2.253 Paragraph 4 applies to situations involving the alienation of shares or other comparable interests that derive more than 50 per cent of their value directly or indirectly from real property situated in the other country. Chilly Bin Co operates a call centre which provides similar support for a number of companies as well as Esky Co. For a period of twelve months, the employees of Chilly Bin Co provide technical support to various clients of Esky Co. at least 80percent of the value of beneficial interests in the managed investment trust is owned by Australian residents, the managed investment trust shall be treated as an individual resident of Australia and as the beneficial owner of all the income it receives. [Article 24, subparagraph 5f)]. 2.291 The term pension refers to periodic payments and does not include lump sum payments. [Article 13, paragraph 4], 2.255 This Article contains a sweep-up provision which reserves the right to tax any capital gains from the alienation of other types of property to the country of which the person deriving the gains is a resident. This exemption in both countries, however, does not apply to payments of portable New Zealand superannuation, portable veterans pensions or equivalent portable payments arising in New Zealand. In these circumstances, payments from abroad received by the students or business apprentices solely for their maintenance, education or training will be exempt from tax in the country visited. 2.170 Each country has the right to apply its domestic law relating to the determination of the tax liability of a person (for example, Australias Division 13 of Part III of the ITAA 1936) to enterprises, including in cases where the available information is inadequate, provided that such provisions are applied, so far as it is practicable to do so, consistently with the principles of the Article. Thus for example, if New Zealand agreed in a future treaty to grant an interest withholding tax exemption for financial institutions, without a requirement that AIL be paid, or agreed to a withholding tax rate limit lower than 10 per cent in the event AIL was not paid, New Zealand would be obliged to negotiate with Australia to provide similar outcomes for Australian financial institutions. These rules also apply to business trusts [Article7]. [Article 1]. In the Australian context, this also means, for example, that Norfolk Island residents, who are generally subject to Australian tax on Australian source income only, are not residents of Australia for the purposes of the Convention. To avoid difficulties in such cases of ascertaining which country a directors services are performed, and consequently where the remuneration is to be taxed, the Article provides that directors fees may be taxed in the country of residence of the company. [Article 30, sub-subparagraph 1b)(i)], 2.431 The Convention will first apply to New Zealand taxes as regards any year of income beginning on or after 1 April next following the date on which the Convention enters into force. Certain income derived by residents of Jersey from government service in Australia will be exempt from Australian tax. 5.26 Both countries have particular policy objectives to achieve in updating the tax treaty and the end result ultimately represents compromises necessary to achieve a mutually acceptable agreement. [Article 18, paragraph 3], 2.296 Salary and wage type income, other than government service pensions, paid to an individual for services rendered to a government (including a political subdivision or local authority) of one of the countries, is to be taxed only in that country. Due to the nature of New Zealands banking sector it was necessary for New Zealand to maintain payment of this levy in order for a zero withholding tax rate to apply. 5.91 The Convention makes provision for review of the treaty. 2) 2009, (Circulated by the authority of the Treasurer, the Hon Wayne Swan MP), Glossary.. 5, General outline and financial impact. 7, Chapter 1 Dual listed company arrangement 17, Chapter 2 The AustraliaNewZealand Convention 21, Chapter 3 The Second Protocol with Belgium.. 133, Chapter 4 The Australia-Jersey Agreement 141, Chapter 5 Regulation impact statement for New Zealand and Jersey 151. While a reduction in maximum withholding tax rates and the pensions exemption involve a cost to revenue, there are expected to be benefits to revenue and to the wider economy arising out of increased business and investment activity, with the most direct benefits accruing to business. [Article 13, paragraph 7]. This provision only applies to transitional residents of NewZealand. These personnel include employees and other persons receiving instructions from the enterprise (for example, dependent agents). However, this Article does not apply in respect of income dealt with separately in: Article 17 (Entertainers and Sportspersons); 2.262 Generally, salaries, wages and similar remuneration derived by a resident of one country from an employment exercised in the other country may be taxed in that other country. This also provided an opportunity to update the text in accordance with modern OECD practice, which a second limited amending Protocol would not permit. Double tax agreements (DTAs) - ird.govt.nz Emily is seconded to the companys Christchurch branch to assist the branch staff in developing a media strategy with respect to their upcoming product launch, and is present in New Zealand for 45 days. 3.22 Article II provides for the entry into force of the Second Protocol. Where cases involve both unresolved issues of fact and other unresolved issues (for example, the interpretation to be given to a particular provision in the Convention), only the issues of fact may be resolved through arbitration. 2.20 The same outcome arises irrespective of whether the source country sees the income, profits or gains as the income, profits or gains of the entity itself or of the beneficiaries, members or participants under the tax law of that country. The existing treaty does not provide an exemption for unrelated financial institutions, and therefore in the absence of updating the existing treaty in this respect Australian borrowers often pay the cost of the withholding tax. Limits the treaty benefits that Australia is obliged to provide where income, profits or gains of transitional residents are exempted from tax in NewZealand. 2.188 Although the provisions in Article 10 would allow Australia to impose withholding tax on both franked and unfranked dividends in the specified circumstances, the dividend withholding tax exemption provided by Australia under its domestic law for franked dividends paid to nonresidents will continue to apply. 2.263 The conditions for this exemption are that: the period of the visit or visits does not exceed, in the aggregate, 183 days in any 12-month period commencing or ending in the year of income of the visited country; the remuneration is paid by, or on behalf of, an employer who is not a resident of the visited country, or is borne by or deductible in determining the profits attributable to a permanent establishment which the employer has in the home country; and. This is to take account of the fact that the same income may be regarded as derived by the entity in one country, while the other country considers that, notwithstanding that it is received by the entity, it is derived by the participants. In the case of New Zealand, it includes partnerships, complying trusts and foreign trusts. As such, the cost of such constraints is outweighed by the benefits. [Article 21, paragraph 2]. 4.36 The term arms length principle refers to the requirement that businesses price their related party international dealings according to what truly independent parties acting independently would reasonably be expected to have done in the same situation. 2.278 This Article relates to remuneration received by a resident of one country in the persons capacity as a member of a board of directors of a company which is a resident of the other country. 3.8 The standard of foreseeable relevance is intended to ensure that information may be exchanged to the widest possible extent. 2.292 In the course of negotiations, the delegations noted: It is understood that the term retirement benefits scheme means an arrangement in which the individual participates in order to secure retirement benefits. 2.89 The Convention also specifically provides that, notwithstanding any other provisions of the Convention, trusts that are managed investment trusts for Australian tax purposes and that receive income (including profits and gains) arising in NewZealand, shall be treated, for purposes of applying the Convention to that income, as an individual resident of Australia and as the beneficial owner of the income it receives, but only to the extent that residents of Australia are the owners of the beneficial interests in the managed investment trust. The treaty sets out various, cumulative criteria by which such an arrangement can be identified. In most cases involving the supply of know-how, there would generally be very little more which needs to be done by the supplier under the contract other than to supply existing information or reproduce existing material. It also promotes closer economic relations through the provisions aimed at improving the free movement of employees between the countries and by preventing tax discrimination against Australian nationals and businesses operating in New Zealand and vice versa. Partnerships and trusts are specifically included in the definition of person in subparagraph j) of paragraph 1 of Article 3 (GeneralDefinitions), however other fiscally transparent entities may also be encompassed by the term as the definition is inclusive. [Article3, subparagraph 1(d)], 4.15 National means any individual possessing the nationality or citizenship of Australia or Jersey, as the context requires. Activities will be regarded as connected where, for example, different stages of a single project are carried out by different subsidiaries within a group of companies or where the nature of the work carried on by the associated enterprises in respect of such project is the same. 2.76 A set of tie-breaker rules is included for determining how residency is to be allocated to one or other of the countries for the purposes of the Convention if a taxpayer, whether an individual, a company or other taxable unit, qualifies as a dual resident; that is, as a resident of both countries in accordance with paragraph 1 of the Article. [Article26, paragraph 1]. 2.100 The application of various provisions of the Convention (principally Article 7 (Business Profits)) is dependent upon whether a person who is a resident of one country carries on business through a permanent establishment in the other country, and if so, whether income derived by that person is attributable to, or assets of that person are effectively connected with, that permanent establishment. Such remuneration will remain subject to the provisions of Article 14 (Incomefrom Employment), Article 16 (Directors Fees) or Article 17 (Entertainers and Sportspersons). Similarly, dividends paid by a NewZealand company to an Australian company that is itself owned by one or more companies entitled to equivalent benefits under another tax treaty between the country of which that company (or those companies) were a resident and NewZealand, would also be exempt. He continues to receive his New Zealand pension. 2.180 Provision has been made to allow the competent authorities to reach agreement that other stock exchanges constitute a recognised stock exchange for the purpose of the Convention. 2.50 In the case of Australia, the competent authority is the Commissioner or an authorised representative of the Commissioner. However, such remuneration will be taxable only in the other country if the services are rendered in that other country; and, the recipient is a resident of, and a national of, that other country; or. 2.233 Payments for design, engineering or construction of plant or building, feasibility studies, component design and engineering services may generally be regarded as being in respect of a contract for services, unless there is some provision in the contract for imparting techniques and skills to the buyer. Unlike the definition in the existing New Zealand Agreement, no specific mention is made of the Cook Islands and Niue. 2.166 There is no specified limit on the amount of tax that can be charged on profits from the operation of ships and aircraft in internal traffic. 4.31 For business apprentices, this Article only applies where the apprentices remuneration consists solely of subsistence payments, made from abroad, to cover training or maintenance. 2.144 Accordingly, this Article provides that the country in which the real property is situated may impose tax on the income derived from that property by an enterprise of the other country, irrespective of whether or not that income is attributable to a permanent establishment of such an enterprise situated in the first-mentioned country. Termination is by notice in writing of termination through the diplomatic channel, at least sixmonths before the end of any calendar year beginning after the expiration of that five-year period. [Article I, paragraph 1 of new Article 26]. [Article 3, subparagraph 1(e)], 4.16 Person includes an individual, a company and any other body of persons. australia new zealand double tax agreement explanatory memorandum 2.171 Where a reallocation of profits is made (either under this Article or, by virtue of paragraph 2, under domestic law) so that the profits of an enterprise of one country are adjusted upwards, economic double taxation (that is, taxation of the same income in the hands of different persons) would arise if the profits so reallocated continued to be subject to tax in the hands of an associated enterprise in the other country. Profits of associated enterprises may be adjusted for tax purposes where transactions have been entered into on other than arms length terms [Article9]. However, subject to specified conditions, there is a conventional provision for exemption from tax in the country being visited where visits of only a short-term nature are involved. If the foreign company also has a similar set of regulatory restrictions in its home country, it becomes impossible to satisfy the requirement of the appointment of common (or almost identical) boards of directors. [Article 11, subparagraph3a)], 2.205 The exemption for interest paid to financial institutions recognises that the agreed 10 per cent rate on gross interest can be excessive given their cost of funds. This is to address situations where resident and non-resident enterprises may be carrying on the same activities but the circumstances in which they do so are very different. [Article 4, paragraph 1], 2.75 Article 4 follows the OECD Model in specifically providing that the State, or a political subdivision, or local authority of the State, are residents for the purposes of the Convention. Therefore a number of ATO information products will need to be updated. Under these treaties, residents (not necessarily citizens) of foreign countries are taxed at a reduced rate, or are exempt from U.S. taxes on certain items of income they receive from sources within the United States. It also applies where the permanent establishment itself (aloneor with the whole enterprise) is alienated. To be defined as a DLC arrangement, the DLC must have, amongst other things, common (or almost identical) boards of directors, except where the effect of relevant regulatory requirements prevents this. The Convention is Australias fourth comprehensive tax treaty with NewZealand. Presentation of a case does not deprive the person of access to, or affect their rights in relation to, other legal remedies available under the domestic laws of the countries. Accordingly, paragraph 2 of Article1 (Persons Covered) will not apply to treat the income as derived by an Australian resident for purposes of the Convention, even if New Zealand regards NZ Co as a fiscally transparent entity. This provision preserves Australias ability to tax payments that arise in Australia for the use in Australia of any part of the radiofrequency spectrum specified in an Australian spectrum licence. are agreed in an Exchange of Notes between the two Governments to be unaffected by the Article. Further, a non-resident company or individual may be entitled to tax offsets in respect of any franked dividends under Australias domestic law. Tax treaties - ird.govt.nz the shareholding giving rise to the dividends is effectively connected with a permanent establishment in the first country. in the case where an item of income is taxed in a country in the hands of an entity that is treated as fiscally transparent by the other country, and also taxed in the hands of a resident of that other country as a participant in that entity, by that other country allowing a credit of the tax imposed by the first country [Article23, paragraph3]. Under paragraph 3 of Article 23, Australia is required to give a foreign income tax offset for the New Zealand tax actually imposed on the income (that is, the net 25 per cent after a New Zealand foreign tax credit). This doesnot necessarily mean that income, profits or gains derived by thesebodies from sources in NewZealand will be subject to tax in NewZealand as sovereign immunity principles may apply. 4.27 Salary and wage type income, other than government service pensions or annuities, paid to an individual for services rendered to a government of one of the countries (including a political subdivision or local authority), is to be taxed only in that country [Article 6, subparagraph1(a)]. To avoid this result, the other country is required to make an appropriate compensatory adjustment to the amount of tax charged on the profits involved to relieve any such double taxation. Under the tax treaty between Australia and Oculum Cos country of residence, a withholding tax rate of 15percent applies for all dividends. The Convention will assist the bilateral relationship by updating an important treaty in the network of commercial treaties between the countries and provides for greater cooperation between tax authorities to prevent fiscal evasion and tax avoidance. 2.413 The requested country is permitted to refuse the request for assistance in certain circumstances. However, in the case of dividends derived by aNewZealand resident from an Australian company, no credit will be given in New Zealand for Australian tax paid in respect of profits out of which the dividend is paid. The purpose of this paragraph is to remove any possibility of double taxation of such payments arising by reason of the treatment accorded such payments under the respective domestic law of the two countries. 3.12 Similarly, in the case of Belgium, the Belgian competent authority can now request and obtain information concerning all federal taxes from the Australian competent authority. In such case, the income would be regarded as domestic source income of a resident which, in accordance with normal treaty principles, would not be limited by the Convention. 5.28 Benefits that flow to business are generally equally difficult to quantify. Since the employees of Chilly Bin Co are not under the supervision, direction or control of Esky Co, Esky Co is not considered to be performing services in NewZealand through those employees for the purposes of sub-subparagraph a)(ii) of paragraph 4 of Article 5. 2.213 An example of a back-to-back arrangement would include, for instance, a transaction or series of transactions structured in such a way that: a NewZealand financial institution receives or is credited with an item of interest arising in Australia; and. Title to the refined product remains with the mining consortium and profits on sale are realised mainly outside of Australia. 3.6 The Second Protocol aligns the information exchange provisions to the current OECD standard by replacing Article 26 (Exchange of Information) of the existing Belgian Agreement. Australias source country taxing rights over capital gains on real property, land rich companies and assets which form the business property of a permanent establishment in Australia would be retained. Closely aligns Article 26 (Exchange of Information) to the current OECD standard. 5.2 International taxation is based on concepts of residency and source. The Australian competent authority can now request and obtain information concerning all federal taxes from the Belgian competent authority. Taupo Co and Oculum Co each own 50 per cent of the shares in Rotorua Co. Taupo Co is listed on a stock exchange that is a recognised stock exchange within the meaning of Article 3 of the Convention. Explanatory Memoranda Compliance cost impact: This amendment is expected to have a low overall compliance cost impact, comprised of a low implementation impact and a low decrease in ongoing compliance costs. 1.1 This Bill amends the Income Tax Assessment Act1997 (ITAA1997) to align the definition of a dual listed company (DLC) arrangement with the 2009 AustraliaNew Zealand Convention. 2.6 The Convention also applies to third country residents in relation to Article 24 (Non-Discrimination) in its application to nationals of one of the treaty countries, Article 25 (Mutual Agreement Procedure) so far as the person is a national of one of the treaty countries, and in relation to the exchange of information under Article 26 (Exchange of Information) and the assistance in collection of tax debts under Article27 (Assistance in the Collection of Taxes). 2.355 This Article applies to taxes of every kind and description imposed on behalf of the Contracting States, or their political subdivisions. The wording in this provision in the Convention reflects NewZealands treaty practice and the wording used in the United Nations Model Double Taxation Convention between the Developed and Developing Countries. However, income derived by sportspersons as a member of a recognised team playing in a league competition conducted in both countries shall be taxable under the normal business income or employment income rules [Article 17]. New Zealand may also tax but, under Article 23 (Elimination of Double Taxation), would be obliged to give credit for the Australian tax paid on the fringe benefit if it was ordinary employment income. Therefore, Australia has the primary right to tax in these circumstances. 2.47 The definition of company in the Convention accords with the OECD Model, and means any body corporate or any entity which is treated as a body corporate for tax purposes. [Article 12, paragraph 3]. 4.41 Following entry into force, the Jersey Agreement will take effect in Australia in respect of any income year beginning on or after 1 July in the calendar year next following the date on which it enters into force. The introduction to paragraph 1 makes clear that these definitions apply for all purposes of the Convention, unless the context requires otherwise. Such persons are entitled, for example, to certain fiscal privileges under the Diplomatic Privileges and Immunities Act 1967 and the Consular Privileges and Immunities Act 1972 which reflect Australias international diplomatic and consular obligations. 2.244 Examples of special relationships have been provided in respect of the corresponding paragraph in Article 11. For example, where the matter subject to interpretation is an income tax matter, but definitions exist in either the ITAA 1936 or the Income Tax Assessment Act 1997 (ITAA 1997) and the A New Tax System (Goods and Services Tax) Act 1999, the income tax definition would be the relevant definition to be applied. Accordingly, that person remains liable to tax in Australia as a resident, insofar as the Convention allows. 5.94 The internationally accepted approach to meeting the policy objectives specified above is to conclude a bilateral tax agreement. This has significance for Articles where the concept of permanent establishment is relevant, for example, in determining the right of a country to tax income (that is, income from employment under Article 14) or the country in which income arises (for example, interest). [Article I, paragraph 4 of new Article 26]. This additional sentence is intended to overcome limitations imposed under Belgian internal law on the ability of the Belgian tax administration to obtain information, especially information from banks and other financial institutions for the purposes of the taxation of their clients. 2.59 The term recognised stock exchange is defined as: the Australian Securities Exchange and any other Australian stock exchange recognised as such under Australian law; the securities markets (other than the NewZealand debt market) operated by the NewZealand Exchange Limited; and. In the case of NewZealand, the competent authority is the Commissioner of Inland Revenue or an authorised representative of the Commissioner.