House of Representatives

Explanatory Memorandum

(Circulated by authority of the Treasurer, the Hon. P.J. Keating, M.P.)

General outline

The main purpose of this Bill is to give the force of law in Australia to comprehensive double taxation agreements between Australia and the United States of America (a revised convention), Ireland, the Republic of Italy, the Republic of Korea and the Kingdom of Norway, and to an agreement limited to the taxation of profits from internatinal air transport with the Republic of India. These agreements were signed as follows:

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revised convention with the U.S.A. signed in Sydney on 6 August 1982;

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agreement with Ireland signed in Canberra on 31 May 1983;

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convention with Italy signed in Canberra on 14 December 1982;

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convention with Korea signed in Canberra on 12 July 1982;

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convention with Norway signed in Canberra on 6 May 1982;

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airline profits agreement with India signed in Canberra on 31 May 1983.

The Bill also specifies that interest and royalties derived by residents of Australia, in respect of which, under the above-mentioned comprehensive agreements, the countries concerned are required to limit their tax to 10 per cent (15 per cent in the case of Korea) will not, by reason of the payment of that limited tax, be exempt from Australian tax. Australia will instead allow credit for the limited tax against the Australian tax on that income.

As a transitional measure, because the agreements with Italy, Korea and Norway will have effect from dates prior to their signature, provision is made to the effect that Australian residents deriving interest or royalties from these countries will not be disadvantaged by the application of the agreements, and of the credit rather than the exemption method of double taxation relief, in respect of such income derived up to and including the date of signature of the relevant agreement.

The comprehensive agreements set out the basis on which, and the extent to which, income derived in one country by residents of the other is to be taxed in each country and the basis on which relief from double taxation is to be effected where income may be taxed by both countries.

The airline profits agreement with India provides that the right to tax profits from the operation of aircraft in international traffic is granted solely to the country in which the airline operator has its place of effective management. The practical effect of this agreement is that Qantas will be exempt from Indian income taxes on its profits from international traffic, and Air India will be exempt from Australian tax on such income. This agreement corresponds with similar agreements Australia has with France, Italy, and Greece.