House of Representatives

Explanatory Memorandum

(Circulated by authority of the Treasurer, the Hon. John Howard, 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 Malaysia and Australia and Sweden which were signed in Canberra on 20 August 1980 and 14 January 1981 respectively.

The Bill also specifies that interest and royalties derived from Malaysia or Sweden by residents of Australia, and in respect of which, under the agreements, those countries are required to limit their tax (to 15 per cent in the case of Malaysia and to 10 per cent in the case of Sweden) 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 this income.

As a transitional measure, because the agreement with Malaysia is expressed to have effect from a date prior to its signature, provision is made to the effect that Australian residents deriving interest or royalties from Malaysia will not be disadvantaged by the change in the method of relieving double taxation of such income effected by the agreement, in respect of income derived up to and including the date of signature of the agreement. A similar provision is not necessary in relation to the Swedish agreement since it first takes effect subsequent to the date of its signature.

The 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 main features of the arrangements with the two countries are as follows: