House of Representatives

Explanatory Memorandum

(Circulated by authority of the Minister for Revenue and Financial Services, Minister for Women and Minister Assisting the Prime Minister for the Public Service, the Hon Kelly O'Dwyer MP)

Chapter 1 - Overview of the Multilateral Convention

Outline of chapter

1.1 This Bill contains amendments to the Tax Agreements Act to give the Multilateral Convention force of law in Australia.

1.2 The Multilateral Convention is a multilateral tax treaty that enables jurisdictions to quickly modify their bilateral tax agreements to give effect to internationally agreed tax integrity rules and improve dispute resolution mechanisms.

Context of amendments

1.3 BEPS is the term used by the OECD to describe tax planning strategies that exploit gaps and mismatches in jurisdictions' tax rules to artificially shift profits to low or no-tax locations where there is little or no economic activity, resulting in little or no overall income tax being paid. The OECD has estimated that USD 100-240 billion (or 4-10 per cent) of global corporate income tax revenues are lost annually, worldwide, as a result of BEPS.

1.4 The OECD/G20 BEPS Project aims to equip governments with tools to address tax avoidance by ensuring that profits are taxed where the economic activities generating those profits are performed and where economic value is created.

1.5 In November 2015, the G20 Leaders endorsed the OECD's Final BEPS package of recommendations (BEPS reports), which were based on 15 BEPS Actions identified in the 2013 OECD/G20 BEPS Action Plan.

1.6 Action 15 (Develop a Multilateral Instrument) of the 2013 OECD/G20 BEPS Action Plan mandated an analysis of the possible development of a multilateral instrument to implement tax treaty related BEPS measures in existing tax agreements.

1.7 Drawing on the expertise of public international law and tax experts, the 2014 Interim Report on Action 15 concluded that a multilateral instrument is desirable and feasible, and that negotiations for such an instrument should be convened quickly. The report also recommended that an international conference (an ad hoc Group) be convened to negotiate the multilateral instrument. The Action 15 Final Report which forms part of the BEPS Package reflected these developments.

1.8 The ad hoc Group involved over 100 jurisdictions (including Australia) participating in the development of the Multilateral Convention.

1.9 A Sub-Group on Arbitration was also established to develop a mandatory binding mutual agreement procedure arbitration provision in which 27 countries participated, including Australia.

1.10 The work of the ad hoc Group culminated in the finalisation and adoption of the text of the Multilateral Convention and the Explanatory Statement to the Multilateral Convention on 24 November 2016.

1.11 The Multilateral Convention will help protect Australia's revenue base from BEPS practices by implementing specific integrity provisions designed to protect tax agreements from being inappropriately exploited for tax avoidance purposes. It will also implement provisions designed to make tax treaty-based dispute resolution mechanisms more effective.

1.12 The Multilateral Convention modifies in the most efficient way possible the provisions of existing tax agreements to implement these rules, thereby also aligning Australia's bilateral tax agreements with current international standards. In the absence of the Multilateral Convention, Australia would need to introduce these rules by negotiating each tax agreement bilaterally, which would take an extensive period of time and involve significant costs.

1.13 The integrity rules contained in the Multilateral Convention are based on the recommendations arising from the following BEPS Actions:

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Action 2 - Neutralising the Effects of Hybrid Mismatch Arrangements;

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Action 6 - Preventing the Granting of Treaty Benefits in Inappropriate Circumstances;

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Action 7 - Preventing the Artificial Avoidance of Permanent Establishment Status; and

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Action 14 - Making Dispute Resolution Mechanisms More Effective.

1.14 The rules target tax avoidance behaviour that can arise in relation to income derived by or through fiscally transparent entities, dual resident entities, applying methods for eliminating double taxation, treaty shopping and other forms of treaty abuse, dividend transfer transactions, capital gains derived from the disposal of interests in land-rich entities, and the definition of permanent establishment.

1.15 The Multilateral Convention also contain rules to:

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clarify that tax agreements do not prevent jurisdictions from taxing their own residents;

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prevent the double taxation of income relating to cross-border transactions between related parties; and

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implement improvements to tax treaty-based dispute resolution mechanisms, including the option of mandatory binding arbitration.

1.16 Certain rules contained in the Multilateral Convention reflect BEPS minimum standards that jurisdictions must meet as part of their commitment to the BEPS Project. These are found in Articles 6, 7 and 16 of the Multilateral Convention and are further explained below.

1.17 The Explanatory Statement accompanies the Multilateral Convention. It provides clarification of the approach in the Multilateral Convention by explaining how the Multilateral Convention would modify a bilateral tax agreement. With regard to arbitration (Articles 18 to 26 of the Multilateral Convention), the Explanatory Statement describes the functioning of the operative provisions.

1.18 The text of the Multilateral Convention and the Explanatory Statement are available on the OECD website (http://www.oecd.org). The text of the Multilateral Convention is also available through the Australian Treaties Library on the AustLII website (www.austlii.edu.au).

1.19 On 7 June 2017, Australia was one of 68 jurisdictions that signed the Multilateral Convention, reinforcing Australia's commitment to addressing tax avoidance and helping to ensure international consistency in the implementation of the relevant BEPS recommendations. Since then, further jurisdictions have signed the Multilateral Convention.

1.20 The Multilateral Convention was tabled in Parliament on 16 August 2017 and referred to the Joint Standing Committee on Treaties. On 27 November 2017, the Joint Standing Committee on Treaties supported the Multilateral Convention and recommended its ratification (Committee Report 175).

1.21 Passage of these amendments form part of the ratification process. Public consultation has been undertaken during the development of the measure, with stakeholders providing broad support for the Multilateral Convention.

1.22 Once Australia and its relevant partner jurisdiction have ratified the Multilateral Convention and notified the Depositary (the Secretary-General of the OECD) accordingly, the application of the existing Covered Tax Agreement between Australia and the partner jurisdiction will be modified only if both jurisdictions have nominated for the Multilateral Convention to apply to the relevant Covered Tax Agreement.

Summary of new law

1.23 The amendments give the Multilateral Convention force of law in Australia.

1.24 The main parts of the Multilateral Convention are separated into:

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Preamble

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Part I - Scope and interpretation of terms (Articles 1 and 2);

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Part II - Hybrid Mismatches (Articles 3 to 5);

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Part III - Treaty Abuse (Articles 6 to 11);

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Part IV - Avoidance of Permanent Establishment Status (Articles 12 to 15);

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Part V - Improving Dispute Resolution (Articles 16 and 17);

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Part VI - Arbitration (Articles 18 to 26); and

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Part VII - Final Provisions (Article 27 to 39).

1.25 The following chapters of this explanatory memorandum replicate the titles of Parts II to VI and discuss in detail the various Articles contained in each Part of the Multilateral Convention.

1.26 However, although Article 4 is located in Part II (Hybrid Mismatches) of the Convention, the underlying recommendation to Article 4 is located in the BEPS Final Report on Action 6 on treaty abuse. Thus Article 4 is discussed in detail in Chapter 3 (Treaty abuse) below.

1.27 Part I and Part VII of the Multilateral Convention provide the interpretative and implementation provisions, which are discussed in this chapter.

Comparison of key features of new law and current law

Detailed explanation of new law

1.28 This Bill amends the Tax Agreements Act to give the Multilateral Convention the force of law according to its tenor from the date that the Multilateral Convention enters into force for Australia. [Schedule 1, item 2, subsection 5(1) of the Tax Agreements Act]

1.29 The Multilateral Convention is designed to modify the application of jurisdictions' tax agreements to give effect to the BEPS tax treaty related integrity rules.

Which tax agreements will be modified?

1.30 The Multilateral Convention only modifies tax agreements that are Covered Tax Agreements. [Article 1 of the Multilateral Convention]

1.31 In relation to Australia, a bilateral tax agreement is a 'Covered Tax Agreement' if:

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it is nominated by Australia as a Covered Tax Agreement;

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Australia's bilateral partner jurisdiction ratified the Multilateral Convention and notified the Depository accordingly; and

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the partner jurisdiction also nominated the bilateral tax agreement with Australia as a Covered Tax Agreement.

[Article 2 of the Multilateral Convention]

1.32 A jurisdiction makes such a nomination by providing a notification listing agreements and any amending or accompanying instruments that it wishes to be covered by the Multilateral Convention to the Depositary (the Secretary-General of the OECD). [Articles 2 and 39 of the Multilateral Convention]

1.33 Australia has provisionally notified the Depositary that all of its current bilateral tax agreements (described in section 3AAA of the Tax Agreements Act) are to be Covered Tax Agreements except the German agreement, which generally already contains equivalent integrity rules and improvements to dispute resolution mechanisms to those contained in the Multilateral Convention.

1.34 Based on the known or proposed adoption positions of other Signatories to the Multilateral Convention, the Convention is expected to modify 31 of Australia's 44 bilateral tax agreements: Argentina, Belgium, Canada, Chile, China, the Czech Republic, Denmark, Fiji, Finland, France, Hungary, India, Indonesia, Ireland, Italy, Japan, Malaysia, Malta, Mexico, the Netherlands, New Zealand, Norway, Poland, Romania, Russia, Singapore, the Slovak Republic, South Africa, Spain, Turkey and the United Kingdom.

1.35 This number will change if more of Australia's partner jurisdictions sign and ratify the Multilateral Convention. Several of Australia's partner jurisdictions have not signed the Multilateral Convention, and several others have signed the Multilateral Convention but did not list their agreement with Australia as a Covered Tax Agreement.

1.36 As a bilateral tax agreement will only be modified by the Multilateral Convention once it has entered into force for both jurisdictions, each of the 43 bilateral tax agreements nominated by Australia will be modified at different times.

1.37 The Tax Agreements Act, including the provisions of the tax agreements it gives force to, are incorporated and read as one with the provisions of the ITAA 1936 and the ITAA 1997, and the FBT Assessment Act (see sections 4 and 4AA of the Tax Agreements Act respectively).

1.38 This mechanism enables the modification to a bilateral tax agreement to occur automatically once the Multilateral Convention has entered into force for Australia and each relevant bilateral agreement partner.

1.39 The Multilateral Convention only modifies Covered Tax Agreements. The concept of Covered Tax Agreement is incorporated into Australian domestic law along with other provisions of the Multilateral Convention by these amendments to the Tax Agreements Act. Thus, when a bilateral tax agreement becomes a Covered Tax Agreement the modifications by the Multilateral Convention will apply automatically.

1.40 The Multilateral Convention's ultimate effect on Australia's bilateral agreements is contingent upon the formal ratification of the Convention by Australia and the relevant jurisdictions party to those tax agreements, as well as the lodgement of each jurisdiction's reservations and notifications. As these ratifications and lodgements are still to occur, it is not possible at this time to specify the full extent of the Multilateral Convention's application to a particular Australian bilateral tax agreement.

1.41 Once these positions are formalised, the ATO will consider issuing appropriate additional guidance material to supplement existing explanations such as this explanatory memorandum and the Commentaries on the OECD Model about the way in which the Multilateral Convention is understood to modify Australia's affected bilateral tax agreements.

1.42 The Multilateral Convention modifies a Covered Tax Agreement without prejudice to any subsequent modifications to the underlying tax agreement as agreed between the parties to that agreement. [Article 30 of the Multilateral Convention]

1.43 That is, agreement partners are free to agree and amend or replace a bilateral tax agreement after it has been modified by the Multilateral Convention. Such action would supersede the modifications made to that agreement by the Multilateral Convention but only from the date on which the amended or new bilateral agreement enters into force.

How does the Multilateral Convention modify a Covered Tax Agreement?

1.44 Each substantive article of the Multilateral Convention comprises the relevant integrity rule(s), a compatibility clause, reservation options and notification requirements.

Compatibility clauses

1.45 The Multilateral Convention modifies the application of a Covered Tax Agreement in different ways. The ways in which the provisions of a Covered Tax Agreement can be modified are explained in the 'compatibility clauses' contained in each article of the Multilateral Convention, which use specific language to describe different mechanisms.

1.46 The different mechanisms described in the Multilateral Convention are as follows:

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'in place of' of an existing provision in a Covered Tax Agreement - the Multilateral Convention provision replaces an existing provision if there is one;

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'applies to' or 'modifies' an existing provision in a Covered Tax Agreement - the Multilateral Convention provision changes the application of an existing provision without entirely replacing it;

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'in the absence of' an existing provision in a Covered Tax Agreement -the Multilateral Convention provision is added to the Covered Tax Agreement if there is no existing provision; and

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'in place of or in the absence of' an existing provision in a Covered Tax Agreement - the Multilateral Convention provision either replaces an existing provision or is added to the Covered Tax Agreement if there is no existing provision.

1.47 In all of the above cases, the existing Covered Tax Agreement is modified by the Multilateral Convention.

1.48 While some provisions of the Multilateral Convention are mandatory, most are optional. That is, jurisdictions can apply various article-by-article choices and/or reservations to limit their adoption of the Multilateral Convention, including the right for a provision not to apply at all.

1.49 Subject to these choices and reservations, jurisdictions are required to apply their chosen positions across all of the Covered Tax Agreements they have nominated. That is, their choices and reservations will apply to Multilateral Convention provisions rather than to individual bilateral agreements. Most provisions provide that modifications to a Covered Tax Agreement will be effective only where jurisdictions have made matching and compatible choices and reservations. However, some provisions allow asymmetric application.

1.50 The effect of a reservation, including where a provision allows for asymmetric application, is discussed in the later chapters discussing the relevant provision.

Reservations and notifications

1.51 Generally, a reservation made by a jurisdiction modifies the application of the Multilateral Convention to the relevant provisions in all its Covered Tax Agreements. That is, the effect of the reservation applies equally to both Parties to a Covered Tax Agreement and indiscriminately across all of a jurisdiction's Covered Tax Agreements. However, this is subject to any provision of the Multilateral Convention that explicitly provides otherwise. [Article 28(3) of the Multilateral Convention]

1.52 This approach is consistent with Article 21 of the Vienna Convention on the Law of Treaties.

1.53 A jurisdiction can make a reservation that is allowable under a provision listed in Article 28(1) of the Multilateral Convention. The provisions listed reflect the provisions of the Multilateral Convention that explicitly allow a reservation to be made. [Article 28(1) of the Multilateral Convention]

1.54 In addition, a jurisdiction can also formulate and make one or more reservations to limit the types of cases that can be submitted for arbitration under Part VI of the Multilateral Convention, which is subject to acceptance by the relevant partner jurisdiction. This is discussed in Chapter 6. [Article 28(2) of the Multilateral Convention]

1.55 Some reservations listed in Article 28(1) also require an accompanying notification of affected Covered Tax Agreements (and the relevant paragraph number of each relevant provision of the Covered Tax Agreement if required) that are within the scope of the reservation. Article 28(8) lists provisions requiring such notifications. The listed provisions reflect the provisions of the Multilateral Convention that explicitly require notification.

1.56 That is, a jurisdiction making a reservation under a provision listed in Article 28(8) must provide the notification at the time the reservation is made. Otherwise, the reservation will not apply to a Covered Tax Agreement that is not included in the notification. [Article 28(8) of the Multilateral Convention]

1.57 A jurisdiction can provide a notification under a provision of the Multilateral Convention that is listed in Article 29(1) and those provisions reflect the provisions of the Multilateral Convention that explicitly require notification. [Article 29(1) of the Multilateral Convention]

1.58 These notifications are generally required:

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where a jurisdiction nominates its tax agreements to be covered by the Multilateral Convention (i.e. list of Covered Tax Agreements);

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if a jurisdiction has not made a reservation under the relevant Article of the Multilateral Convention; or

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if a jurisdiction is making a choice in respect of a provision.

1.59 The effect of such notification varies depending on the provision that requires the notification and thus is addressed in the later chapters discussing the relevant provision.

1.60 Jurisdictions can provide a list of reservations and/or notifications when signing the Multilateral Convention, either in provisional or final form. If a jurisdiction provides a provisional list of reservations and/or notifications upon signature it must confirm its final positions upon deposit of its instrument of ratification. [Articles 28(5) to (7), and 29(1), (3) and (4) of the Multilateral Convention]

1.61 Australia provided a provisional list of its reservations and notifications at signature and will need to confirm its final position when it deposits its instrument of ratification. Until that point, Australia's positions remain indicative.

1.62 Australia's final adoption positions will be formalised before the Multilateral Convention enters into force for Australia.

1.63 The effect of the Multilateral Convention on Australian domestic law is determined by the extent to which the application of Australia's Covered Tax Agreements is modified by the Multilateral Convention subject to the reservations and notifications of Australia and the relevant partner jurisdiction.

1.64 That is, without knowing the respective partners' final positions, Australia's reservations and notifications effectively ring-fence the extent that the Multilateral Convention would modify Australia's Covered Tax Agreements. For example, if Australia makes a reservation not to apply an Article of the Multilateral Convention (i.e. opt out), the relevant provisions in each of Australia's existing bilateral tax agreements will continue to apply without modification regardless of any differing position that the respective partner jurisdiction adopts under the Multilateral Convention.

1.65 Jurisdictions that have entered reservations can subsequently withdraw them (or replace them with more limited reservations) to expand their adoption of the Multilateral Convention. However, they cannot, enter new reservations that will narrow their adoption. [Article 28(9) of the Multilateral Convention]

1.66 As such, while the scope of Australia's adoption of the Multilateral Convention may be expanded, it cannot become more limited. Therefore, where Australia has provisionally made a reservation and the removal or replacement of such reservation will expand the adoption of the Multilateral Convention, this explanatory memorandum explains what the provision is about and its effects.

1.67 A jurisdiction may add tax agreements to its list of Covered Tax Agreements by notifying the Depositary. In doing so, a jurisdiction may update its reservations and notifications to include the additional tax agreements. [Article 29(5) of the Multilateral Convention]

1.68 Australia has provisionally nominated all of its existing bilateral tax agreements except the German agreement.

1.69 A jurisdiction may make additional notifications under a provision of the Multilateral Convention that is listed in Article 29(1) by notifying the Depositary. This is not available for notifications made under Article 35 (i.e. customisation of entry into effect periods). [Article 29(6) the Multilateral Convention]

1.70 For example, Australia may need to make additional notifications if it withdraws one of its reservations. There is a notification requirement designed to inform jurisdictions that have not made a reservation allowable under that Article that would consequently be affected by Australia's withdrawal of reservation.

Interpretation of the Multilateral Convention and the Covered Tax Agreements

1.71 Some terms used in the Multilateral Convention are defined in Article 2(1), namely 'Covered Tax Agreement', 'Party', 'Contracting Jurisdiction' and 'Signatory'. [Article 2(1) of the Multilateral Convention]

1.72 Unless the context of the term in the Multilateral Convention indicates otherwise, the meaning of the other terms used in the Multilateral Convention have the same meaning as used in the underlying Covered Tax Agreement. [Article 2(2) of the Multilateral Convention]

1.73 For questions relating to the interpretation or implementation of the Multilateral Convention, a Conference of the Parties may be convened to address the questions. [Article 32(2) of the Multilateral Convention]

1.74 Conversely, questions relating to the interpretation or implementation of a Covered Tax Agreement are to be resolved according to the applicable provisions in the Covered Tax Agreement (e.g. by mutual agreement between the relevant competent authorities). [Article 32(1) of the Multilateral Convention]

1.75 That means the Multilateral Convention's modifications to a Covered Tax Agreement should be interpreted using ordinary principles of treaty interpretation (i.e. in accordance with the Vienna Convention on the Law of Treaties).

1.76 This is reiterated in paragraph 12 of the Explanatory Statement to the Multilateral Convention:

While this Explanatory Statement is intended to clarify the operation of the Convention to modify Covered Tax Agreements, it is not intended to address the interpretation of the underlying BEPS measures (except with respect to the mandatory binding arbitration provision contained in Articles 18 through 26...). Accordingly, the provisions contained in Articles 3 through 17 should be interpreted in accordance with the ordinary principle of treaty interpretation, which is that a treaty shall be interpreted in good faith in accordance with the ordinary meaning to be given to the terms of the treaty in their context and in light of its object and purpose. In this regard, the object and purpose of the Convention is to implement the tax treaty-related BEPS measures. The commentary that was developed during the course of the BEPS Project and reflected in the Final BEPS Package has particular relevance in this regard.

1.77 As most of the integrity rules contained in the Multilateral Convention are included in the OECD Model, the Commentaries to the OECD Model largely reflect the content of the final BEPS reports.

1.78 Accordingly, any subsequent changes to the Commentaries on the OECD Model will continue to be relevant, unless the text of the Covered Tax Agreement or the OECD Model has changed (see paragraphs 3 and 33 to 36.1 of the Introduction to the OECD Model). This is consistent with paragraph 108 of the ATO Taxation Ruling TR2001/13.

1.79 However, when interpreting the modifications to a Covered Tax Agreement in respect of Part VI of the Multilateral Convention (Arbitration, Articles 18 to 26), the Explanatory Statement to the Multilateral Convention provides relevant guidance.

1.80 The title and preamble of the Multilateral Convention recognise that the purpose of the Multilateral Convention is to implement tax treaty-related measures developed by the BEPS Project to address certain hybrid mismatch arrangements, prevent treaty abuse, address artificial avoidance of permanent establishment status, and improve dispute resolution.

1.81 The preamble forms part of the context of the Multilateral Convention and constitutes a general statement of the object and purpose of the Multilateral Convention (see Article 31(2) of the Vienna Convention on the Law of Treaties). Therefore, the preamble is important in interpreting the Multilateral Convention's modifications to a Covered Tax Agreement.

Effect of signature, ratification and withdrawal from the Multilateral Convention

1.82 The Multilateral Convention opened for signature on 31 December 2016. Any State, including Guernsey, the Isle of Man and Jersey, and any other jurisdictions authorised by a consensus of the Parties and Signatories to the Convention, can sign the Multilateral Convention. [Article 27(1) of the Multilateral Convention]

1.83 However, in order for the Multilateral Convention to enter into force for a jurisdiction, the jurisdiction's signature needs to be followed by ratification, acceptance or approval. [Article 27(2) of the Multilateral Convention]

1.84 Australia signed the Multilateral Convention on 7 June 2017 and will deposit its instrument of ratification with the Depositary after this Bill receives the Royal Assent.

1.85 Once the Multilateral Convention enters into force for a jurisdiction, the jurisdiction can withdraw from the Multilateral Convention by notifying the Depositary. The withdrawal is effective from the date the Depositary receives the notification. [Article 37 of the Multilateral Convention]

1.86 If a partner jurisdiction to a Covered Tax Agreement withdraws from the Multilateral Convention after it has entered into force for both Parties, the application of the underlying Covered Tax Agreement will remain modified by the Multilateral Convention and further changes would need to be negotiated bilaterally. [Article 37(2) of the Multilateral Convention]

Administration of the Multilateral Convention

Amending or supplementing the Multilateral Convention and the Conference of the Parties

1.87 Any jurisdiction that is a Party to the Multilateral Convention can propose an amendment by submitting the amendment to the Depositary and a Conference of the Parties may be convened to consider the amendment. [Article 33 of the Multilateral Convention]

1.88 The Conference of the Parties is not restricted to considering proposed amendments. It can be convened by any Party to the Multilateral Convention for purposes of making any decision or exercising functions that are required or appropriate under the Multilateral Convention. [Article 31(1) of the Multilateral Convention]

1.89 Any party to the Multilateral Convention may request a Conference of the Parties by communicating the request to the Depositary, which serves the Conference of the Parties. [Articles 31(2) and (3) of the Multilateral Convention]

1.90 The Depositary must convene a Conference of the Parties if, within six months of the Depositary communicating to the Parties to the Multilateral Convention the request, one-third of the Parties supports the request. [Article 31(3) of the Multilateral Convention]

1.91 The Multilateral Convention may be supplemented by protocols. [Article 38(1) of the Multilateral Convention]

1.92 Being a Party to the Multilateral Convention does not automatically bind the Party to also be a Party to a protocol. The Party would need to become a Party to the protocol in accordance with its provisions. To be a Party to the protocol, the jurisdiction must be a Party to the Multilateral Convention. [Articles 38(2) and (3) of the Multilateral Convention]

Role of the Depositary

1.93 The Secretary-General of the OECD as Depositary of the Multilateral Convention and its protocols (if any) must notify the Parties and Signatories within one month of any communication related to the Multilateral Convention. [Articles 39(1) and (2) of the Multilateral Convention]

1.94 This includes any communication received by the Depositary in respect of reservations, notifications or withdrawals.

1.95 The Depositary must also maintain a publically available list of Covered Tax Agreements and reservations and/or notifications made by the Parties to the Multilateral Convention. [Article 39(3) of the Multilateral Convention]

1.96 Those lists can be found on the OECD website (http://www.oecd.org).

Consequential amendments

1.97 This Bill inserts the definition of Multilateral Convention into the Tax Agreements Act. [Schedule 1, item 1, subsection 3AAA(1) of the Tax Agreements Act]

Other technical amendments

1.98 The German agreement was given force of law under the Tax Agreements Act in 2016. This Bill inserts a note containing the Australian Treaty Series citation for that German agreement. [Schedule 1, item 3, definition of 'German agreement' in subsection 3AAA(1) of Tax Agreements Act]

Application and transitional provisions

1.99 The Multilateral Convention affects the application in Australia of its Covered Tax Agreements with respect to:

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withholding taxes - for amounts paid or deemed to be paid on or after 1 January occurring on or after the later date of entry into force of the Multilateral Convention for Australia and each of its relevant partner jurisdictions;

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other taxes - for taxable periods beginning on or after six months after the later date of entry into force of the Multilateral Convention for Australia and each of its relevant partner jurisdictions.

[Article 35(1) of the Multilateral Convention]

1.100 Article 35 also provides a jurisdiction with the ability to customise the entry into effect periods for its Covered Tax Agreements by making a reservation. Australia did not provisionally make any such reservation as the result of adopting Article 35 without reservation is consistent with Australia's treaty practice.

1.101 The mutual agreement procedure in Article 16 of the Multilateral Convention will have effect for cases presented to the competent authority of Australia or the competent authority of the relevant partner jurisdiction where they are presented on or after the later date of entry into force of the Multilateral Convention for Australia and the relevant partner jurisdiction. This will not apply for cases that are not eligible to be presented at that date. [Article 35(4) of the Multilateral Convention]

1.102 This entry into effect provision for Article 16 does not apply where a party has made the reservation in Article 35(6). Australia did not provisionally make this reservation. [Article 35(6) of the Multilateral Convention]

1.103 The application provisions in respect of the arbitration rules of the Multilateral Convention (Articles 18 to 26) are discussed in Chapter 6 below.

1.104 If Australia or one of its partner jurisdictions to a Covered Tax Agreement withdraws or replaces a reservation that it had previously made, the withdrawal or replacement is effective when the notification is received by the Depositary for a reservation in respect of:

•

withholding taxes - for amounts paid or deemed to be paid on or after 1 January of the following year that occurs six months after the notification is communicated by the Depositary to all Parties and Signatories of the Multilateral Convention;

•

other taxes - for taxable periods beginning on or after 1 January of the following year that occurs six months after the notification is communicated by the Depositary to all Parties and Signatories of the Multilateral Convention.

[Article 28(9)(a) of the Multilateral Convention]

1.105 However, if the Depositary receives such a notification prior to Australia or its bilateral agreement partner becoming a Party to the Multilateral Convention, then the withdrawal or replacement of the notification is effective on the later date of entry into force of the Multilateral Convention for Australia and its partner jurisdiction. [Article 28(9)(b) of the Multilateral Convention]

1.106 If Australia or its relevant partner jurisdiction to a Covered Tax Agreement provides an additional notification under Article 29(6) of the Multilateral Convention, including as a result of withdrawing or replacing a reservation, the additional notification is effective according to the same timeframes as provided in Article 28(9) (i.e. withdrawing or replacing a reservation). [Article 29(6) of the Multilateral Convention]

When does the Multilateral Convention enter into force for Australia?

1.107 The Multilateral Convention enters into force for Australia on the first day of the month following three months after the date of deposit of Australia's instrument of ratification. [Article 34(2) of the Multilateral Convention]

1.108 However, if Australia is one of the first five countries to deposit an instrument of ratification then the Multilateral Convention enters into force on the first day of the month following three months after the date of deposit of the fifth instrument of ratification. [Article 34(1) of the Multilateral Convention]

When does the Multilateral Convention start to modify the application of a Covered Tax Agreement?

1.109 The date on which the provisions of the Multilateral Convention take effect to modify the application of Australia's Covered Tax Agreements is contingent upon the completion by Australia's partner jurisdictions of their domestic ratification processes. This means that the date of effect of the Multilateral Conventional on each of Australia's Covered Tax Agreements will vary.