Australian Tax Treaties

Malaysian Agreement  

Malaysian Protocol (No 1)  

ARTICLE 9  
Article 23 of the Agreement is deleted and substituted with the following:

" ARTICLE 23 Methods of Elimination of Double Taxation  

1.
The laws in force in each of the Contracting States shall continue to govern the taxation of income in that Contracting State except where provision to the contrary is made in this Agreement. Where income is subject to tax in both Contracting States, relief from double taxation shall be given in accordance with the following paragraphs.

2.
In the case of Malaysia, subject to the law of Malaysia regarding the allowance as a credit against Malaysian tax of tax payable in any country other than Malaysia, the amount of Australian tax payable under the law of Australia and in accordance with the provisions of this Agreement, by a resident of Malaysia in respect of income from sources within Australia shall be allowed as a credit against Malaysian tax payable in respect of that income. Where such income is a dividend paid by a company which is a resident of Australia to a company which is a resident of Malaysia and which owns not less than 10 per cent of the voting shares of the company paying the dividend, the credit shall take into account Australian tax payable by that company in respect of its income out of which the dividend is paid. The credit shall not, however, exceed that part of the Malaysian tax, as computed before the credit is given which is appropriate to such item of income.

3.

(a) Subject to the provisions of the law of Australia from time to time in force which relate to the allowance of a credit against Australian tax of tax paid in a country outside Australia (which shall not affect the general principle hereof), Malaysian tax paid under the law of Malaysia and in accordance with this Agreement, whether directly or by deduction, in respect of income derived by a person who is a resident of Australia from sources in Malaysia shall be allowed as a credit against Australian tax payable in respect of that income.

(b) Where a company which is a resident of Malaysia and is not a resident of Australia for the purposes of Australian tax pays a dividend to a company which is a resident of Australia and which controls directly or indirectly not less than 10 per cent of the voting power of the first-mentioned company, the credit referred to in subparagraph (a) shall include the Malaysian tax paid by that first-mentioned company in respect of that portion of its profits out of which the dividend is paid.

4.
Where the income or profits on which an enterprise of one of the Contracting States has been charged to tax in that Contracting State are also included in the income or profits of an enterprise of the other Contracting State as being income or profits which, because of the conditions operative between the two enterprises, might have been expected to accrue to the enterprise of that other Contracting State if the enterprises had been independent enterprises dealing at arm ' s length, the income or profits so included shall be treated for the purposes of this Article as income or profits of the enterprise of the first-mentioned Contracting State from a source in the other Contracting State and credit shall be given in accordance with this Article in respect of the extra tax chargeable in that other Contracting State as a result of the inclusion of such income or profits.

5.
For the purposes of paragraph 6, the term " Malaysian tax forgone " means -

(a) an amount which, under the laws of Malaysia and in accordance with this Agreement, would have been payable as Malaysian tax on income had that income not been exempted either wholly or partly from Malaysian tax in accordance with -

(i) Schedule 7A of the Income Tax Act 1967 of Malaysia or sections 22, 23, 29, 35 and 37 of the Promotion of Investments Act 1986 of Malaysia and section 45 of that Act to the extent that it relates to sections 21, 22, 26, or 30Q of the Investment Incentives Act 1968, so far as the sections were in force on, and have not been modified since, the date of signature of the Protocol first amending the Agreement or have been modified only in minor respects so as not to affect their general character; or

(ii) any other provisions which may subsequently be agreed in an Exchange of Letters between the Governments of the Contracting States to be of a substantially similar character;

(b) in the case of interest derived by a resident of Australia which is exempt from Malaysian tax in accordance with paragraph 3 of Article 11, the amount which, under the law of Malaysia and in accordance with this Agreement, would have been payable as Malaysian tax if the interest were interest to which paragraph 3 of Article 11 did not apply, and if the tax referred to in paragraph 2 of Article 11 were not to exceed 10 per cent of the gross amount of the interest; and

(c) in the case of royalties derived by a resident of Australia, being approved industrial royalties which are exempt from Malaysian tax in accordance with paragraph 3 of Article 12, the amount which, under the law of Malaysia and in accordance with this Agreement, would have been payable as Malaysian tax if the royalties were royalties to which paragraph 3 of Article 12 did not apply and if the tax referred to in paragraph 2 of Article 12 were not to exceed 10 per cent of the gross amount of the royalties.

6.

(a) For the purposes of subparagraph (a) or (b) of paragraph 3, Malaysian tax forgone which answers the description in subparagraph (a) of paragraph 5 shall be deemed to be Malaysian tax paid.

(b) For the purposes of subparagraph (a) of paragraph 3, Malaysian tax forgone which answers the description in subparagraph (b) or (c) of paragraph 5 shall be deemed to be Malaysian tax paid.

7.
Paragraphs 5 and 6 shall apply only in relation to income derived in any of the 5 years of income beginning with the year of income that commenced on 1 July 1987 and in any later year of income that may be agreed in an Exchange of Letters for this purpose by the Governments of the Contracting States, or their authorised representatives.

8.
If in an Agreement for the avoidance of double taxation that is subsequently made between Australia and a third State, Australia should agree -

(a) in relation to dividends that are derived by a company which is a resident of Australia from a company which is a resident of the third State, to give credit for tax paid on the profits out of which the dividends are paid on the basis of a test of beneficial ownership by the first-mentioned company of less than 10 per cent of the paid-up share capital of the second-mentioned company; or

(b) to give relief from Australian tax of the kind that is provided for in relation to Malaysia in paragraphs 5 and 6, on a basis that, other than in minor respects, is more favourable in relation to the third State than that so provided for,

the Government of Australia shall immediately inform the Government of Malaysia and shall enter into negotiations with the Government of Malaysia with a view to providing treatment in relation to Malaysia comparable with that provided in relation to that third State.

9.
Where royalties derived by a resident of Australia are, as film rentals, subject to the cinematograph film-hire duty in Malaysia, that duty shall, for the purposes of subparagraph (a) of paragraph 3, be deemed to be Malaysian tax.

10.
Where gains derived by a resident of Australia are subject to real property gains tax in Malaysia, that tax shall, for the purposes of subparagraph 3(a), be deemed to be Malaysian tax. "