Explanatory Memorandum
(Circulated by authority of the Treasurer,the Hon. John Kerin, M.P.)C. MAIN FEATURES OF THE NEW DTAs
Under the terms of the DTAs with India and Poland:
Income from real property may be taxed in full by the country in which the property is situated. Income from real property includes natural resources royalties.
Business profits are to be generally taxed only in the country of residence of the recipient unless they are derived by a resident of one country through a branch or other prescribed "permanent establishment" in the other country, in which case that other country may tax the profits.
Profits from international operations of ships and aircraft may be taxed only in the country of residence of the operator.
Dividends, interest and royalties may generally be taxed in both countries, but there are general limits on the tax that the source country may charge on dividends, interest and royalties flowing to residents of the other country. These limits are, in the case of the DTA with Poland, 15 per cent for dividends and 10 per cent for interest and royalties. In the case of the DTA with India, the limits are 15 per cent for dividends and interest and split rates of 10/15/20 per cent for royalties. Royalties are given an extended meaning in both DTAs and in the case of the DTA with India includes fees for the rendering of certain technical or consultancy services.
Income, profits or gains from the alienation of property may be taxed in full by the country in which the property is situated. Subject to that rule and other specific rules in relation to business assets and some shares, capital gains are to be taxed in accordance with the domestic law of each country.
Income from professional services and other similar activities will generally be taxed only in the country of residence of the recipient. However, remuneration derived by a resident of one country in respect of professional services rendered in the other country may, in certain circumstances such as where derived through a fixed base thereof the person concerned, be taxed in the latter country.
Income from dependent personal services that is, employee's remuneration, will generally be taxable in the country where the services are performed. However, where the services are performed during a short visit to one country by a resident of the other country the income will be generally exempt in the country visited.
Government service remuneration will generally be taxed only in the country for which government services are rendered.
Directors' fees and similar payments may be taxed in the country of residence of the paying company.
Income derived by public entertainers may generally be taxed by the country in which the activities are performed.
Pensions and annuities (including government service pensions in the case of the Polish DTA) may be taxed only in the country of residence of the recipient. The India DTA, however, provides for Government service pensions to be generally taxed only by the country for which the services were rendered.
Income of visiting students will be exempt from tax in the country visited so far as concerns payments made from abroad for the purposes of their maintenance or eduction. A similar rule applies under the Indian DTA for visiting trainees.
Income of visiting professors and teachers derived during a visit to the other country of up to two years duration for the sole purpose of teaching or carrying out advance study or research at an educational institution will normally be taxed only in the country of residence of the recipient.
Profits of associated enterprises may be taxed on the basis of dealings at arm's length.
Exchange of information and consultation between the relevant taxation authorities is authorised by the respective DTAs.
Dual residents i.e., for each agreement persons (including companies) who are residents of both Australia and the other country according to the domestic law of each country, are, in accordance with specified criteria, to be treated for the purposes of the agreement, as being residents of only one country.
Source rules are prescribed in each agreement to the effect that income, profits or gains derived by a resident of one country which, under provisions of the agreement may be taxed in the other country, shall be treated as being sourced in the latter country.
Double taxation relief for income taxable by both countries is to be provided by the country of residence under each agreement as follows:-
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- in Australia , by allowing a credit for the Indian or Polish tax against Australian tax paid on income derived by a resident of Australia from sources in the other country. In the case of certain dividend payments from a company resident in the other country to a related Australian resident company, the Indian or Polish tax to be credited by Australia includes the "underlying" tax paid in respect of the profits out of which the dividend is paid.
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- tax sparing credit relief is to be provided by Australia in relation to income derived by a resident of Australia from India which has benefited from specified development incentives provided by India. Australia will provide 'tax sparing' by granting a credit against the Australian tax payable in respect of that income for the Indian tax forgone under those development incentives as if that tax had been paid.
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- in Poland , under the terms of that particular DTA, Poland will allow a deduction (effectively a credit) against Polish tax for the Australian tax paid on income which under the agreement may be taxed in Australia.
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- in India , under the terms of that particular DTA, India will allow a credit against Indian tax for the Australian tax paid on income, profits or gains derived by residents of India from sources in Australia.