House of Representatives

Explanatory Memorandum

(Circulated by authority of the Treasurer,the Hon. John Kerin, M.P.)

D. THE STRUCTURE OF THE BILL

In what way does the Bill change the Act?

The Bill will make the following changes to the IT(IA)A:

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it will insert in subsection 3(1) definitions of "the Indian agreement" and "the Polish agreement" and insert new sections 11Z and 11ZA which will give the force of law in Australia to those agreements.

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new section 11ZA includes a subsection to ensure that the "source" rules for interest and royalties income contained in paragraph 5 of Articles 11 and 12 respectively of the Polish agreement will not have the unintended technical effect of subjecting to Australian tax interest or royalties paid by an Australian resident to a Polish resident where the interest or royalties are an outgoing incurred by the Australian resident in carrying on a business in a third country. Such interest or royalties would not be subject to tax under the provisions of the Australian income tax law (sections 128B and 6C of the ITAA) or, in corresponding circumstances, under any of Australia's other comprehensive double taxation agreements.

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it will add the text of the respective agreements as Schedules 35 and 36.

When will these changes take place?

The DTA with India will enter into force on the date of exchange of diplomatic notes between Australia and India. Such diplomatic notes will formally advise that all the requirements necessary to give the DTAs the force of law in each country have been finalised. The DTA with Poland will enter into force on the date of exchange of instruments of ratification.

When the agreements enter into force from what date will they have effect?

The DTA with India will have effect:

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in Australia, for withholding tax purposes, in respect of income derived on or after 1 July in the calendar year next following that in which the agreement is ratified; and for other Australian taxes in respect of income, profits or gains of any year of income beginning on or after 1 July in the calendar year next following that in which the agreement is ratified.

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in India, for all Indian taxes (including tax withheld at source) in respect of income, profits or gains of any year of income beginning on or after 1 April in the calendar year next following that in which the agreement enters into force.

The DTA with Poland will have effect:

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in Australia, for withholding tax purposes, in respect of income derived on or after 1 January in the calendar year next following that in which the agreement is ratified; and for other Australian taxes, in relation to income, profits or gains or any year of income beginning on or after 1 July in the calendar year next following that in which the agreement is ratified.

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in Poland, for withholding tax purposes, in respect of income derived on or after 1 January in the calendar year next following that in which the agreement is ratified; and for other Polish taxes, in relation to income, profits or gains of any year of income beginning on or after 1 January in the calendar year next following that in which the agreement is ratified.