Australian Tax Treaties
Japanese Convention
CONVENTION BETWEEN AUSTRALIA AND JAPAN FOR THE AVOIDANCE OF DOUBLE TAXATION AND THE PREVENTION OF FISCAL EVASION WITH RESPECT TO TAXES ON INCOME
ARTICLE 11
Interest
(1)
Interest arising in a Contracting State and beneficially owned by a resident of the other Contracting State may be taxed in that other Contracting State.
(2)
However, such interest may also be taxed in the Contracting State in which it arises and according to the law of that Contracting State, but the tax so charged shall not exceed 10 per cent of the gross amount of the interest.
(3)
Notwithstanding the provisions of paragraph 2, interest arising in a Contracting State and beneficially owned by a resident of the other Contracting State shall not be taxed in the first-mentioned Contracting State if:
(a) the interest is derived by a Contracting State or a political subdivision or local authority thereof, by any other body exercising governmental functions in a Contracting State, or by the Bank of Japan or the Reserve Bank of Australia;
(b) the interest is derived by a financial institution which is unrelated to and dealing wholly independently with the payer. For the purpose of this Article, the term " financial institution " means a bank or other enterprise substantially deriving its profits by raising debt finance in the financial markets or taking deposits at interest and by using those funds in carrying on a business of providing finance; or
(c) the interest is derived by:
(4)
Notwithstanding the provisions of paragraph 3, interest referred to in subparagraph (b) of that paragraph may be taxed in the Contracting State in which it arises at a rate not exceeding 10 per cent of the gross amount of the interest if the interest is paid as part of an arrangement involving back-to-back loans or other arrangement that is economically equivalent and intended to have a similar effect to an arrangement involving back-to-back loans.
(5)
The term " interest " as used in this Article means income from debt-claims of every kind, whether or not secured by mortgage and whether or not carrying a right to participate in the debtor ' s profits, and in particular, interest from government securities and interest from bonds or debentures, including premiums and prizes attaching to such securities, bonds or debentures, and all other income that is subjected to the same taxation treatment as income from money lent by the tax law of the Contracting State in which the income arises. Income dealt with in Article 10 shall not be regarded as interest for the purposes of this Convention.
(6)
The provisions of paragraphs 1 and 2, subparagraph b) of paragraph 3 and paragraph 4 shall not apply if the beneficial owner of the interest, being a resident of a Contracting State, carries on business in the other Contracting State in which the interest arises through a permanent establishment situated therein and the debt-claims or other rights in respect of which the interest is paid is effectively connected with such permanent establishment. In such case the provisions of Article 7 shall apply.
(7)
Interest shall be deemed to arise in a Contracting State when the payer is a resident of that Contracting State for the purposes of its tax. Where, however, the person paying interest, whether such person is a resident of a Contracting State or not, has in a Contracting State or a state other than the Contracting States a permanent establishment in connection with which the indebtedness on which the interest is paid were incurred, and such interest is borne by such permanent establishment, then:
(a) if the permanent establishment is situated in a Contracting State, such interest shall be deemed to arise in that Contracting State; and
(b) if the permanent establishment is situated in a state other than the Contracting States, such interest shall not be deemed to arise in either Contracting State.
(8)
Where, by reason of a special relationship between the payer and the beneficial owner of the interest, or between both of them and some other person, the amount of the interest, having regard to the debt-claims or other rights for which it is paid, exceeds the amount which might have been expected to have been agreed upon by the payer and the beneficial owner in the absence of such relationship, the provisions of this Article shall apply only to the last-mentioned amount. In such case, the excess part of the payments shall remain taxable according to the law of each Contracting State, due regard being had to the other provisions of this Convention.
(9)
A resident of a Contracting State shall not be considered the beneficial owner of the interest arising in the other Contracting State in respect of a debt-claim or other right if such debt-claim or other right might not have been expected to have been established unless a person:
(a) that is not entitled to benefits with respect to the interest arising in that other Contracting State which are equivalent to, or more favourable than, those available under this Convention to a resident of the first-mentioned Contracting State; and
(b) that is not a resident of either Contracting State,
(10)
No relief shall be available under this Article if it was the main purpose or one of the main purposes of any person concerned with the assignment of the interest, the creation or assignment of the debt-claim or other rights in respect of which the interest is paid, or the establishment, acquisition or maintenance of the company which is the beneficial owner of the interest or the conduct of its operations to take advantage of this Article.
The Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (the MLI) has modified the application of this tax treaty. A synthesised text of the MLI and this tax treaty is available to facilitate the understanding of how the MLI modifies this tax treaty.
Interest arising in a Contracting State and beneficially owned by a resident of the other Contracting State may be taxed in that other Contracting State.
(2)
However, such interest may also be taxed in the Contracting State in which it arises and according to the law of that Contracting State, but the tax so charged shall not exceed 10 per cent of the gross amount of the interest.
(3)
Notwithstanding the provisions of paragraph 2, interest arising in a Contracting State and beneficially owned by a resident of the other Contracting State shall not be taxed in the first-mentioned Contracting State if:
(a) the interest is derived by a Contracting State or a political subdivision or local authority thereof, by any other body exercising governmental functions in a Contracting State, or by the Bank of Japan or the Reserve Bank of Australia;
(b) the interest is derived by a financial institution which is unrelated to and dealing wholly independently with the payer. For the purpose of this Article, the term " financial institution " means a bank or other enterprise substantially deriving its profits by raising debt finance in the financial markets or taking deposits at interest and by using those funds in carrying on a business of providing finance; or
(c) the interest is derived by:
(i) in the case of Japan, the Japan Bank for International Cooperation, or the Nippon Export and Investment Insurance;
(ii) in the case of Australia, the Export Finance and Insurance Corporation, or a public authority that manages the investments of the Future Fund; and
(iii) any similar institution as may be agreed upon from time to time between the Governments of the Contracting States through an exchange of diplomatic notes.
(4)
Notwithstanding the provisions of paragraph 3, interest referred to in subparagraph (b) of that paragraph may be taxed in the Contracting State in which it arises at a rate not exceeding 10 per cent of the gross amount of the interest if the interest is paid as part of an arrangement involving back-to-back loans or other arrangement that is economically equivalent and intended to have a similar effect to an arrangement involving back-to-back loans.
(5)
The term " interest " as used in this Article means income from debt-claims of every kind, whether or not secured by mortgage and whether or not carrying a right to participate in the debtor ' s profits, and in particular, interest from government securities and interest from bonds or debentures, including premiums and prizes attaching to such securities, bonds or debentures, and all other income that is subjected to the same taxation treatment as income from money lent by the tax law of the Contracting State in which the income arises. Income dealt with in Article 10 shall not be regarded as interest for the purposes of this Convention.
(6)
The provisions of paragraphs 1 and 2, subparagraph b) of paragraph 3 and paragraph 4 shall not apply if the beneficial owner of the interest, being a resident of a Contracting State, carries on business in the other Contracting State in which the interest arises through a permanent establishment situated therein and the debt-claims or other rights in respect of which the interest is paid is effectively connected with such permanent establishment. In such case the provisions of Article 7 shall apply.
(7)
Interest shall be deemed to arise in a Contracting State when the payer is a resident of that Contracting State for the purposes of its tax. Where, however, the person paying interest, whether such person is a resident of a Contracting State or not, has in a Contracting State or a state other than the Contracting States a permanent establishment in connection with which the indebtedness on which the interest is paid were incurred, and such interest is borne by such permanent establishment, then:
(a) if the permanent establishment is situated in a Contracting State, such interest shall be deemed to arise in that Contracting State; and
(b) if the permanent establishment is situated in a state other than the Contracting States, such interest shall not be deemed to arise in either Contracting State.
(8)
Where, by reason of a special relationship between the payer and the beneficial owner of the interest, or between both of them and some other person, the amount of the interest, having regard to the debt-claims or other rights for which it is paid, exceeds the amount which might have been expected to have been agreed upon by the payer and the beneficial owner in the absence of such relationship, the provisions of this Article shall apply only to the last-mentioned amount. In such case, the excess part of the payments shall remain taxable according to the law of each Contracting State, due regard being had to the other provisions of this Convention.
(9)
A resident of a Contracting State shall not be considered the beneficial owner of the interest arising in the other Contracting State in respect of a debt-claim or other right if such debt-claim or other right might not have been expected to have been established unless a person:
(a) that is not entitled to benefits with respect to the interest arising in that other Contracting State which are equivalent to, or more favourable than, those available under this Convention to a resident of the first-mentioned Contracting State; and
(b) that is not a resident of either Contracting State,
owned an equivalent debt-claim or other right against the first-mentioned resident.
(10)
No relief shall be available under this Article if it was the main purpose or one of the main purposes of any person concerned with the assignment of the interest, the creation or assignment of the debt-claim or other rights in respect of which the interest is paid, or the establishment, acquisition or maintenance of the company which is the beneficial owner of the interest or the conduct of its operations to take advantage of this Article.
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