of Property) better aligns with Australias domestic law treatment and international treaty practice by providing for taxation of certain capital gains only in the alienators country of residence. Inclusion of profits from fishing within the scope of this Article reflects New Zealands reservation to Article 6 of the OECD Model. As discussed in the OECD Model Commentary, this means where a court or administrative tribunal of one of the States has already rendered a decision that deals with those issues and that applies to that person. Source taxation of shipping and airline profits is limited to income from domestic transport. Sushi Co, an Australian resident, provides training services to apprentice sushi chefs. New Zealand may also tax but, under Article 23 (Elimination of Double Taxation), would be obliged to give credit for the Australian tax paid on the fringe benefit if it was ordinary employment income. [Article 5, subparagraph 4b)], 2.116 If an enterprise operates substantial equipment in a country for one or more periods which exceed, in the aggregate, 183 days in any 12month period, the activity will be deemed to be performed through a permanent establishment (unless the activities are of a type described in paragraph 7 of this Article and are of a preparatory or auxiliary nature). 5.48 These provisions remove the need for each individual investor in a MIT to claim treaty benefits from New Zealand on their own behalf as is required under the existing treaty, which significantly reduces compliance complexity and costs for Australian investors. 2.194 This provision does not limit taxation in the country of which the dual resident company is deemed to be a resident for treaty purposes in accordance with paragraph 4 of Article 4 (Resident) in the case of dividends paid by the company out of profits from sources outside that country. The existing rules apply to a narrower range of taxes and do not require the exchange of information that is not obtainable by the tax administration under domestic law. The Convention provides for exchange of information between the two taxation authorities. 2.365 The solution reached by mutual agreement between the competent authorities of the relevant countries must be implemented notwithstanding any time limits in the domestic laws of the tax treaty countries. [Article 4, paragraph 1], 2.75 Article 4 follows the OECD Model in specifically providing that the State, or a political subdivision, or local authority of the State, are residents for the purposes of the Convention. [Article I, paragraph 1 of new Article 26]. 2.24 Income derived from a country through an entity organised in that country will not be eligible for treaty benefits if the income is treated as derived by that entity under the tax laws of the other country. Commercial practice indicates that, as with interest, the cost represented by the royalty withholding tax is commonly passed on to the payer of the royalty. NewZealand taxes that royalty income at 30 per cent as foreign income of a New Zealand resident company and gives a foreign tax credit for the 5per cent tax rate set in paragraph 2 of Article 12, so collecting a net 25per cent tax. Analysis is initially restricted to the AusNZ DTA as it specifically addresses 5.29 The Convention with New Zealand is likely to have an impact on: Australian residents doing business with New Zealand, including principally: Australian residents investing directly in New Zealand (either by way of a subsidiary or a branch); Australian residents investing indirectly in New Zealand; Australian banks and the other specified Australian institutions lending to New Zealand borrowers; Australians borrowing from New Zealand banks; Australian residents using technology and know-how supplied by New Zealand residents; Australian residents supplying services to New Zealand and vice versa; and. The wording in this provision in the Convention reflects NewZealands treaty practice and the wording used in the United Nations Model Double Taxation Convention between the Developed and Developing Countries. [Article 11, subparagraph 3b)], 2.207 In the case of interest arising in NewZealand, the exemption for interest paid to financial institutions will not apply if it is paid to a person who has not paid NewZealands AIL in respect of the interest. Given the long-term nature of such arrangements, the Convention is expected to promote greater certainty than the existing tax treaty. [Article 2, paragraph 2], 4.10 The definition of Australia follows corresponding definitions in Australias modern tax treaties. 2.155 Each country has the right to continue to apply any provisions in its domestic law relating to the taxation of income from insurance with nonresident insurers. This is expected to reduce the compliance costs faced by crew members, as they will only have to file returns and pay tax on this income in their country of residence. New Zealand 1972 agreement means the Agreement between the Government of the Commonwealth of Australia and the Government of New Zealand 2.290 Portable New Zealand superannuation or portable veterans pension are exempt from tax under New Zealands domestic legislation in order to ensure that the country of residence has sole taxation rights to a persons pension income. This will reduce compliance costs for residents of one country who are employed by a local branch of an enterprise of the other country by ensuring that their remuneration derived during short visits to that other country is not taxed in that other country. Similarly, the Article provides that certain features of the New Zealand tax system are not affected by its provisions. However, as the dividends relate to the Australian shareholders permanent establishment in New Zealand with which the holding is effectively connected, New Zealand may tax the dividends. 4.4 This Bill gives effect to the Jersey Agreement, which is inserted as Schedule 50 to the Agreements Act 1953 and deals with the allocation of taxing rights with respect to certain income of individuals. 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. 2.359 This Article provides for consultation between the competent authorities of the two countries with a view to reaching a solution in cases where a person is able to demonstrate actual or potential imposition of taxation contrary to the provisions of the Convention. In Australia, enactment of this Bill giving the force of law to the Convention, along with tabling the Convention in Parliament, are prerequisites to such notification. If a company covered by those provisions sought to enter into a DLC arrangement with a NewZealand company that under NewZealand law was required to maintain a similar number of NewZealand citizens as directors, the two companies could not have common boards of directors. Further, the Convention will enter into force after the date of the last notification by diplomatic notes and once the domestic processes to give the Convention the force of law in the respective countries have been completed. A special relationship also covers relationships of blood or marriage and, in general, any community of interests. This provision is thus an exception to this extent to the general operation of paragraph 2 of Article1 (Persons Covered). Dividends, interest and royalties may generally be taxed in both countries, but there are limits on the tax that the country in which the dividend, interest or royalty is sourced may charge on such income flowing to residents of the other country who are the beneficial owners of the income [Articles10to12]. This is illustrated by the following examples which are variations on some of the examples above. financial institutions in certain circumstances; a maximum 10 per cent rate of source country tax may be applied on all other interest income; interest paid on a debt-claim which is effectively connected with a permanent establishment shall be subject to Article 7 (Business Profits); interest payments are deemed to have an Australian source (and may therefore be taxed in Australia) where: the interest is paid by an Australian resident to a NewZealand resident; or, the interest is paid by a non-resident to a NewZealand resident and it is an expense of the payer in carrying on business in Australia through a permanent establishment; and. 2.102 The primary meaning of permanent establishment is expressed as being a fixed place of business through which the business of an enterprise is wholly or partly carried on. This would include for example, club-level rugby, netball, basketball and soccer competitions which take place in both countries. 2.321 Similarly, where the income arises in a third country, the country of residence of the participant in the entity would provide relief for tax imposed on the income in the hands of the entity in the other country.

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