Non-resident withholding tax for interest, dividend or royalty for privately owned and wealthy groups

What we focus on

Situations that attract our attention include where:

• withholding tax hasn't been withheld or paid, or an incorrect amount is withheld or paid
• deductions for interest or royalty payments to an offshore entity are incorrectly claimed or misclassified on tax returns
• withholding tax exemption and tax treaty relief are incorrectly claimed
• inappropriate reliance on the exemption in section 128F or section 128FA of the ITAA 1936 to avoid liability to interest withholding tax, including where there was already an arrangement, agreement or understanding, that the debenture or debt interest would be issued to particular parties such that the offer is not truly available to the public
• uncommercial arrangements where entities defer interest to avoid or defer withholding tax and claim deductions on an accrual basis
• artificial structuring used to obtain a reduced withholding tax rate under a double-tax agreement
• artificial structuring or interposed offshore entities used to get a refund (in full or in part) of the withholding tax already withheld in Australia
• an entity pays interest, dividends or a royalty to a non-resident and fails to lodge, by 31 October, either
  • a PAYG withholding from interest, dividend and royalty payments paid to non-residents – annual report
  • an annual investment income report.

Additional guidance

Additional guidance on areas that attract our attention can be found in our Taxpayer Alerts:

• TA 2018/4 Accrual deductions and deferral or avoidance of withholding tax
• TA 2020/3 Arrangements involving interposed offshore entities to avoid interest withholding tax
• TA 2022/2Treaty shopping arrangements to obtain reduced withholding tax rates