House of Representatives

Explanatory Memorandum

(Circulated by authority of the Treasurer, the Hon Peter Costello, MP)

Chapter 2 - Amending protocol to the agreement with Malaysia

What is the Protocol?

2.1 The Protocol, once in force, will amend the Agreement between the Government of Australia and the Government of Malaysia for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income of 20 August 1980 (1980 Agreement).

Why is the Protocol necessary?

The 1980 Agreement

2.2 The 1980 Agreement is a comprehensive taxation agreement between Australia and Malaysia. So far as Australia is concerned, the main impact of the 1980 Agreement has been on Australian enterprises investing in and trading with Malaysia. It has generally assisted in improving the bilateral framework for investment and trade with Malaysia.

The Protocol and the related exchange of Letters generally

2.3 The 1980 Agreement contains tax sparing provisions (Article 23) which reflect Australia's undertaking to provide tax sparing for certain business and non-business income tax incentives provided by Malaysia under its investment promotion measures. It provided for the tax sparing provisions to apply for an initial 5 year period (which expired at the end of the 1983-1984 year of income) and for that period to be extended for any further period that may be agreed by the respective Governments in an exchange of Letters for that purpose.

2.4 Tax sparing occurs where the tax forgone by a country in providing certain tax concessions to Australian investors is deemed to have been paid for the purposes of Australia's foreign tax credit system. In the absence of tax sparing, such concessions may, in some circumstances, be negated by Australia's foreign tax credit system which `tops up' foreign taxes paid to the level of tax that would be due on an equivalent amount of domestic income.

2.5 In 1986 the Malaysian Government introduced some new tax incentives in its tax incentive legislation. In accordance with the mechanism provided for in the 1980 Agreement, Australia and Malaysia have agreed to exchange Letters that will ensure the tax sparing provisions in the 1980 Agreement reflect the changes made to the Malaysian tax incentive legislation. The Letters will also extend the operation of the tax sparing provisions in the 1980 Agreement for a further 3 income years (i.e. generally from 1July1984 to 30June1987).

2.6 The exchange of Letters under the 1980 Agreement extending the application to 30June1987 of the existing tax sparing provisions of that Agreement, has not yet taken place. Entry into force will be on the date of exchange, which is proposed by the end of 1999.

2.7 Amendments contained in the Protocol will operate to provide new tax sparing arrangements in relation to certain designated development incentives provided by Malaysia for an additional 5 year period (i.e. generally from 1July1987 to 30June1992).

2.8 The Protocol will also overcome the double taxation currently facing some Australian residents who are in receipt of fees for technical services paid by Malaysian residents with effect from the 1993-1994 income year. It has been agreed that the Business Income or Profits article of the 1980 Agreement should apply to the taxation of fees for the furnishing of services, including consultancy services, so that taxing rights in relation to such income are allocated to the country in which the services are utilised only where the services are furnished in that country and the provider of the services has a `fixed presence' in that country of more than 3 months within any 12 month period. This has been achieved by adding an additional clause to the existing permanent establishment definition of the 1980 Agreement and is of most benefit to those Australian businesses providing services to Malaysian firms direct from Australia.

2.9 In addition, the Protocol updates the 1980 Agreement in a number of respects to bring it into line with Australia's current law and treaty policies and practices. These updates include:

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changes to the definitions of Australia , Malaysia , and land ; and

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the insertion of provisions dealing with business profits derived via trusts, interest derived on the investment of a Government's official reserves or by a bank performing central banking functions; and

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the allowance of tax credits for the underlying tax (i.e. the tax paid on the profits out of which dividends are paid) paid in respect of non-portfolio dividends (i.e. where the dividend recipient owns at least 10% of the voting shares in the paying company).

The Protocol also substitutes more extensive provisions dealing with the alienation of property.

Main features of the Protocol

2.10 The Protocol makes a number of amendments to the 1980 Agreement.

2.11 It overcomes the double taxation situation currently facing Australian residents who are in receipt of fees for technical services paid by Malaysian residents. Malaysia has accepted Australia's position that the Business Income or Profits article of the 1980 Agreement should apply to the taxation of fees for the furnishing of services, including consultancy services, so that taxing rights in relation to such income are allocated to the country in which the services are utilised only where the services are furnished in that country and the provider of the services has a `fixed presence' in that country of more than 3 months within any 12 month period. The Entry into force article of the Protocol provides for this provision to have effect from the 1993-1994 year of income. [Article 2]

2.12 Another feature is the extension of tax sparing relief to income which Malaysia exempts or taxes at a reduced rate under special incentive measures to promote economic development in Malaysia. Relevant provisions of the 1980 Agreement, which provide for such relief by treating as paid for foreign tax credit purposes tax forgone by Malaysia on certain income under specified development incentive provisions of its law, expired at the end of the 1983-1984 year of income. In accordance with the terms of the 1980 Agreement, an exchange of Letters will extend the operation of those provisions until the end of the 1986-1987 year of income, after which amendments contained in the Protocol operate to provide new tax sparing arrangements in relation to certain designated development incentives provided by Malaysia for an additional 5 year period.

2.13 Other amendments to the existing agreement with Malaysia made by the Protocol update it in line with Australia's current domestic law and tax treaty policies and practices, including:

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revised definitions of Australia and Malaysia in the General Definitions article [Article 1] ;

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a revised definition of land in the Income from Land article [Article 3] ;

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a new paragraph in the Business Income or Profits article which clarifies Australia's right to tax a share of the business profits derived by a resident of Malaysia as a beneficiary of a trust estate (other than a corporate unit trust) through which a business is carried on in Australia [Article 4] ;

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a sovereign immunity provision in the Interest article [Article5] ;

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a substitute article containing specific taxing rules in relation to income, profits or gains arising from the alienation of real property, certain business assets and some shares it also provides for capital gains arising from the alienation of other property to be taxed in accordance with the domestic law of each country [Article 6] ;

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allowance of tax credits for the underlying tax paid in respect of non-portfolio dividends [Article 9] ; and

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a most favoured nation provision which provides that if Australia should subsequently conclude an agreement with a third country granting more favourable treatment in relation to certain measures, the 2 Governments will enter into negotiations with a view to providing similar treatment to Malaysia [Article 9, paragraph 8] .

2.14 The Protocol will enter into force on the last of the dates on which the Australian and Malaysian Governments exchange notes through the diplomatic channel notifying each other that the last of such things has been done as is necessary to give the Protocol the force of law in the respective countries. That notification can only be given, in the case of Australia, after this Bill has passed through Parliament and been given Royal Assent, and the 15 day sitting rule in respect of proposed treaty actions has been satisfied. On entry into force of the Protocol, it will thereafter have effect:

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with respect to tax sparing and underlying tax credit relief generally, for the tax on income of any year of income beginning on or after 1July1987 in the case of Australia, and in respect of underlying tax credit relief for any year of assessment beginning on or after 1January1988 in the case of Malaysia [Article 10, sub-paragraphs 1(a)(i) and 1(b)(i)] ;

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with respect to tax sparing relief for Malaysian tax forgone in accordance with section 35 or 37 of the Promotion of Investments Act 1986 of Malaysia, for tax on income of any year of income beginning on or after 1July1985 [Article 10, sub-paragraph 1(a)(ii)] ;

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with respect to fees for the furnishing of services, for the tax on income of any year of income beginning on or after 1July1993 in the case of Australia, and for any year of assessment beginning on or after 1 January 1994 in the case of Malaysia [Article 10, sub-paragraphs 1(a)(iii) and 1(b)(ii)] ; and

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in any other case, with respect to income of any year of income beginning on or after 1July in the calendar year next following that in which the Protocol enters into force in the case of Australia, and for any year of assessment beginning on or after 1January in the second calendar year following the calendar year in which the Protocol enters into force in the case of Malaysia [Article 10, sub-paragraphs 1(a)(iv) and 1(b)(iii)] .

2.15 The entry into force provisions of the Protocol are subject, however, to a saving provision which preserves the application of the articles of the 1980 Agreement for stipulated periods where those articles would afford greater relief to a taxpayer than the 1980 Agreement as amended by the Protocol. The saving provision preserves the application of the articles of the 1980 Agreement in respect of income of any year of income (year of assessment in the case of Malaysia) beginning before the entry into force of the Protocol. [Article 10(2)]

Protocol to the 1980 Agreement

2.16 This Protocol contains a number of amendments to the 1980 Agreement. The main amendments deal with taxation of fees for technical services and tax sparing relief. Other amendments vary or extend parts of the 1980 Agreement to update it along the lines of Australia's more recently concluded comprehensive taxation agreements with other countries. The Protocol will form an integral part of the 1980 Agreement when it enters into force.

Article 1

Definitions

2.17 Article 1 of the Protocol will replace sub-paragraphs 1(a) and 1(b) of Article 3 of the 1980 Agreement with new sub-paragraphs 1(a) and 1(b) . Those sub-paragraphs set out revised definitions of Australia and Malaysia.

2.18 As with Australia's other modern taxation agreements, Australia is defined as including certain external territories and areas of the continental shelf. By reason of this definition, Australia preserves its taxing rights over mineral exploration and mining activities carried on by nonresidents on the seabed and subsoil of the relevant continental shelf areas (under section 6AA of the Income Tax Assessment Act 1936 (ITAA 1936), certain sea installations and offshore areas are to be treated as part of Australia). The definition is also relevant to the taxation by Australia of shipping profits in accordance with Article8 of the 1980 Agreement.

2.19 The revised definition of Australia will include the Territory of Heard Island and McDonald Islands. This Territory was not included in the 1980 Agreement and earlier Australian agreements, due to an oversight. The Territory was transferred to Australia from the United Kingdom on 26December1947.

Substantially similar taxes

2.20 Article 1 of the Protocol will also make a technical amendment to paragraph3 of Article3 of the 1980 Agreement.

2.21 The amendment will not disturb the basic general rule of interpretation contained in the paragraph that terms in the 1980 Agreement that are otherwise undefined have, in relation to the application of the 1980 Agreement by each country, their meaning according to the domestic law (unless the context indicates otherwise). It will merely clarify that this refers to the meaning under the domestic law as in force from time to time. This amendment will bring the 1980 Agreement into line with the current OECD Model Tax Convention on Income and on Capital and Australia's more recently negotiated agreements. Its purpose is to guard against any argument that the undefined terms be limited to the meaning they had in the respective domestic laws at the time of signature of the 1980 Agreement.

Article 2

Permanent establishments furnishing of services

2.22 Article 2 of the Protocol will amend Article 5 of the 1980 Agreement by adding new sub-paragraph 4(c) . As with certain other recently concluded tax treaties, this sub-paragraph provides that the furnishing, by an enterprise of one country, of services including consultancy services, will constitute a permanent establishment in the other country only where those activities continue (for the same or a connected project) within the latter country for a period or periods aggregating more than 3 months within any 12 month period.

2.23 As agreed by Malaysia, the effect of sub-paragraph 4(c), when combined with the operation of Article 7 of the 1980 Agreement, ensures the preservation of the business profits principle in relation to the allocation between Australia and Malaysia of taxing rights over fees derived from the furnishing of technical and consultancy services.

Article 3

Income from land definition

2.24 Article 3 of the Protocol will amend paragraph (2) of Article6 of the 1980 Agreement by replacing it with a new provision. This new provision was proposed by Australia in order to ensure source country taxing rights are retained over payments made in relation to the exploration for, or exploitation of, natural resources.

2.25 The inclusion of the words `or in respect of' in relation to natural resources are intended to ensure that Australia may tax payments which are `natural resource income' for Australian tax purposes.

2.26 Natural resource income includes payments which, unlike royalties, are based on a contractual arrangement and not on the holding of any proprietary right in the natural resources concerned. The inclusion of the words `or in respect of' therefore ensures that the definition of land includes not only payments in consideration for the right to exploit or to explore for natural resources, but also payments in relation to those resources where there is no proprietary right to explore/exploit the resources concerned. An example of a relevant payment is fees paid to a consultant geologist according to the gross value of minerals recovered from a mining site identified by the geologist.

Article 4

Business profits trust beneficiaries

2.27 This article inserts a new provision (paragraph 8) in Article 7 of the 1980 Agreement.

2.28 This provision, common to Australia's other recently negotiated comprehensive tax treaties, will clarify Australia's right to tax a share of business profits derived by a resident of Malaysia as a beneficiary of a trust estate (other than a corporate unit trust) through which a business is carried on in Australia. It confirms that such a beneficiary is subject to tax in Australia where, in accordance with the principles set out in Article 5 of the 1980 Agreement, the trustee of the relevant trust estate has a `permanent establishment' in Australia in relation to that business.

Article 5

Interest

2.29 This article makes 2 amendments to Article 11 of the 1980 Agreement.

Exemption from rate of tax

2.30 First, the words `or a long-term loan' are deleted from paragraph3 of Article 11of the 1980 Agreement to reflect the deletion of that definition from the Malaysian Income Tax Act 1967 .

Sovereign immunity

2.31 Secondly, it provides for certain interest income that would normally qualify for exemption from taxation proceedings in the country in which it is derived under the international doctrine of sovereign immunity to be exempt from tax in that country.

Article 6

Alienation of property

2.32 Article 6 of the Protocol will replace Article 13 of the 1980 Agreement which deals with the alienation of land.

2.33 The new Article 13 deals with income, profits or gains from the alienation of property and allocates taxing rights between the respective countries in relation to income, profits or gains arising from the alienation of land (as defined in revised Article 6 of the 1980 Agreement) and other items of property.

Taxing rights

2.34 By virtue of paragraph 1, income, profits or gains from the alienation of land may be taxed by the country in which the land is situated. The definition of land and the situs rule for such property contained in revised Article 6 of the 1980 Agreement apply for purposes of this paragraph.

Permanent establishments

2.35 Paragraph 2 deals with income, profits or gains arising from the alienation of property (other than land covered by paragraph 1) forming part of the business assets of a permanent establishment of an enterprise. It also applies where the permanent establishment (alone or with the whole enterprise) is alienated. Such income, profits or gains may be taxed in the country in which the permanent establishment is situated. That treatment corresponds to the rules for taxing business profits contained in Article 7 of the 1980 Agreement.

Ships or aircraft

2.36 Paragraph 3 specifies that income, profits or gains from the alienation of ships or aircraft operated in international traffic, or associated property (other than land covered by paragraph 1) is taxable only in the country of residence of the operator of the ships or aircraft. This rule corresponds to the taxing rights allocated in Article 8 of the 1980 Agreement (i.e. that profits from the operation of ships or aircraft in international traffic are to be taxed only by the country of residence of the operator).

Shares and other interests in land-rich entities

2.37 Paragraph 4 provides that the Alienation of Property article extends to cover alienation of shares or other interests in companies, and other entities, whose assets consist principally of land (as defined in Article6) which is situated in the other country (again, in the terms of Article6).

2.38 This is to be the case whether the real property is held directly or indirectly through a chain of interposed entities. While not limited to chains of companies, or even chains of entities only some of which are companies, the example of chains of companies is used to make clear that the corporate veil should be lifted in examining direct or indirect ownership.

2.39 This provision responds to the tax planning opportunities exposed by the decision of the Full Federal Court in Commissioner of Taxation v. Lamesa Holdings BV (1997)
77 FCR 597 . It is designed to protect Australian taxing rights over income, profits or gains on the alienation or effective alienation of Australian land (as defined) despite the presence of interposed bodies corporate or other entities.

Capital gains

2.40 Paragraph 5 is a sweep-up provision which enables each country to tax, according to its domestic law, any gains of a capital nature derived by a resident of the other country from the alienation of any property not specified in the other paragraphs of this article. It thus preserves the application of Australia's domestic law rules in relation to the taxation of capital gains as regards the alienation of such property.

2.41 Income, profits or gains from the alienation of property that fall within the scope of this article are not affected by the `business profits' provisions of Article 7 of the 1980 Agreement. In the event that the operation of new Article 13 should result in an item of income, profit or gain being subjected to tax in both countries, the country in which the person deriving the income, profit or gain is a resident (as determined in accordance with Article 4 of the 1980 Agreement) would be obliged by Article23 of the 1980 Agreement to provide double tax relief for the tax imposed by the other country.

Article 7

Students and trainees

2.42 This article amends Article 20 of the 1980 Agreement by inserting `and Trainees' after `Students' in the heading and `or a trainee' after `student' in the text of the article. The exemption from tax in certain circumstances provided by the visited country to students is now extended to trainees.

Article 8

Sources of income and gains

2.43 This article amends Article 22 of the 1980 Agreement by inserting `and Gains' after `Sources of Income' in the heading and `or gains' after `income' in the first line of the text of the article. The reference to gains is to make it clear, in the case of Australia, that any capital gains derived by an Australian resident that may be taxed in the treaty partner country under the Alienation of Property article, and that are also taxable in Australia under Australian domestic law, qualify for credit relief in Australia in accordance with the double tax relief provisions of revised Article 23 of the 1980 Agreement by deeming those gains to be income derived from sources in the treaty partner country.

Article 9

Elimination of double taxation

2.44 This article will substitute in the 1980 Agreement a new Article23 which will require the country of residence of the recipient of income, profits or gains which, under the 1980 Agreement, is taxable by both countries, to provide relief from double taxation on a credit basis that is broadly consistent with the current unilateral double taxation relief provisions of each country's domestic law.

Malaysian method of relief

2.45 Paragraph 2 of new Article 23 provides for Malaysia to relieve double taxation by allowing a credit against its tax for tax paid under the law of Australia and in accordance with the 1980 Agreement on income derived by a resident of Malaysia from sources in Australia. Where a dividend is paid by an Australian resident company to a Malaysian resident company which owns 10% or more of the voting shares of the Australian company, this paragraph provides for the credit allowed by Malaysia to take into account, in addition to any Australian tax paid in respect of the dividends, the underlying Australian tax paid by the company in respect of the profits out of which the dividend is paid. The amount of credit to be allowed in Malaysia is restricted to the lesser of the Australian tax payable and the Malaysian tax applicable to the income.

Australian method of relief

2.46 Australia's general foreign tax credit system, together with the terms of the 1980 Agreement as amended by the Protocol particularly new Article 23 will thus form the basis of Australia's arrangements for relieving a resident of Australia from double taxation on income arising from sources in Malaysia. As in the case of Australia's other double taxation agreements, the source of income rules specified in Article 22 of the 1980 Agreement (as amended by the Protocol) will, for purposes of the Agreement, also apply for Australian foreign tax credit purposes.

2.47 Effect will be given to the tax credit relief obligation on Australia under paragraph 3 of new Article 23 by application of the general foreign tax credit provisions (Division 18 of Part III) of the ITAA 1936. This will include the allowance of `underlying' tax credit relief in respect of dividends paid by Malaysian resident companies to related Australian companies, including for income passing through any number of tiers of related companies, in accordance with the relevant provisions of the ITAA1936.

2.48 Notwithstanding the credit form of relief provided for by paragraph 3 of new Article 23, the exemption with progression method of relief will be applicable, as appropriate, in relation to salary and wages and like remuneration derived by a resident of Australia during a continuous period of foreign service (as defined in subsection 23AG(7) of the ITAA 1936) in Malaysia. Other foreign source income exemptions in Australia's domestic law will also continue to be applicable in respect of relevant Malaysian source income.

Correlative relief

2.49 Paragraph 4 relates to Article 9 of the 1980 Agreement, which allows reconstruction, for income tax purposes, of accounts of associated enterprises, and ensures that double taxation relief is available in those cases.

Tax sparing definition

2.50 A significant amendment by the Protocol is the extension of tax sparing relief to income which Malaysia exempts or taxes at a reduced rate under special incentive measures to promote economic development in Malaysia. Relevant provisions of the 1980 Agreement which provide for such relief by treating as paid for tax credit purposes tax forgone by Malaysia on certain income under specified development incentive provisions of its law, expired at the end of the 1983-1984 year of income. An exchange of Letters, anticipated to occur before the end of 1999 will extend the operation of these provisions until the end of the 1986-1987 year of income after which amendments contained in the Protocol will operate to provide new tax sparing arrangements in relation to certain designated development incentives provided by Malaysia for an additional 5 year period.

2.51 Sub-paragraph (a) of paragraph 5 defines the term Malaysian tax forgone for the purposes of the tax sparing credit, and sub-paragraphs (b) and (c) in effect limit the tax sparing credit for Malaysian tax, in relation to certain interest and royalties, to 10% of the gross amount of such income.

Deemed tax paid

2.52 Paragraph 6 provides that for the purposes of the tax sparing credit, Malaysian tax forgone as defined in paragraph 5 is to be treated as Malaysian tax paid.

Application of tax sparing provisions

2.53 By reason of paragraph 7, the tax sparing provisions outlined above will not apply after the end of the 1991-1992 income year unless Australia and Malaysia agree to extend them beyond that date through a further exchange of Letters.

Most favoured nation clause

2.54 Paragraph 8 contains a `most favoured nation' provision. It provides that if Australia should subsequently conclude an agreement with a third country granting more favourable treatment in relation to tax sparing credits, or the allowance of credit for the tax paid by a company on profits out of which dividends are paid to Australian companies than that extended to Malaysia, the 2 governments will enter into negotiations with a view to extending similar treatment to Malaysia.

Malaysian cinematograph film-hire duty

2.55 By paragraph 9, Australia will allow credit for the Malaysian cinematograph film-hire duty against the Australian tax payable on film rentals derived by residents of Australia from Malaysia.

Malaysian real property gains tax

2.56 Similarly, by paragraph 10, Australia will allow credit for the Malaysian real property gains tax against the Australian tax payable on relevant gains derived by residents of Australia from Malaysia.

Article 10 - Entry into force

Date of entry into effect

2.57 This article provides for the entry into force of the Protocol. The Protocol will enter into force when the notifications between the countries that the procedures necessary to give it the force of law in the respective countries have been completed.

2.58 Once it enters into force the Protocol will form an integral part of the 1980 Agreement. The Protocol will be given the force of law in Australia by new section 11FA that is to be inserted in the Agreements Act by Schedule 2 to this Bill.

Retrospective application tax sparing provisions extension to the 1991-1992 income year

2.59 Under sub-paragraph 1(a)(i) of this article, the Protocol will, on entry into force, have effect, subject to sub-paragraph 1(a)(ii), for the purposes of the tax sparing provisions of Article 9 of the Protocol in respect of tax on income of any year of income beginning on or after 1July1987 in Australia.

2.60 Under sub-paragraph 1(a)(ii) of this article, to the extent that Article 9 of the Protocol has application in respect of Malaysian tax forgone in accordance with section 35 or 37 of the Promotion of Investments Act 1986 of Malaysia, the Protocol will have effect in respect of tax on income of any year of income beginning on or after 1July1985.

2.61 Australian taxpayers who have received the benefit of the relevant Malaysian tax sparing concessions during the years referred to in paragraphs 2.59 and 2.60, may request a foreign tax credit determination or amended determination from the Commissioner of Taxation (the Commissioner) once the Protocol enters into force, to claim the relevant Malaysian tax forgone as a foreign tax credit.

Retrospective application underlying tax credit relief

2.62 Sub-paragraphs 1(a)(i) and 1(b)(i) of Article 10 will also operate so that the Protocol will have effect, on its entry into force, for the purposes of underlying tax credit relief in respect of tax on income of the 1987-1988 and subsequent years of income in the case of Australia and in respect of tax for any year of assessment beginning on or after 1 January 1988 in the case of Malaysia.

2.63 In the case of Australia, the domestic underlying tax credit provisions would be applicable in any event.

Retrospective application fees for technical services provisions

2.64 Under sub-paragraph 1(a)(iii) of Article 10, the Protocol will have effect for the purposes of sub-paragraph (c) of Article 2 of the Protocol, in respect of tax on income of any year of income beginning on or after 1July1993 in Australia (and by virtue of sub-paragraph 2(b)(ii), in respect of Malaysian tax for any year of assessment beginning on or after 1January1994). Sub-paragraph (c) of Article 2 of the Protocol amends Article 5 of the 1980 Agreement by adding new sub-paragraph(c) to paragraph 4 of Article 5.

2.65 Australian taxpayers who have experienced unrelieved double taxation in respect of technical service fee income will be able, upon entry into force of the Protocol, to seek refunds from the Malaysian authorities of the previously withheld Malaysian tax on such income for the income years concerned in situations where new sub-paragraph4(c) of Article 5 of the 1980 Agreement does not deem those taxpayers to have a permanent establishment in Malaysia.

2.66 Australian taxpayers who are deemed to have a permanent establishment in Malaysia by virtue of new sub-paragraph 4(c) of Article5 will, upon entry into force of the Protocol, be able to lodge a claim with the Commissioner for a foreign tax credit for the previously withheld Malaysian tax against the Australian tax payable on the Malaysian sourced income for the income years concerned.

Other income

2.67 In respect of other income, the Protocol will have effect in Australia by virtue of sub-paragraph 1(a)(iv), in relation to income of any year of income beginning on or after 1July in the calendar year next following that in which the Protocol enters into force. It will have effect in respect of Malaysian tax by virtue of sub-paragraph 1(b)(iii), for any year of assessment beginning on or after 1January in the second calendar year following the calendar year in which the Protocol enters into force.

Transitional provisions

2.68 Paragraph 2 of the article will protect the rights of taxpayers in the transition from the unamended 1980 Agreement to that Agreement as amended by the Protocol. Where any provision of the 1980 Agreement that is affected by the Protocol affords greater relief from tax than the corresponding provision of the Agreement as amended by the Protocol, that provision of the 1980 Agreement is to continue to have effect in Australia in relation to such income of any year of income beginning before the Protocol enters into force, and in Malaysia for any year of assessment beginning before that date.