House of Representatives

Explanatory Memorandum

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

A. General Outline and Financial Impact

What will the Bill do?

The Bill will amend the Income Tax (International Agreements) Act 1953 (IT(IA)A) to give the force of law in Australia to three comprehensive agreements for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income. The respective agreements cover the various forms of income flows between Australia and Indonesia, Australia and Vietnam and Australia and Spain.

Who will be affected by the agreements in the Bill?

Any taxpayers who, for the purposes of the agreements, are residents of one of the two countries party to that agreement and who derive income, profits or gains from the other country that is a party to that agreement.

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 Indonesian agreement", "the Vietnamese agreement"and "the Spanish agreement" and insert new sections 11ZB, 11ZC and 11ZD which will give the force of law in Australia to those agreements.

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it will add the text of each agreement as Schedules 37, 38 and 39 respectively.

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it will repeal the airline profits agreement with India (section 11J and Schedule 19) but with a savings clause to provide that if a particular assessment of Australian tax would be affected by the repeal (eg a prior year assessment) the repeal is to be disregarded in making that assessment.

When will these changes take place?

The double taxation agreements (DTAs) will enter into force on the date of exchange of diplomatic notes between Australia and the respective treaty partner countries. 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.

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

The DTA with Indonesia 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 enters into force; and for other Australian taxes covered by the agreement, in respect of income, profits or gains of any year of income beginning on or after 1 July in the calendar year following that in which it enters into force.

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in Indonesia , 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 enters into force; and for other Indonesian taxes covered by the agreement, for taxable years beginning on or after 1 July in the calendar year following that in which it enters into force.

The DTA with Vietnam 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 enters into force; and for other Australian taxes covered by the agreement, in respect of income, profits or gains derived on or after 1 July in the calendar year following that in which it enters into force.

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in Vietnam , for taxes withheld at source, in relation to taxable amounts paid on or after 1 January following the calendar year in which the agreement enters into force; and for other Vietnamese taxes covered by the agreement, in relation to income, profits or gains arising in the calendar year following the calendar year in which the agreement enters into force and in subsequent calendar years.

The DTA with Spain will have effect:

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in Australia , for withholding tax purposes, in relation to income derived on or after 1 January in the calendar year following that in which the agreement enters into force; and for other Australian taxes covered by the agreement, in respect of income of any year of income beginning on or after 1 July in the calendar year following that in which it enters into force.

•

in Spain , 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 enters into force; and in respect of other Spanish taxes on income, in respect of taxes chargeable for the Spanish taxable year beginning on or after 1 January in the calendar year following that in which it enters into force.

The Financial Impact of the Bill

The operation of the agreements contained in this Bill is not expected to have a significant effect on revenue.