2008 The Parliament of the Commonwealth of Australia HOUSE OF REPRESENTATIVES Presented and read a first time International Tax Agreements Amendment Bill (No. 1) 2008 No. , 2008 (Treasury) A Bill for an Act to amend the International Tax Agreements Act 1953, and for related purposes [Page Break] 1 Short title ........................................................................................... 1 2 Commencement ................................................................................. 1 3 Schedule(s) ........................................................................................ 1 Schedule 1--International Tax Agreements Act 1953 3 i International Tax Agreements Amendment Bill (No. 1) 2008 No. , 2008 [Page Break] 2 Agreements Act 1953, and for related purposes 3 The Parliament of Australia enacts: 4 1 Short title 5 This Act may be cited as the International Tax Agreements 6 Amendment Act (No. 1) 2008. 7 2 Commencement 8 This Act commences on the day on which it receives the Royal 9 Assent. 10 3 Schedule(s) 11 Each Act that is specified in a Schedule to this Act is amended or 12 repealed as set out in the applicable items in the Schedule International Tax Agreements Amendment Bill (No. 1) 2008 No. , 2008 1 [Page Break] 2 according to its terms. 2 International Tax Agreements Amendment Bill (No. 1) 2008 No. , 2008 [Page Break] 1 2 Schedule 1--International Tax Agreements Act 3 1953 4 5 1 Subsection 3(1) (at the end of paragraphs (a) to (cd) of the 6 definition of agreement) 7 Add "or". 8 2 Subsection 3(1) (at the end of the definition of agreement) 9 Add: 10 ; or (f) the 1969 Japanese agreement. 11 3 Subsection 3(1) 12 Insert: 13 the 1969 Japanese agreement means the Agreement between the 14 Government of the Commonwealth of Australia and the 15 Government of Japan for the avoidance of double taxation and the 16 prevention of fiscal evasion with respect to taxes on income and 17 the protocol to that agreement, being the agreement and protocol 18 that was signed at Canberra on 20 March 1969. 19 4 Subsection 3(1) 20 Insert: 21 the 2008 Japanese convention means the Convention between 22 Australia and Japan for the avoidance of double taxation and the 23 prevention of fiscal evasion with respect to taxes on income and 24 the protocol to that convention, being the convention and protocol 25 a copy of each of which in the English language is set out in 26 Schedule 6. 27 5 Subsection 3(1) (definition of the Japanese Agreement) 28 Repeal the definition. 29 6 Subsection 3(7) 30 Omit "the Japanese Agreement", substitute "the 1969 Japanese 31 Agreement". 32 7 Subsection 3(7A) International Tax Agreements Amendment Bill (No. 1) 2008 No. , 2008 3 [Page Break] 1 Omit "the Japanese Agreement", substitute "the 1969 Japanese 2 Agreement". 3 8 Section 8 4 Repeal the section, substitute: 5 8 Convention with Japan 6 (1) Subject to this Act, on and after the date of entry into force of the 7 2008 Japanese convention, the provisions of the convention have 8 the force of law according to their tenor. 9 (2) The provisions of the 1969 Japanese agreement, so far as those 10 provisions affect Australian tax, continue to have the force of law 11 in relation to tax in respect of income in relation to which the 12 agreement remains effective. 13 Note: Paragraph 5 of Article 31 of the 2008 Japanese convention preserves 14 the operation of Article 15 of the 1969 Japanese agreement (which 15 provides that the income received in respect of teaching or conducting 16 research by visiting professors and teachers is exempt from tax in the 17 country where the teaching or research activities are conducted). This 18 applies to individuals who are entitled to the benefit at the time when 19 the 2008 Japanese convention enters into force. The benefit is 20 preserved until the individual concerned would have ceased to be 21 entitled to it under the 1969 Japanese agreement. 22 9 Schedule 6 23 Repeal the Schedule, substitute: 24 Schedule 6--Convention between Australia 25 and Japan for the avoidance of double 26 taxation and the prevention of fiscal 27 evasion with respect to taxes on 28 income 29 Note: See section 8. 30 31 Australia and Japan, 32 33 4 International Tax Agreements Amendment Bill (No. 1) 2008 No. , 2008 [Page Break] 1 Desiring to conclude a new Convention for the avoidance of double taxation 2 and the prevention of fiscal evasion with respect to taxes on income, 3 4 5 Have agreed as follows: 6 7 Article 1 8 9 PERSONS COVERED 10 11 This Convention shall apply to persons who are residents of one or both of the 12 Contracting States. 13 14 Article 2 15 16 TAXES COVERED 17 18 1. This Convention shall apply to the following existing taxes: 19 20 a) in the case of Japan: 21 22 (i) the income tax; and 23 24 (ii) the corporation tax 25 26 (hereinafter referred to as "Japanese tax"); 27 28 b) in the case of Australia: 29 30 (i) the income tax; and 31 32 (ii) the petroleum resource rent tax 33 34 (hereinafter referred to as "Australian tax"). 35 36 2. This Convention shall apply also to any identical or substantially 37 similar taxes that are imposed by Japan or under the federal law of Australia 38 after the date of signature of the Convention in addition to, or in place of, the 39 existing taxes referred to in paragraph 1. The competent authorities of the 40 Contracting States shall notify each other of any significant changes that have 41 been made in the law of their respective Contracting States relating to the taxes International Tax Agreements Amendment Bill (No. 1) 2008 No. , 2008 5 [Page Break] 1 to which the Convention applies within a reasonable period of time after such 2 changes. 3 4 Article 3 5 6 GENERAL DEFINITIONS 7 8 1. For the purposes of this Convention, unless the context otherwise 9 requires: 10 11 a) the term "Japan", when used in a geographical sense, means all the 12 territory of Japan, including its territorial sea, in which the laws 13 relating to Japanese tax are in force, and all the area beyond its 14 territorial sea, including the seabed and subsoil thereof, over which 15 Japan has sovereign rights in accordance with international law and in 16 which the laws relating to Japanese tax are in force; 17 18 b) the term "Australia", when used in a geographical sense, excludes all 19 external territories other than: 20 21 (i) the Territory of Norfolk Island; 22 23 (ii) the Territory of Christmas Island; 24 25 (iii) the Territory of Cocos (Keeling) Islands; 26 27 (iv) the Territory of Ashmore and Cartier Islands; 28 29 (v) the Territory of Heard Island and McDonald Islands; and 30 31 (vi) the Coral Sea Islands Territory, 32 33 and includes any area adjacent to the territorial limits of Australia 34 (including only the Territories specified in this subparagraph) in 35 respect of which there is for the time being in force, consistently with 36 international law, a law of Australia dealing with the exploration for 37 or exploitation of any of the natural resources of the exclusive 38 economic zone and the seabed and subsoil of the continental shelf; 39 40 c) the terms "a Contracting State" and "the other Contracting State" 41 mean Japan or Australia, as the context requires; 6 International Tax Agreements Amendment Bill (No. 1) 2008 No. , 2008 [Page Break] 1 2 d) the term "tax" means Japanese tax or Australian tax, as the context 3 requires; 4 5 e) the term "person" includes an individual, a company and any other 6 body of persons; 7 8 f) the term "company" means any body corporate or any entity that is 9 treated as a company or body corporate for tax purposes; 10 11 g) the term "enterprise" applies to the carrying on of any business; 12 13 h) the terms "enterprise of a Contracting State" and "enterprise of the 14 other Contracting State" mean respectively an enterprise carried on by 15 a resident of a Contracting State and an enterprise carried on by a 16 resident of the other Contracting State; 17 18 i) the term "international traffic" means any transport by a ship or 19 aircraft operated by an enterprise of a Contracting State, except when 20 the ship or aircraft is operated solely between places in the other 21 Contracting State; 22 23 j) the term "national", in relation to a Contracting State, means: 24 25 (i) any individual possessing the nationality or citizenship of that 26 Contracting State; and 27 28 (ii) any juridical or legal person created or organised under the 29 law of that Contracting State and any organisation without 30 juridical or legal personality treated for the purposes of that 31 Contracting State's tax as a juridical or legal person created or 32 organised under the law of that Contracting State; 33 34 k) the term "competent authority" means: 35 36 (i) in the case of Japan, the Minister of Finance or an authorised 37 representative of the Minister of Finance; and 38 39 (ii) in the case of Australia, the Commissioner of Taxation or an 40 authorised representative of the Commissioner of Taxation; 41 and International Tax Agreements Amendment Bill (No. 1) 2008 No. , 2008 7 [Page Break] 1 2 l) the term "business" includes the performance of professional services 3 and of other activities of an independent character. 4 5 2. As regards the application of this Convention at any time by a 6 Contracting State, any term not defined therein shall, unless the context 7 otherwise requires, have the meaning that it has at that time under the law of 8 that Contracting State concerning the taxes to which the Convention applies, 9 any meaning under the applicable tax law of that Contracting State prevailing 10 over a meaning given to the term under other law of that Contracting State. 11 12 Article 4 13 14 RESIDENT 15 16 1. For the purposes of this Convention, the term "resident of a 17 Contracting State" means: 18 19 a) in the case of Japan, any person who, under the laws of Japan, is liable 20 to tax therein by reason of the person's domicile, residence, place of 21 head or main office, or any other criterion of a similar nature; and 22 23 b) in the case of Australia, a person who is a resident of Australia for the 24 purposes of Australian tax. 25 26 The Government of a Contracting State or a political subdivision or local 27 authority thereof is also a resident of that Contracting State for the purposes of 28 the Convention. A person is not a resident of a Contracting State for the 29 purposes of the Convention if the person is liable to tax in that Contracting State 30 in respect only of income from sources in that Contracting State. 31 32 2. Where by reason of the provisions of paragraph 1 an individual is a 33 resident of both Contracting States, then the individual's status shall be 34 determined as follows: 35 36 a) the individual shall be deemed to be a resident only of the Contracting 37 State in which the individual has a permanent home available to that 38 individual; if that individual has a permanent home available to that 39 individual in both Contracting States, or in neither of them, that 40 individual shall be deemed to be a resident only of the Contracting 8 International Tax Agreements Amendment Bill (No. 1) 2008 No. , 2008 [Page Break] 1 State with which the individual's personal and economic relations are 2 closer (centre of vital interests); 3 4 b) if the Contracting State in which the individual's centre of vital 5 interests is situated cannot be determined, the individual shall be 6 deemed to be a resident only of the Contracting State of which that 7 individual is a national; 8 9 c) if the individual is a national of both Contracting States or of neither 10 of them, the competent authorities of the Contracting States shall 11 endeavour to resolve the question by mutual agreement. 12 13 3. Where by reason of the provisions of paragraph 1 a person other than 14 an individual is a resident of both Contracting States, then the competent 15 authorities of the Contracting States shall endeavour to determine by mutual 16 agreement the Contracting State of which that person shall be deemed to be a 17 resident for the purposes of this Convention, having regard to the place of its 18 head or main office, its place of effective management and any other relevant 19 factors. 20 21 4. In the absence of a mutual agreement under subparagraph c) of 22 paragraph 2 or paragraph 3 a person who is a resident of both Contracting States 23 by reason of the provisions of paragraph 1 shall not be considered a resident of 24 either Contracting State for the purposes of claiming any benefits provided by 25 this Convention, except those provided by Articles 26 and 27. 26 27 5. For the purposes of applying this Convention: 28 29 a) an item of income, profits or gains: 30 31 (i) derived from a Contracting State through an entity that is 32 organised in the other Contracting State; and 33 34 (ii) treated as the income, profits or gains of the beneficiaries, 35 members or participants of that entity under the tax law of 36 that other Contracting State, 37 38 shall be eligible for the benefits of the Convention that would be 39 granted if it were directly derived by a beneficiary, member or 40 participant of that entity who is a resident of that other Contracting 41 State, to the extent that such beneficiaries, members or participants International Tax Agreements Amendment Bill (No. 1) 2008 No. , 2008 9 [Page Break] 1 are residents of that other Contracting State and satisfy any other 2 conditions specified in the Convention, without regard to whether the 3 income, profits or gains are treated as the income, profits or gains of 4 such beneficiaries, members or participants under the tax law of the 5 first-mentioned Contracting State. 6 7 b) an item of income, profits or gains: 8 9 (i) derived from a Contracting State through an entity that is 10 organised in the other Contracting State; and 11 12 (ii) treated as the income, profits or gains of that entity under the 13 tax law of that other Contracting State, 14 15 shall be eligible for the benefits of the Convention that would be 16 granted to a resident of that other Contracting State, without regard to 17 whether the income, profits or gains are treated as the income, profits 18 or gains of the entity under the tax law of the first-mentioned 19 Contracting State, if such entity is a resident of that other Contracting 20 State and satisfies any other conditions specified in the Convention. 21 22 c) an item of income, profits or gains: 23 24 (i) derived from a Contracting State through an entity that is 25 organised in a state other than the Contracting States; and 26 27 (ii) treated as the income, profits or gains of the beneficiaries, 28 members or participants of that entity under the tax law of the 29 other Contracting State, 30 31 shall be eligible for the benefits of the Convention that would be 32 granted if it were directly derived by a beneficiary, member or 33 participant of that entity who is a resident of that other Contracting 34 State, to the extent that such beneficiaries, members or participants 35 are residents of that other Contracting State and satisfy any other 36 conditions specified in the Convention, without regard to whether the 37 income, profits or gains are treated as the income, profits or gains of 38 such beneficiaries, members or participants under the tax law of the 39 first-mentioned Contracting State or such state. 40 41 d) an item of income, profits or gains: 10 International Tax Agreements Amendment Bill (No. 1) 2008 No. , 2008 [Page Break] 1 2 (i) derived from a Contracting State through an entity that is 3 organised in a state other than the Contracting States; and 4 5 (ii) treated as the income, profits or gains of that entity under the 6 tax law of the other Contracting State, 7 8 shall not be eligible for the benefits of the Convention. 9 10 e) an item of income, profits or gains: 11 12 (i) derived from a Contracting State through an entity that is 13 organised in that Contracting State; and 14 15 (ii) treated as the income, profits or gains of that entity under the 16 tax law of the other Contracting State, 17 18 shall not be eligible for the benefits of the Convention. 19 20 Article 5 21 22 PERMANENT ESTABLISHMENT 23 24 1. For the purposes of this Convention, the term "permanent 25 establishment" means a fixed place of business through which the business of 26 the enterprise is wholly or partly carried on. 27 28 2. The term "permanent establishment" includes especially: 29 30 a) a place of management; 31 32 b) a branch; 33 34 c) an office; 35 36 d) a factory; 37 38 e) a workshop; 39 40 f) a mine, an oil or gas well, a quarry or any other place of extraction of 41 natural resources; and International Tax Agreements Amendment Bill (No. 1) 2008 No. , 2008 11 [Page Break] 1 2 g) an agricultural, pastoral or forestry property. 3 4 3. A building site or construction or installation project constitutes a 5 permanent establishment only if it lasts more than 12 months. 6 7 4. Notwithstanding the preceding paragraphs of this Article, where an 8 enterprise of a Contracting State: 9 10 a) undertakes supervisory or consultancy activities in the other 11 Contracting State in connection with a building site or construction or 12 installation project which is being undertaken in that other Contracting 13 State, and those activities last more than 12 months; 14 15 b) carries on activities (including the operation of substantial equipment) 16 in the other Contracting State in the exploration for or exploitation of 17 natural resources situated in that other Contracting State for a period 18 or periods exceeding in the aggregate 90 days in any 12 month period; 19 or 20 21 c) operates substantial equipment in the other Contracting State (other 22 than as provided in subparagraph b)) for a period or periods exceeding 23 in the aggregate 183 days in any 12 month period, 24 25 such activities shall be deemed to be performed through a permanent 26 establishment that the enterprise has in that other Contracting State. 27 28 5. a) The duration of activities under paragraphs 3 and 4 shall be 29 determined by aggregating the periods during which activities are 30 carried on in a Contracting State by associated enterprises provided 31 that the activities carried on in that Contracting State by an enterprise 32 are connected with the activities carried on in that Contracting State by 33 its associated enterprise. 34 35 b) The period during which two or more associated enterprises are 36 carrying on concurrent activities shall be counted only once for the 37 purpose of determining the duration of activities. 38 39 c) For the purposes of this Article, an enterprise shall be deemed to be 40 associated with another enterprise if: 41 12 International Tax Agreements Amendment Bill (No. 1) 2008 No. , 2008 [Page Break] 1 (i) an enterprise participates directly or indirectly in the 2 management, control or capital of the other enterprise; or 3 4 (ii) the same persons participate directly or indirectly in the 5 management, control or capital of the enterprises. 6 7 6. Notwithstanding the preceding paragraphs of this Article, an enterprise 8 shall not be deemed to have a permanent establishment merely by reason of: 9 10 a) the use of facilities solely for the purpose of storage, display or 11 delivery of goods or merchandise belonging to the enterprise; 12 13 b) the maintenance of a stock of goods or merchandise belonging to the 14 enterprise solely for the purpose of storage, display or delivery; 15 16 c) the maintenance of a stock of goods or merchandise belonging to the 17 enterprise solely for the purpose of processing by another enterprise; 18 19 d) the maintenance of a fixed place of business solely for the purpose of 20 purchasing goods or merchandise or of collecting information, for the 21 enterprise; or 22 23 e) the maintenance of a fixed place of business solely for the purpose of 24 carrying on, for the enterprise, any other activity of a preparatory or 25 auxiliary character. 26 27 7. Notwithstanding the provisions of paragraphs 1 and 2, where a 28 person--other than an agent of an independent status to whom the provisions of 29 paragraph 8 apply--is acting on behalf of an enterprise and: 30 31 a) has, and habitually exercises, in a Contracting State an authority to 32 substantially negotiate on behalf of or conclude contracts in the name 33 of the enterprise; or 34 35 b) manufactures or processes in a Contracting State for the enterprise 36 goods or merchandise belonging to the enterprise, 37 38 that enterprise shall be deemed to have a permanent establishment in that 39 Contracting State in respect of any activities which that person undertakes for 40 that enterprise, unless the activities are limited to those mentioned in paragraph International Tax Agreements Amendment Bill (No. 1) 2008 No. , 2008 13 [Page Break] 1 6 which, if exercised through a fixed place of business, would not make this 2 fixed place of business a permanent establishment under paragraph 1. 3 4 8. An enterprise shall not be deemed to have a permanent establishment 5 in a Contracting State merely because it carries on business in that Contracting 6 State through a person who is a broker, general commission agent or any other 7 agent of an independent status, provided that the person is acting in the ordinary 8 course of the person's business as such a broker or agent. 9 10 9. The fact that a company which is a resident of a Contracting State 11 controls or is controlled by a company which is a resident of the other 12 Contracting State, or which carries on business in that other Contracting State 13 (whether through a permanent establishment or otherwise), shall not of itself 14 constitute either company a permanent establishment of the other. 15 16 10. The principles set forth in the preceding paragraphs of this Article 17 shall be applied in determining for the purposes of paragraph 7 of Article 11 and 18 paragraph 5 of Article 12 whether there is a permanent establishment in a state 19 other than the Contracting States, and whether an enterprise, not being an 20 enterprise of either of the Contracting States, has a permanent establishment in a 21 Contracting State. 22 23 Article 6 24 25 INCOME FROM REAL PROPERTY 26 27 1. Income derived by a resident of a Contracting State from real property 28 situated in the other Contracting State may be taxed in that other Contracting 29 State. 30 31 2. The term "real property" shall have the meaning which it has under 32 the law of the Contracting State in which the property in question is situated. 33 The term shall in any case include: 34 35 a) a lease of land and any other interest in or over land, whether 36 improved or not; 37 38 b) property accessory to real property; 39 40 c) rights to which the provisions of general law respecting landed 41 property apply; 14 International Tax Agreements Amendment Bill (No. 1) 2008 No. , 2008 [Page Break] 1 2 d) usufruct of real property; 3 4 e) rights to explore for mineral, oil or gas deposits or other natural 5 resources, and a right to work those deposits or resources; and 6 7 f) rights to receive variable or fixed payments either as consideration for 8 or in respect of the exploitation of, or the right to explore for or 9 exploit, mineral, oil or gas deposits, quarries or other places of 10 extraction or exploitation of natural resources. 11 12 Ships and aircraft shall not be regarded as real property. 13 14 3. Any interest or right referred to in paragraph 2 shall be regarded as 15 situated where the land, mineral, oil or gas deposits, quarries or natural 16 resources, as the case may be, are situated or where the exploration may take 17 place. 18 19 4. The provisions of paragraph 1 shall apply to income derived from the 20 direct use, letting, or use in any other form of real property. 21 22 5. The provisions of paragraphs 1, 3 and 4 shall also apply to the income 23 from real property of an enterprise. 24 25 Article 7 26 27 BUSINESS PROFITS 28 29 1. The profits of an enterprise of a Contracting State shall be taxable only 30 in that Contracting State unless the enterprise carries on business in the other 31 Contracting State through a permanent establishment situated therein. If the 32 enterprise carries on business as aforesaid, the profits of the enterprise may be 33 taxed in that other Contracting State but only so much of them as is attributable 34 to that permanent establishment. 35 36 2. Subject to the provisions of paragraph 3, where an enterprise of a 37 Contracting State carries on business in the other Contracting State through a 38 permanent establishment situated therein, there shall in each Contracting State 39 be attributed to that permanent establishment the profits which it might be 40 expected to make if it were a distinct and separate enterprise engaged in the 41 same or similar activities under the same or similar conditions and dealing International Tax Agreements Amendment Bill (No. 1) 2008 No. , 2008 15 [Page Break] 1 wholly independently with the enterprise of which it is a permanent 2 establishment or with other enterprises with which it deals. 3 4 3. In determining the profits of a permanent establishment, there shall be 5 allowed as deductions expenses of the enterprise, being expenses which are 6 incurred for the purposes of the permanent establishment, including executive 7 and general administrative expenses so incurred, and which would be deductible 8 if the permanent establishment were an independent enterprise which paid those 9 expenses, whether incurred in the Contracting State in which the permanent 10 establishment is situated or elsewhere. 11 12 4. Nothing in this Article shall affect the application of any law of a 13 Contracting State relating to the determination of the tax liability of a person in 14 cases where the information available to the competent authority of that 15 Contracting State is inadequate to determine the profits to be attributed to a 16 permanent establishment, provided that, on the basis of the available 17 information, the determination of the profits of the permanent establishment is 18 consistent with the principles stated in this Article. 19 20 5. No profits shall be attributed to a permanent establishment by reason 21 of the mere purchase by that permanent establishment of goods or merchandise 22 for the enterprise. 23 24 6. For the purposes of the preceding paragraphs of this Article, the 25 profits to be attributed to the permanent establishment shall be determined by 26 the same method year by year unless there is good and sufficient reason to the 27 contrary. 28 29 7. Where profits include items of income or gains which are dealt with 30 separately in other Articles of this Convention, then the provisions of those 31 Articles shall not be affected by the provisions of this Article. 32 33 8. Nothing in this Article shall affect the application of any law of a 34 Contracting State relating to tax imposed on profits from insurance with a 35 person other than a resident of that Contracting State. 36 37 9. Where: 38 39 a) a resident of a Contracting State is beneficially entitled, whether 40 directly or through one or more interposed trusts, to a share of the 41 profits derived from business carried on in the other Contracting State 16 International Tax Agreements Amendment Bill (No. 1) 2008 No. , 2008 [Page Break] 1 by the trustee of a trust (other than a trust which is treated as a 2 company for tax purposes) in its capacity as trustee; and 3 4 b) in relation to the carrying on of the business, that trustee, in 5 accordance with the principles stated in Article 5, has a permanent 6 establishment in that other Contracting State, 7 8 the business carried on by the trustee shall be deemed to be a business carried 9 on in that other Contracting State by that resident through a permanent 10 establishment situated therein and the share of the profits shall be attributed to 11 that permanent establishment. 12 13 Article 8 14 15 SHIPPING AND AIR TRANSPORT 16 17 1. Profits of an enterprise of a Contracting State derived from the 18 operation of ships or aircraft in international traffic shall be taxable only in that 19 Contracting State. 20 21 2. Notwithstanding the provisions of Article 2, provided that no political 22 subdivision or local authority of Australia levies a tax similar to the local 23 inhabitant taxes or the enterprise tax in Japan in respect of the operation of ships 24 or aircraft in international traffic carried on by an enterprise of Japan, an 25 enterprise of Australia shall be exempt from the local inhabitant taxes and the 26 enterprise tax in Japan in respect of the operation of ships or aircraft in 27 international traffic. 28 29 3. Notwithstanding the provisions of paragraph 1, profits of an enterprise 30 of a Contracting State derived from the operation of ships or aircraft may be 31 taxed in the other Contracting State to the extent that they are profits derived 32 directly or indirectly from the operation of ships or aircraft confined solely to 33 places in that other Contracting State. 34 35 4. For the purposes of this Article, profits derived from the carriage by 36 ships or aircraft of passengers, livestock, mail, goods or merchandise which are 37 shipped in a Contracting State and are discharged at a place in that Contracting 38 State shall be treated as profits from the operation of ships or aircraft confined 39 solely to places in that Contracting State. 40 International Tax Agreements Amendment Bill (No. 1) 2008 No. , 2008 17 [Page Break] 1 5. The provisions of the preceding paragraphs of this Article shall also 2 apply to profits from the operation of ships or aircraft derived through 3 participation in a pool service, joint business or other profit sharing 4 arrangement. 5 6 Article 9 7 8 ASSOCIATED ENTERPRISES 9 10 1. Where: 11 12 a) an enterprise of a Contracting State participates directly or indirectly 13 in the management, control or capital of an enterprise of the other 14 Contracting State; or 15 16 b) the same persons participate directly or indirectly in the management, 17 control or capital of an enterprise of a Contracting State and an 18 enterprise of the other Contracting State, 19 20 and in either case conditions operate between the two enterprises in their 21 commercial or financial relations which differ from those which might be 22 expected to operate between independent enterprises dealing wholly 23 independently with one another, then any profits which, but for those 24 conditions, might have been expected to have accrued to one of the enterprises, 25 but, by reason of those conditions, have not so accrued, may be included in the 26 profits of that enterprise and taxed accordingly. 27 28 2. Nothing in this Article, other than paragraph 4, shall affect the 29 application of any law of a Contracting State relating to the determination of the 30 tax liability of a person in cases where the information available to the 31 competent authority of that Contracting State is inadequate to determine the 32 profits accruing to an enterprise, provided that, on the basis of the available 33 information, the determination of that tax liability of the enterprise is consistent 34 with the principles stated in paragraph 1. 35 36 3. Where a Contracting State includes, in accordance with the provisions 37 of paragraph 1 or 2, in the profits of an enterprise of that Contracting State - and 38 taxes accordingly - profits on which an enterprise of the other Contracting State 39 has been charged to tax in that other Contracting State and where the competent 40 authorities of the Contracting States agree, upon consultation, that all or part of 41 the profits so included are profits which might have been expected to have 18 International Tax Agreements Amendment Bill (No. 1) 2008 No. , 2008 [Page Break] 1 accrued to the enterprise of the first-mentioned Contracting State if the 2 conditions operative between the two enterprises had been those which might 3 have been expected to have operated between independent enterprises dealing 4 wholly independently with one another, then the other Contracting State shall 5 make an appropriate adjustment to the amount of the tax charged therein on 6 those agreed profits. In determining such adjustment, due regard shall be had to 7 the other provisions of this Convention. 8 9 4. Notwithstanding the provisions of paragraphs 1 and 2, a Contracting 10 State shall not change the profits of an enterprise of that Contracting State in the 11 circumstances referred to in those paragraphs, if an enquiry into the profits of 12 that enterprise is not initiated within seven years from the end of the taxable 13 year in which the profits that would be subject to such change, but for the 14 conditions referred to in those paragraphs, might have been expected to have 15 accrued to that enterprise. The provisions of this paragraph shall not apply in 16 the case of fraud or wilful default or if the inability to initiate an enquiry within 17 the prescribed period is attributable to the actions or inaction of that enterprise. 18 19 Article 10 20 21 DIVIDENDS 22 23 1. Dividends paid by a company which is a resident of a Contracting 24 State for the purposes of its tax, being dividends beneficially owned by a 25 resident of the other Contracting State, may be taxed in that other Contracting 26 State. 27 28 2. However, such dividends may also be taxed in the Contracting State of 29 which the company paying the dividends is a resident for the purposes of its tax 30 and according to the law of that Contracting State, but the tax so charged shall 31 not exceed: 32 33 a) 5 per cent of the gross amount of the dividends if the beneficial owner 34 of the dividends is a company which owns directly shares representing 35 at least 10 per cent of the voting power of the company paying the 36 dividends; 37 38 b) 10 per cent of the gross amount of the dividends in all other cases. 39 40 3. Notwithstanding the provisions of paragraph 2, dividends shall not be taxed 41 in the Contracting State of which the company paying the dividends is a International Tax Agreements Amendment Bill (No. 1) 2008 No. , 2008 19 [Page Break] 1 resident for the purposes of its tax if the beneficial owner of the dividends is a 2 company that is a resident of the other Contracting State and that has owned 3 directly shares representing at least 80 per cent of the voting power of the 4 company paying the dividends for the 12 month period ending on the date on 5 which entitlement to the dividends is determined and the company that is the 6 beneficial owner of the dividends: 7 8 a) is a qualified person by reason of the provisions of subparagraph c) of 9 paragraph 2 of Article 23; 10 11 b) has at least 50 per cent of the aggregate vote and value of its shares 12 owned directly or indirectly by five or fewer companies referred to in 13 subparagraph a); or 14 15 c) is granted benefits with respect to those dividends under paragraph 5 16 of Article 23. 17 18 4. Notwithstanding the provisions of paragraphs 2 and 3, dividends paid by a 19 company that is a resident of Japan and that is entitled to a deduction for 20 dividends paid to its beneficiaries in computing its taxable income in Japan, 21 being dividends beneficially owned by a resident of Australia, may also be 22 taxed in Japan according to the law of Japan, but the tax so charged shall not 23 exceed: 24 25 a) 15 per cent of the gross amount of the dividends if more than 50 26 percent of the assets of such company consist, directly or indirectly, of 27 real property situated in Japan; 28 29 b) 10 per cent of the gross amount of the dividends in all other cases. 30 31 5. The provisions of paragraphs 2, 3 and 4 shall not affect the taxation of the 32 company in respect of the profits out of which the dividends are paid. 33 34 6. The term "dividends" as used in this Article means income from shares or 35 other rights, not being debt-claims, participating in profits, as well as income or 36 other distributions which are subjected to the same taxation treatment as income 37 from shares by the law of the Contracting State of which the company making 38 the distribution is a resident for the purposes of its tax. 39 20 International Tax Agreements Amendment Bill (No. 1) 2008 No. , 2008 [Page Break] 1 7. a) Distributions of income, profits or gains by a Real Estate Investment 2 Trust (hereinafter referred to as a "REIT"), being distributions 3 beneficially owned by a resident of Japan, may be taxed in Japan. 4 5 b) However, such distributions may also be taxed in Australia according 6 to the law of Australia, but the tax so charged shall not exceed 15 per 7 cent of the gross amount of the distributions if the beneficial owner of 8 the distributions is a resident of Japan other than a beneficial owner of 9 the distributions which holds, or has held at any time in the 12 month 10 period preceding the date on which the distributions are made, directly 11 or indirectly, capital that represents at least 10 percent of the value of 12 all the capital in the REIT. 13 14 c) For the purposes of this paragraph, the term "Real Estate Investment 15 Trust" means a managed investment trust created or organised under 16 the laws of Australia which carries on a business consisting of 17 investment, directly or indirectly, in real property for the main purpose 18 of deriving rent. 19 20 8. The provisions of paragraphs 1, 2, 3, 4 and 7 shall not apply if the 21 beneficial owner of the dividends or distributions, being a resident of a 22 Contracting State, carries on business in the other Contracting State of which 23 the company paying the dividends is a resident for the purposes of its tax (or, in 24 the case of a REIT to which paragraph 7 applies, in Australia) through a 25 permanent establishment situated therein and the holding in respect of which the 26 dividends or distributions are paid is effectively connected with such permanent 27 establishment. In such case the provisions of Article 7 shall apply. 28 29 9. Where a company which is a resident of a Contracting State derives profits 30 or income from the other Contracting State, that other Contracting State may 31 not impose any tax on the dividends paid by the company -- being dividends 32 beneficially owned by a person who is not a resident of that other Contracting 33 State -- except insofar as the holding in respect of which such dividends are 34 paid is effectively connected with a permanent establishment situated in that 35 other Contracting State, nor subject the company's undistributed profits to a tax 36 on the company's undistributed profits, even if the dividends paid or the 37 undistributed profits consist wholly or partly of profits or income arising in that 38 other Contracting State. However, in the case of dividends paid by a company 39 which is deemed to be a resident only of a Contracting State by reason of the 40 provisions of paragraph 3 of Article 4, the other Contracting State may tax such 41 dividends to the extent that they are paid out of profits or income arising in that International Tax Agreements Amendment Bill (No. 1) 2008 No. , 2008 21 [Page Break] 1 other Contracting State and, in the case of dividends beneficially owned by a 2 resident of the first-mentioned Contracting State, according to the provisions of 3 paragraphs 2 or 3. 4 5 10. A resident of a Contracting State shall not be considered the beneficial 6 owner of the dividends paid by a resident of the other Contracting State for the 7 purposes of its tax in respect of preferred shares or other similar interests if such 8 preferred shares or other similar interests might not have been expected to have 9 been established or acquired unless a person: 10 11 a) that is not entitled to benefits with respect to dividends paid by a 12 resident of that other Contracting State which are equivalent to, or 13 more favourable than, those available under this Convention to a 14 resident of the first-mentioned Contracting State; and 15 16 b) that is not a resident of either Contracting State, 17 18 owned equivalent preferred shares or other similar interests in the 19 first-mentioned resident. 20 21 11. No relief shall be available under this Article if it was the main purpose or 22 one of the main purposes of any person concerned with the assignment of the 23 dividends or distributions, the creation or assignment of the shares or other 24 rights in respect of which the dividends or distributions are paid, or the 25 establishment, acquisition or maintenance of the company which is the 26 beneficial owner of the dividends or distributions or the conduct of its 27 operations to take advantage of this Article. 28 29 Article 11 30 31 INTEREST 32 33 1. Interest arising in a Contracting State and beneficially owned by a 34 resident of the other Contracting State may be taxed in that other Contracting 35 State. 36 37 2. However, such interest may also be taxed in the Contracting State in 38 which it arises and according to the law of that Contracting State, but the tax so 39 charged shall not exceed 10 per cent of the gross amount of the interest. 40 22 International Tax Agreements Amendment Bill (No. 1) 2008 No. , 2008 [Page Break] 1 3. Notwithstanding the provisions of paragraph 2, interest arising in a 2 Contracting State and beneficially owned by a resident of the other Contracting 3 State shall not be taxed in the first-mentioned Contracting State if: 4 5 a) the interest is derived by a Contracting State or a political subdivision 6 or local authority thereof, by any other body exercising governmental 7 functions in a Contracting State, or by the Bank of Japan or the 8 Reserve Bank of Australia; 9 10 b) the interest is derived by a financial institution which is unrelated to 11 and dealing wholly independently with the payer. For the purpose of 12 this Article, the term "financial institution" means a bank or other 13 enterprise substantially deriving its profits by raising debt finance in 14 the financial markets or taking deposits at interest and by using those 15 funds in carrying on a business of providing finance; or 16 17 c) the interest is derived by: 18 19 (i) in the case of Japan, the Japan Bank for International 20 Cooperation, or the Nippon Export and Investment Insurance; 21 22 (ii) in the case of Australia, the Export Finance and Insurance 23 Corporation, or a public authority that manages the 24 investments of the Future Fund; and 25 26 (iii) any similar institution as may be agreed upon from time to 27 time between the Governments of the Contracting States 28 through an exchange of diplomatic notes. 29 30 4. Notwithstanding the provisions of paragraph 3, interest referred to in 31 subparagraph b) of that paragraph may be taxed in the Contracting State in 32 which it arises at a rate not exceeding 10 per cent of the gross amount of the 33 interest if the interest is paid as part of an arrangement involving back-to-back 34 loans or other arrangement that is economically equivalent and intended to have 35 a similar effect to an arrangement involving back-to-back loans. 36 37 5. The term "interest" as used in this Article means income from 38 debt-claims of every kind, whether or not secured by mortgage and whether or 39 not carrying a right to participate in the debtor's profits, and in particular, 40 interest from government securities and interest from bonds or debentures, 41 including premiums and prizes attaching to such securities, bonds or debentures, International Tax Agreements Amendment Bill (No. 1) 2008 No. , 2008 23 [Page Break] 1 and all other income that is subjected to the same taxation treatment as income 2 from money lent by the tax law of the Contracting State in which the income 3 arises. Income dealt with in Article 10 shall not be regarded as interest for the 4 purposes of this Convention. 5 6 6. The provisions of paragraphs 1 and 2, subparagraph b) of paragraph 3 7 and paragraph 4 shall not apply if the beneficial owner of the interest, being a 8 resident of a Contracting State, carries on business in the other Contracting 9 State in which the interest arises through a permanent establishment situated 10 therein and the debt-claims or other rights in respect of which the interest is paid 11 is effectively connected with such permanent establishment. In such case the 12 provisions of Article 7 shall apply. 13 14 7. Interest shall be deemed to arise in a Contracting State when the payer 15 is a resident of that Contracting State for the purposes of its tax. Where, 16 however, the person paying interest, whether such person is a resident of a 17 Contracting State or not, has in a Contracting State or a state other than the 18 Contracting States a permanent establishment in connection with which the 19 indebtedness on which the interest is paid were incurred, and such interest is 20 borne by such permanent establishment, then: 21 22 a) if the permanent establishment is situated in a Contracting State, such 23 interest shall be deemed to arise in that Contracting State; and 24 25 b) if the permanent establishment is situated in a state other than the 26 Contracting States, such interest shall not be deemed to arise in either 27 Contracting State. 28 29 8. Where, by reason of a special relationship between the payer and the 30 beneficial owner of the interest, or between both of them and some other 31 person, the amount of the interest, having regard to the debt-claims or other 32 rights for which it is paid, exceeds the amount which might have been expected 33 to have been agreed upon by the payer and the beneficial owner in the absence 34 of such relationship, the provisions of this Article shall apply only to the 35 last-mentioned amount. In such case, the excess part of the payments shall 36 remain taxable according to the law of each Contracting State, due regard being 37 had to the other provisions of this Convention. 38 39 9. A resident of a Contracting State shall not be considered the beneficial 40 owner of the interest arising in the other Contracting State in respect of a 24 International Tax Agreements Amendment Bill (No. 1) 2008 No. , 2008 [Page Break] 1 debt-claim or other right if such debt-claim or other right might not have been 2 expected to have been established unless a person: 3 4 a) that is not entitled to benefits with respect to the interest arising in that 5 other Contracting State which are equivalent to, or more favourable 6 than, those available under this Convention to a resident of the 7 first-mentioned Contracting State; and 8 9 b) that is not a resident of either Contracting State, 10 11 owned an equivalent debt-claim or other right against the first-mentioned 12 resident. 13 14 10. No relief shall be available under this Article if it was the main 15 purpose or one of the main purposes of any person concerned with the 16 assignment of the interest, the creation or assignment of the debt-claim or other 17 rights in respect of which the interest is paid, or the establishment, acquisition 18 or maintenance of the company which is the beneficial owner of the interest or 19 the conduct of its operations to take advantage of this Article. 20 21 Article 12 22 23 ROYALTIES 24 25 1. Royalties arising in a Contracting State and beneficially owned by a 26 resident of the other Contracting State may be taxed in that other Contracting 27 State. 28 29 2. However, such royalties may also be taxed in the Contracting State in 30 which they arise and according to the law of that Contracting State, but the tax 31 so charged shall not exceed 5 per cent of the gross amount of the royalties. 32 33 3. The term "royalties" as used in this Article means payments or credits, 34 whether periodical or not, and however described or computed, to the extent to 35 which they are made as consideration for: 36 37 a) the use of, or the right to use, any copyright, patent, design or model, 38 plan, secret formula or process, trademark or other like property or 39 right; 40 International Tax Agreements Amendment Bill (No. 1) 2008 No. , 2008 25 [Page Break] 1 b) the supply of scientific, technical, industrial or commercial knowledge 2 or information; 3 4 c) the supply of any assistance that is ancillary and subsidiary to, and is 5 furnished as a means of enabling the application or enjoyment of, any 6 such property or right as is mentioned in subparagraph a) or any such 7 knowledge or information as is mentioned in subparagraph b); 8 9 d) the use of, or the right to use: 10 11 (i) motion picture films; or 12 13 (ii) films or audio or video tapes or disks, or any other means of 14 image or sound reproduction or transmission for use in 15 connection with television, radio or other broadcasting; or 16 17 e) total or partial forbearance in respect of the use or supply of any 18 property or right referred to in this paragraph. 19 20 4. The provisions of paragraphs 1 and 2 shall not apply if the beneficial 21 owner of the royalties, being a resident of a Contracting State, carries on 22 business in the other Contracting State in which the royalties arise through a 23 permanent establishment situated therein and the property or right in respect of 24 which the royalties are paid or credited is effectively connected with such 25 permanent establishment. In such case the provisions of Article 7 shall apply. 26 27 5. Royalties shall be deemed to arise in a Contracting State when the 28 payer is a resident of that Contracting State for the purposes of its tax. Where, 29 however, the person paying royalties, whether such person is a resident of a 30 Contracting State or not, has in a Contracting State or a state other than the 31 Contracting States a permanent establishment in connection with which the 32 liability to pay or credit the royalties was incurred, and such royalties are borne 33 by such permanent establishment, then: 34 35 a) if the permanent establishment is situated in a Contracting State, such 36 royalties shall be deemed to arise in that Contracting State; and 37 38 b) if the permanent establishment is situated in a state other than the 39 Contracting States, such royalties shall not be deemed to arise in either 40 Contracting State. 41 26 International Tax Agreements Amendment Bill (No. 1) 2008 No. , 2008 [Page Break] 1 6. Where, by reason of a special relationship between the payer and the 2 beneficial owner of the royalties, or between both of them and some other 3 person, the amount of the royalties, having regard to what they are paid or 4 credited for, exceeds the amount which might have been expected to have been 5 agreed upon by the payer and the beneficial owner in the absence of such 6 relationship, the provisions of this Article shall apply only to the last-mentioned 7 amount. In such case, the excess part of the payments or credits shall remain 8 taxable according to the law of each Contracting State, due regard being had to 9 the other provisions of this Convention. 10 11 7. A resident of a Contracting State shall not be considered the beneficial 12 owner of the royalties arising in the other Contracting State in respect of the use 13 of the property or right if such royalties might not have been expected to have 14 been paid to the resident unless the resident paid royalties in respect of the same 15 property or right to a person: 16 17 a) that is not entitled to benefits with respect to royalties arising in that 18 other Contracting State which are equivalent to, or more favourable 19 than, those available under this Convention to a resident of the 20 first-mentioned Contracting State; and 21 22 b) that is not a resident of either Contracting State. 23 24 8. No relief shall be available under this Article if it was the main 25 purpose or one of the main purposes of any person concerned with the 26 assignment of the royalties, the creation or assignment of the property or right in 27 respect of which the royalties are paid, or the establishment, acquisition or 28 maintenance of the company which is the beneficial owner of the royalties or 29 the conduct of its operations to take advantage of this Article. 30 31 Article 13 32 33 ALIENATION OF PROPERTY 34 35 1. Income, profits or gains derived by a resident of a Contracting State 36 from the alienation of real property referred to in Article 6 and situated in the 37 other Contracting State may be taxed in that other Contracting State. 38 39 2. Income, profits or gains derived by a resident of a Contracting State 40 from the alienation of shares in a company or of interests in a partnership, trust 41 or other entity may be taxed in the other Contracting State where the shares or International Tax Agreements Amendment Bill (No. 1) 2008 No. , 2008 27 [Page Break] 1 the interests derive at least 50 per cent of their value directly or indirectly from 2 real property referred to in Article 6 and situated in that other Contracting State. 3 4 3. Unless the provisions of paragraph 2 are applicable, income, profits or 5 gains derived by a resident of a Contracting State which are not subject to tax in 6 that Contracting State from the alienation of shares issued by a company being a 7 resident of the other Contracting State may be taxed in that other Contracting 8 State, if: 9 10 a) shares owned by the alienator (together with such shares owned by 11 any other related or connected persons as may be aggregated 12 therewith) amount to at least 25 per cent of the total issued shares of 13 such company at any time during the taxable year in which the 14 alienation takes place; and 15 16 b) the total of the shares alienated by the alienator and such related or 17 connected persons during that taxable year in which the alienation 18 takes place amounts to at least 5 per cent of the total issued shares of 19 such company. 20 21 4. Notwithstanding the provisions of paragraph 3, income, profits or 22 gains from the alienation of property (other than real property) that forms part 23 of the business property of a permanent establishment which an enterprise of a 24 Contracting State has in the other Contracting State, including income, profits 25 or gains from the alienation of that permanent establishment (alone or with the 26 whole enterprise), may be taxed in that other Contracting State. 27 28 5. Income, profits or gains derived by an enterprise of a Contracting 29 State from the alienation of ships or aircraft operated by that enterprise in 30 international traffic, or of property (other than real property) pertaining to the 31 operation of such ships or aircraft, shall be taxable only in that Contracting 32 State. 33 34 6. Gains from the alienation of any property other than that referred to in 35 the preceding paragraphs of this Article shall be taxable only in the Contracting 36 State of which the alienator is a resident. 37 38 Article 14 39 40 INCOME FROM EMPLOYMENT 41 28 International Tax Agreements Amendment Bill (No. 1) 2008 No. , 2008 [Page Break] 1 1. Subject to the provisions of Articles 15, 17 and 18, salaries, wages and 2 other similar remuneration derived by a resident of a Contracting State in 3 respect of an employment shall be taxable only in that Contracting State unless 4 the employment is exercised in the other Contracting State. If the employment 5 is so exercised, such remuneration as is derived therefrom may be taxed in that 6 other Contracting State. 7 8 2. Notwithstanding the provisions of paragraph 1, remuneration derived 9 by a resident of a Contracting State in respect of an employment exercised in 10 the other Contracting State shall be taxable only in the first-mentioned 11 Contracting State if: 12 13 a) the recipient is present in the other Contracting State for a period or 14 periods not exceeding in the aggregate 183 days in any 12 month 15 period commencing or ending in the taxable year of that other 16 Contracting State; 17 18 b) the remuneration is paid by, or on behalf of, an employer who is not a 19 resident of the other Contracting State; and 20 21 c) the remuneration is not borne by a permanent establishment which the 22 employer has in the other Contracting State. 23 24 3. Notwithstanding the preceding paragraphs of this Article, 25 remuneration derived in respect of an employment exercised aboard a ship or 26 aircraft operated in international traffic by an enterprise of a Contracting State 27 may be taxed in that Contracting State. 28 29 Article 15 30 31 DIRECTORS' FEES 32 33 Directors' fees and other similar payments derived by a person who is a resident 34 of a Contracting State in that person's capacity as a member of the board of 35 directors of a company which is a resident of the other Contracting State may be 36 taxed in that other Contracting State. 37 38 Article 16 39 40 ENTERTAINERS AND SPORTSPERSONS 41 International Tax Agreements Amendment Bill (No. 1) 2008 No. , 2008 29 [Page Break] 1 1. Notwithstanding the provisions of Articles 7 and 14, income derived 2 by a person who is a resident of a Contracting State as an entertainer, such as a 3 theatre, motion picture, radio or television artiste, or a musician, or as a 4 sportsperson, from that person's personal activities as such exercised in the 5 other Contracting State, may be taxed in that other Contracting State. 6 7 2. Where income in respect of personal activities exercised by an 8 entertainer or a sportsperson in that person's capacity as such accrues not to that 9 person but to another person, that income may, notwithstanding the provisions 10 of Articles 7 and 14, be taxed in the Contracting State in which the activities of 11 the entertainer or sportsperson are exercised. 12 13 Article 17 14 15 PENSIONS AND ANNUITIES 16 17 1. Subject to the provisions of paragraph 2 of Article 18, pensions and 18 other similar remuneration paid periodically to an individual who is a resident 19 of a Contracting State shall be taxable only in that Contracting State. 20 21 2. Annuities paid to an individual who is a resident of a Contracting State 22 shall be taxable only in that Contracting State. 23 24 3. Lump sums in lieu of the right to receive a pension or other similar 25 remuneration, or to receive an annuity, paid to an individual who is a resident of 26 a Contracting State shall be taxable only in that Contracting State. However, 27 such lump sums may also be taxed in the other Contracting State if they arise in 28 that other Contracting State. 29 30 4. The term "annuity" means a stated sum payable periodically at stated 31 times during the life or during a specified or ascertainable period of time under 32 an obligation to make the payments in return for adequate and full consideration 33 in money or money's worth. 34 35 Article 18 36 37 GOVERNMENT SERVICE 38 39 1. a) Salaries, wages and other similar remuneration paid by a Contracting 40 State or a political subdivision or local authority thereof to an 41 individual in respect of services rendered to that Contracting State or 30 International Tax Agreements Amendment Bill (No. 1) 2008 No. , 2008 [Page Break] 1 political subdivision or local authority, in the discharge of functions of 2 a governmental nature, shall be taxable only in that Contracting State. 3 4 b) However, such salaries, wages and other similar remuneration shall be 5 taxable only in the other Contracting State if the services are rendered 6 in that other Contracting State and the individual is a resident of that 7 other Contracting State who: 8 9 (i) is a national of that other Contracting State; or 10 11 (ii) did not become a resident of that other Contracting State 12 solely for the purpose of rendering the services. 13 14 2. a) Notwithstanding the provisions of paragraph 1, pensions and other 15 similar remuneration paid periodically by, or out of funds to which 16 contributions are made or created by, a Contracting State or a political 17 subdivision or local authority thereof to an individual in respect of 18 services rendered to that Contracting State or political subdivision or 19 local authority shall be taxable only in that Contracting State. 20 21 b) However, such pensions and other similar remuneration shall be 22 taxable only in the other Contracting State if the individual is a 23 resident of, and a national of, that other Contracting State. 24 25 3. The provisions of Articles 14, 15, 16 and 17 shall apply to salaries, 26 wages, pensions, and other similar remuneration in respect of services rendered 27 in connection with a business carried on by a Contracting State or a political 28 subdivision or local authority thereof. 29 30 Article 19 31 32 STUDENTS 33 34 Payments which a student or business apprentice who is or was immediately 35 before visiting a Contracting State a resident of the other Contracting State and 36 who is temporarily present in the first-mentioned Contracting State solely for 37 the purpose of that person's education or training receives for the purpose of 38 that person's maintenance, education or training shall not be taxed in the 39 first-mentioned Contracting State, provided that such payments arise from 40 sources outside that first-mentioned Contracting State. The exemption provided 41 by this Article shall apply to a business apprentice only for a period not International Tax Agreements Amendment Bill (No. 1) 2008 No. , 2008 31 [Page Break] 1 exceeding one year from the date the person first begins that person's training in 2 the first-mentioned Contracting State. 3 4 Article 20 5 6 SLEEPING PARTNERSHIP (TOKUMEI KUMIAI) 7 8 Notwithstanding any other provisions of this Convention, other than those of 9 Article 26, any income, profits or gains derived by a sleeping partner in respect 10 of a sleeping partnership (Tokumei Kumiai) contract or other similar contract 11 may be taxed in the Contracting State in which such income, profits or gains 12 arise, and according to the laws of that Contracting State. 13 14 Article 21 15 16 OTHER INCOME 17 18 1. Items of income of a resident of a Contracting State, wherever arising, 19 not dealt with in the foregoing Articles of this Convention shall be taxable only 20 in that Contracting State. 21 22 2. The provisions of paragraph 1 shall not apply to income, other than 23 income from real property as defined in paragraph 2 of Article 6, derived by a 24 resident of a Contracting State who carries on business in the other Contracting 25 State through a permanent establishment situated therein and the property or 26 right in respect of which the income is paid is effectively connected with such 27 permanent establishment. In such case the provisions of Article 7 shall apply. 28 29 3. Notwithstanding the provisions of paragraphs 1 and 2, items of 30 income of a resident of a Contracting State not dealt with in the foregoing 31 Articles of this Convention from sources in the other Contracting State may also 32 be taxed in that other Contracting State. 33 34 Article 22 35 36 SOURCE OF INCOME 37 38 1. Income, profits or gains derived by a resident of a Contracting State 39 which, under any one or more of Articles 6 to 8 and 10 to 18, may be taxed in 40 the other Contracting State shall for the purposes of the law of that other 32 International Tax Agreements Amendment Bill (No. 1) 2008 No. , 2008 [Page Break] 1 Contracting State relating to its tax be deemed to arise from sources in that other 2 Contracting State. 3 4 2. Income, profits or gains derived by a resident of a Contracting State 5 which, under any one or more of Articles 6 to 8, 10 to 18 and 20, may be taxed 6 in the other Contracting State shall for the purposes of Article 25 and of the law 7 of the first-mentioned Contracting State relating to its tax be deemed to arise 8 from sources in the other Contracting State. 9 10 Article 23 11 12 LIMITATION ON BENEFITS 13 14 1. Except as otherwise provided in this Article, a resident of a 15 Contracting State that derives income, profits or gains described in Article 7; in 16 paragraph 3 of Article 10 or paragraph 3 of Article 11; or in Article 13 from the 17 other Contracting State shall be entitled to the benefits granted for a taxable 18 year by the provisions of those paragraphs or Articles only if such resident is a 19 qualified person as defined in paragraph 2 and satisfies any other specified 20 conditions in those paragraphs or Articles for the obtaining of such benefits. 21 22 2. A resident of a Contracting State shall be a qualified person for a 23 taxable year only if such resident is either: 24 25 a) an individual; 26 27 b) a qualified governmental entity; 28 29 c) a company (including a company participating in a dual listed 30 company arrangement), if its principal class of shares is listed or 31 registered on a recognised stock exchange specified in clause (i) or (ii) 32 of subparagraph d) of paragraph 6 and is regularly traded on one or 33 more recognised stock exchanges; 34 35 d) a person other than an individual or a company, if the principal class 36 of units in that person is listed or admitted to dealings on a recognised 37 stock exchange specified in clause (i) or (ii) of subparagraph d) of 38 paragraph 6 and is regularly traded on one or more recognised stock 39 exchanges; 40 International Tax Agreements Amendment Bill (No. 1) 2008 No. , 2008 33 [Page Break] 1 e) a pension fund, provided that as of the end of the prior taxable year 2 more than 50 per cent of its beneficiaries, members or participants are 3 individuals who are residents of either Contracting State; 4 5 f) an organisation established under the law of that Contracting State and 6 operated exclusively for a religious, charitable, educational, scientific, 7 artistic, cultural or public purposes, provided that all or part of its 8 income, profits or gains may be exempt from tax under the domestic 9 law of that Contracting State; or 10 11 g) a person other than an individual, if residents of either Contracting 12 State that are qualified persons by reason of the provisions of 13 subparagraphs a) to f) of this paragraph own, directly or indirectly, at 14 least 50 per cent of the aggregate vote and value of the shares of the 15 person, or at least 50 per cent of the beneficial interests in the person. 16 17 3. Where the provisions of subparagraph g) of paragraph 2 apply: 18 19 a) in respect of taxation by withholding at source, a resident of a 20 Contracting State shall be considered to satisfy the conditions 21 described in that subparagraph for the taxable year in which the 22 payment is made if such resident satisfies those conditions during the 23 12 month period preceding the date of payment of an item of income, 24 profits or gains (or, in the case of dividends, the date on which 25 entitlement to the dividends is determined); 26 27 b) in all other cases, a resident of a Contracting State shall be considered 28 to satisfy the conditions described in that subparagraph for the taxable 29 year in which the payment is made if such resident satisfies those 30 conditions on at least half the days of the taxable year. 31 32 4. a) Notwithstanding that a resident of a Contracting State may not be a 33 qualified person, that resident shall be entitled to the benefits granted 34 by the provisions of Article 7; of paragraph 3 of Article 10 or 35 paragraph 3 of Article 11; or of Article 13 with respect to an item of 36 income, profits or gains described in those paragraphs or Articles 37 derived from the other Contracting State if the resident is carrying on 38 business in the first-mentioned Contracting State (other than the 39 business of making or managing investments for the resident's own 40 account, unless the business is banking, insurance or securities 41 business carried on by a bank, insurance company or securities dealer), 34 International Tax Agreements Amendment Bill (No. 1) 2008 No. , 2008 [Page Break] 1 the income, profits or gains derived from the other Contracting State 2 are derived in connection with, or are incidental to, that business and 3 that resident satisfies any other specified conditions in those 4 paragraphs or Articles for the obtaining of such benefits. 5 6 b) If a resident of a Contracting State derives an item of income, profits 7 or gains from a business carried on by that resident in the other 8 Contracting State or derives an item of income, profits or gains arising 9 in the other Contracting State from a person that has with the resident 10 a relationship described in subparagraph a) or b) of paragraph 1 of 11 Article 9, the conditions described in subparagraph a) of this 12 paragraph shall be considered to be satisfied with respect to such an 13 item of income, profits or gains only if the business carried on in the 14 first-mentioned Contracting State is substantial in relation to the 15 business carried on in the other Contracting State. Whether such 16 business is substantial for the purpose of this paragraph shall be 17 determined on the basis of all the facts and circumstances. 18 19 c) In determining whether a person is carrying on business in a 20 Contracting State under subparagraph a) of this paragraph, the 21 business conducted by a partnership in which that person is a partner 22 and the business conducted by persons connected to such person shall 23 be deemed to be conducted by such person. A person shall be 24 connected to another if one possesses, directly or indirectly, at least 50 25 per cent of the beneficial interests in the other (or, in the case of a 26 company, at least 50 per cent of the aggregate vote and value of the 27 shares of the company) or another person possesses, directly or 28 indirectly, at least 50 per cent of the beneficial interests (or, in the case 29 of a company, at least 50 per cent of the aggregate vote and value of 30 the shares of the company) in each person. In any case, a person shall 31 be considered to be connected to another if, on the basis of all the facts 32 and circumstances, one has control of the other or both are under the 33 control of the same person or persons. 34 35 5. A resident of a Contracting State that is neither a qualified person nor 36 entitled under paragraph 4 to the benefits granted by the provisions of Article 7; 37 of paragraph 3 of Article 10 or paragraph 3 of Article 11; or of Article 13 with 38 respect to an item of income, profits or gains described in those paragraphs or 39 Articles shall, nevertheless, be granted such benefits if the competent authority 40 of the other Contracting State determines, in accordance with its domestic law 41 or administrative practice, that the establishment, acquisition or maintenance of International Tax Agreements Amendment Bill (No. 1) 2008 No. , 2008 35 [Page Break] 1 such resident and the conduct of its operations are considered as not having the 2 obtaining of such benefits as one of the principal purposes. 3 4 6. For the purposes of this Article: 5 6 a) the term "qualified governmental entity" means entities referred to in 7 subparagraphs a) and c) of paragraph 3 of Article 11; 8 9 b) the term "principal class of shares" means the ordinary shares of the 10 company, provided that such class of shares represents the majority of 11 the voting power and value of the company. If no single class of 12 ordinary shares represents the majority of the voting power and value 13 of the company, the principal class of shares is that class or those 14 classes that in the aggregate represent a majority of the voting power 15 and value of the company. For the purposes of the preceding 16 sentences, in the case of a company participating in a dual listed 17 company arrangement, the principal class of shares will be determined 18 after excluding the special voting shares which were issued as a means 19 of establishing that dual listed company arrangement; 20 21 c) the term "dual listed company arrangement" means an arrangement 22 pursuant to which two publicly listed companies, while maintaining 23 their separate legal entity status, shareholdings and listings, align their 24 strategic directions and the economic interests of their respective 25 shareholders through: 26 27 (i) the appointment of common (or almost identical) boards of 28 directors; 29 30 (ii) management of the operations of the two companies on a 31 unified basis; 32 33 (iii) equalised distributions to shareholders in accordance with an 34 equalisation ratio applying between the two companies, 35 including in the event of a winding up of one or both of the 36 companies; 37 38 (iv) the shareholders of both companies voting in effect as a single 39 decision-making body on substantial issues affecting their 40 combined interests; and 41 36 International Tax Agreements Amendment Bill (No. 1) 2008 No. , 2008 [Page Break] 1 (v) cross-guarantees as to, or similar financial support for, each 2 other's material obligations or operations except where the 3 effect of the relevant regulatory requirements prevents such 4 guarantees or financial support; 5 6 d) the term "recognised stock exchange" means: 7 8 (i) any stock exchange established by a Financial Instruments 9 Exchange or an approved-type financial instruments firms 10 association under the terms of the Financial Instruments and 11 Exchange Law (Law No.25 of 1948) of Japan; 12 13 (ii) the Australian Securities Exchange and any other securities 14 exchange recognised as such under the Corporations Act 2001 15 of Australia; and 16 17 (iii) any other stock exchange which the competent authorities of 18 the Contracting States agree to recognise for the purposes of 19 this Article; 20 21 e) the term "units" includes any instrument, not being a debt-claim, 22 granting an entitlement to share in the asset or income of, or receive a 23 distribution from, the person; 24 25 f) the term "principal class of units" means the class of units which 26 represents the majority of the value of the person. If no single class of 27 units represents the majority of the value of the person, the principal 28 class of units is that class or those classes that in the aggregate 29 represent the majority of the value of the person; and 30 31 g) the term "pension fund" means any person that: 32 33 (i) is established under the law of a Contracting State; and 34 35 (ii) is operated principally to administer or provide pensions, 36 retirement benefits or other similar remuneration or to earn 37 income, profits or gains for the benefit of other pension funds. 38 39 7. Nothing in this Article shall be construed as restricting, in any manner, 40 the application of any provisions of the law of a Contracting State which are 41 designed to prevent the avoidance or evasion of taxes. International Tax Agreements Amendment Bill (No. 1) 2008 No. , 2008 37 [Page Break] 1 2 Article 24 3 4 LIMITATION OF RELIEF 5 6 1. Where under this Convention any income, profits or gains are relieved 7 from tax in a Contracting State and, under the law in force in the other 8 Contracting State, an individual, in respect of that income or those profits or 9 gains, is taxed by reference to the amount thereof that is remitted to or received 10 in that other Contracting State and not by reference to the full amount thereof, 11 then the relief to be allowed under the Convention in the first-mentioned 12 Contracting State shall apply only to so much of that income or those profits or 13 gains as is taxed in the other Contracting State. 14 15 2. Where under this Convention any income, profits or gains are relieved 16 from tax in a Contracting State and, under the law in force in the other 17 Contracting State, an individual, in respect of that income or those profits or 18 gains, is exempt from tax by virtue of being a temporary resident of that other 19 Contracting State within the meaning of the applicable law of that other 20 Contracting State, then the relief to be allowed under the Convention in the 21 first-mentioned Contracting State shall not apply to the extent that that income 22 or those profits or gains are exempt from tax in the other Contracting State. 23 24 Article 25 25 26 ELIMINATION OF DOUBLE TAXATION 27 28 1. Subject to the provisions of the laws of Japan regarding the allowance 29 as a credit against Japanese tax of tax payable in any country other than Japan: 30 31 a) Where a resident of Japan derives income from Australia which may 32 be taxed in Australia in accordance with the provisions of this 33 Convention, the amount of Australian tax payable in respect of that 34 income shall be allowed as a credit against the Japanese tax imposed 35 on that resident. The amount of credit, however, shall not exceed that 36 part of the Japanese tax which is appropriate to that income. 37 38 b) Where the income derived from Australia is dividends paid by a 39 company which is a resident of Australia to a company which is a 40 resident of Japan and which has owned at least 10 per cent either of 41 the voting shares or of the total issued shares of the company paying 38 International Tax Agreements Amendment Bill (No. 1) 2008 No. , 2008 [Page Break] 1 the dividends during the period of six months immediately before the 2 day when the obligation to pay dividends is confirmed, the credit shall 3 take into account Australian tax payable by the company paying the 4 dividends in respect of its income. 5 6 2. Subject to the provisions of the law of Australia from time to time in 7 force which relate to the allowance of a credit against Australian tax of tax paid 8 in a country outside Australia (which shall not affect the general principle of 9 this Article), Japanese tax paid under the law of Japan and in accordance with 10 this Convention, whether directly or by deduction, in respect of income, profits 11 or gains derived by a person who is a resident of Australia from sources in 12 Japan shall be allowed as a credit against Australian tax payable in respect of 13 that income, profits or gains. 14 15 Article 26 16 17 NON-DISCRIMINATION 18 19 1. Nationals of a Contracting State shall not be subjected in the other 20 Contracting State to any taxation or any requirement connected therewith, 21 which is other or more burdensome than the taxation and connected 22 requirements to which nationals of that other Contracting State in the same 23 circumstances, in particular with respect to residence, are or may be subjected. 24 The provisions of this paragraph shall, notwithstanding the provisions of Article 25 1, also apply to persons who are not residents of one or both of the Contracting 26 States. 27 28 2. The taxation on a permanent establishment which an enterprise of a 29 Contracting State has in the other Contracting State shall not be less favourably 30 levied in that other Contracting State than the taxation levied on enterprises of 31 that other Contracting State carrying on the same activities in similar 32 circumstances. The provisions of this paragraph shall not be construed as 33 obliging a Contracting State to grant to individuals who are residents of the 34 other Contracting State any personal allowances, reliefs and reductions for 35 taxation purposes which it grants to its own residents. 36 37 3. Except where the provisions of paragraph 1 of Article 9, paragraph 8 38 of Article 11, or paragraph 6 of Article 12, apply, interest, royalties and other 39 disbursements paid by an enterprise of a Contracting State to a resident of the 40 other Contracting State shall, for the purpose of determining the taxable profits International Tax Agreements Amendment Bill (No. 1) 2008 No. , 2008 39 [Page Break] 1 of such enterprise, be deductible under the same conditions as if they had been 2 paid to a resident of the first-mentioned Contracting State. 3 4 4. Enterprises of a Contracting State, the capital of which is wholly or 5 partly owned or controlled, directly or indirectly, by one or more residents of 6 the other Contracting State, shall not be subjected in the first-mentioned 7 Contracting State to any taxation or any requirement connected therewith which 8 is other or more burdensome than the taxation and connected requirements to 9 which other similar enterprises of the first-mentioned Contracting State in 10 similar circumstances are or may be subjected. 11 12 5. The provisions of this Article shall, notwithstanding the provisions of 13 Article 2, apply to taxes of every kind and description imposed by a Contracting 14 State or a political subdivision or local authority thereof. 15 16 Article 27 17 18 MUTUAL AGREEMENT PROCEDURE 19 20 1. Where a person considers that the actions of one or both of the 21 Contracting States result or will result for the person in taxation not in 22 accordance with the provisions of this Convention, the person may, irrespective 23 of the remedies provided by the domestic law of those Contracting States, 24 present a case to the competent authority of the Contracting State of which the 25 person is a resident or, if the case comes under paragraph 1 of Article 26, to that 26 of the Contracting State of which the person is a national. The case must be 27 presented within three years from the first notification of the action resulting in 28 taxation not in accordance with the provisions of the Convention. 29 30 2. The competent authority shall endeavour, if the claim appears to it to 31 be justified and if it is not itself able to arrive at a satisfactory solution, to 32 resolve the case by mutual agreement with the competent authority of the other 33 Contracting State, with a view to the avoidance of taxation which is not in 34 accordance with the provisions of this Convention. Any agreement reached 35 shall be implemented notwithstanding any time limits in the domestic law of the 36 Contracting States. 37 38 3. The competent authorities of the Contracting States shall endeavour to 39 resolve by mutual agreement any difficulties or doubts arising as to the 40 interpretation or application of this Convention. They may also consult together 40 International Tax Agreements Amendment Bill (No. 1) 2008 No. , 2008 [Page Break] 1 for the elimination of double taxation in cases not provided for in the 2 Convention. 3 4 4. The competent authorities of the Contracting States may communicate 5 with each other directly for the purpose of reaching an agreement in the sense of 6 the preceding paragraphs of this Article. 7 8 5. For the purposes of paragraph 3 of Article XXII (Consultation) of the 9 General Agreement on Trade in Services, the Contracting States agree that, 10 notwithstanding the provisions of that paragraph, any dispute between them as 11 to whether a measure falls within the scope of this Convention may be brought 12 before the Council for Trade in Services, as provided by that paragraph, only 13 with the consent of both Contracting States. Any doubt as to the interpretation 14 of this paragraph shall be resolved under paragraph 3 of this Article or, failing 15 agreement under that procedure, pursuant to any other procedure agreed to by 16 both Contracting States. 17 18 Article 28 19 20 EXCHANGE OF INFORMATION 21 22 1. The competent authorities of the Contracting States shall exchange 23 such information as is foreseeably relevant for carrying out the provisions of 24 this Convention or to the administration or enforcement of the domestic law 25 concerning taxes of every kind and description imposed on behalf of the 26 Contracting States, insofar as the taxation thereunder is not contrary to the 27 Convention. The exchange of information is not restricted by Articles 1 and 2. 28 29 2. Any information received under paragraph 1 by a Contracting State 30 shall be treated as secret in the same manner as information obtained under the 31 domestic law of that Contracting State and shall be disclosed only to persons or 32 authorities (including courts and administrative bodies) concerned with the 33 assessment or collection of, the enforcement or prosecution in respect of, the 34 determination of appeals in relation to the taxes referred to in paragraph 1, or 35 the oversight of the above. Such persons or authorities shall use the information 36 only for such purposes. They may disclose the information in public court 37 proceedings or in judicial decisions. 38 39 3. In no case shall the provisions of paragraphs 1 and 2 be construed so 40 as to impose on a Contracting State the obligation: 41 International Tax Agreements Amendment Bill (No. 1) 2008 No. , 2008 41 [Page Break] 1 a) to carry out administrative measures at variance with the law and 2 administrative practice of that or of the other Contracting State; 3 4 b) to supply information which is not obtainable under the law or in the 5 normal course of the administration of that or of the other Contracting 6 State; 7 8 c) to supply information which would disclose any trade, business, 9 industrial, commercial or professional secret or trade process, or 10 information, the disclosure of which would be contrary to public 11 policy. 12 13 4. If information is requested by a Contracting State in accordance with 14 this Article, the other Contracting State shall use its information gathering 15 measures to obtain the requested information, even though that other 16 Contracting State may not need such information for its own tax purposes. The 17 obligation contained in the preceding sentence is subject to the limitations of 18 paragraph 3 but in no case shall such limitations be construed to permit a 19 Contracting State to decline to supply information solely because it has no 20 domestic interest in such information. 21 22 5. In no case shall the provisions of paragraph 3 be construed to permit a 23 Contracting State to decline to supply information solely because the 24 information is held by a bank, other financial institution, nominee or person 25 acting in an agency or a fiduciary capacity or because it relates to ownership 26 interests in a person. 27 28 Article 29 29 30 MEMBERS OF DIPLOMATIC MISSIONS 31 AND CONSULAR POSTS 32 33 Nothing in this Convention shall affect the fiscal privileges of members of 34 diplomatic missions or consular posts under the general rules of international 35 law or under the provisions of special international agreements. 36 37 Article 30 38 39 HEADINGS 40 42 International Tax Agreements Amendment Bill (No. 1) 2008 No. , 2008 [Page Break] 1 The headings of the Articles of this Convention are inserted for convenience of 2 reference only and shall not affect the interpretation of the Convention. 3 4 Article 31 5 6 ENTRY INTO FORCE 7 8 1. This Convention shall be approved in accordance with the legal 9 procedures of each of the Contracting States and shall enter into force on the 10 thirtieth day after the date of exchange of diplomatic notes indicating such 11 approval. 12 13 2. This Convention shall be applicable: 14 15 a) in the case of Japan: 16 17 (i) with respect to taxes withheld at source, for amounts taxable 18 on or after 1 January in the calendar year next following that 19 in which the Convention enters into force; 20 21 (ii) with respect to taxes on income which are not withheld at 22 source, as regards income for any taxable year beginning on 23 or after 1 January in the calendar year next following that in 24 which the Convention enters into force; and 25 26 (iii) with respect to other taxes, as regards taxes for any taxable 27 year beginning on or after 1 January in the calendar year next 28 following that in which the Convention enters into force; and 29 30 b) in the case of Australia: 31 32 (i) with respect to withholding tax on income that is derived by a 33 resident of Japan, in relation to income derived on or after 34 1 January in the calendar year next following that in which 35 the Convention enters into force; and 36 37 (ii) with respect to other taxes, as regards any taxable year 38 beginning on or after 1 July in the calendar year next 39 following that in which the Convention enters into force. 40 International Tax Agreements Amendment Bill (No. 1) 2008 No. , 2008 43 [Page Break] 1 3. The Agreement between Japan and the Commonwealth of Australia 2 for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion 3 with respect to Taxes on Income signed at Canberra on 20 March, 1969 4 (hereinafter referred to as "the prior Agreement") shall cease to be effective 5 from the date upon which this Convention has effect in respect of the taxes to 6 which the Convention applies in accordance with the provisions of paragraph 2. 7 8 4. The prior Agreement shall terminate on the last date on which it has 9 effect in accordance with this Article. 10 11 5. Notwithstanding the entry into force of this Convention, an individual 12 who is entitled to the benefits of Article 15 of the prior Agreement at the time of 13 the entry into force of the Convention shall continue to be entitled to such 14 benefits until such time as the individual would have ceased to be entitled to 15 such benefits if the prior Agreement had remained in force. 16 17 Article 32 18 19 TERMINATION 20 21 This Convention shall remain in force until terminated by a Contracting State. 22 Either Contracting State may terminate the Convention after the expiration of a 23 period of five years from the date of its entry into force, by giving to the other 24 Contracting State, through the diplomatic channel, six months prior written 25 notice of termination. In such event, the Convention shall cease to have effect: 26 27 a) in the case of Japan: 28 29 (i) with respect to taxes withheld at source, for amounts taxable 30 on or after 1 January in the calendar year next following the 31 expiration of the six month period; 32 33 (ii) with respect to taxes on income which are not withheld at 34 source, as regards income for any taxable year beginning on 35 or after 1 January in the calendar year next following the 36 expiration of the six month period; and 37 38 (iii) with respect to other taxes, as regards taxes for any taxable 39 year beginning on or after 1 January in the calendar year next 40 following the expiration of the six month period; and 41 44 International Tax Agreements Amendment Bill (No. 1) 2008 No. , 2008 [Page Break] 1 b) in the case of Australia: 2 3 (i) with respect to withholding tax on income that is derived by a 4 resident of Japan, in relation to income derived on or after 5 1 January in the calendar year next following the expiration of 6 the six month period; and 7 8 (ii) with respect to other taxes, as regards any taxable year 9 beginning on or after 1 July in the calendar year next 10 following the expiration of the six month period. 11 12 IN WITNESS WHEREOF the undersigned, being duly authorised thereto by 13 their respective Governments, have signed this Convention. 14 15 16 DONE in duplicate at Tokyo this thirty-first day of January, 2008, in the 17 English and Japanese languages, each text being equally authentic. 18 19 For Australia For Japan Hon. Stephen Smith Hon. Masahiko Koumura Minister for Foreign Affairs Minister for Foreign Affairs [Signatures omitted] 20 21 22 International Tax Agreements Amendment Bill (No. 1) 2008 No. , 2008 45 [Page Break] 1 2 Protocol 3 4 5 At the signing of the Convention between Australia and Japan for the 6 Avoidance of Double Taxation and the Prevention of Fiscal Evasion with 7 respect to Taxes on Income (hereinafter referred to as "the Convention"), 8 Australia and Japan have agreed upon the following provisions, which shall 9 form an integral part of the Convention. 10 11 1. With reference to subparagraph b) of paragraph 1 of Article 2 (Taxes 12 Covered) of the Convention: 13 14 The term "the petroleum resource rent tax" means the resource rent tax, in 15 respect of offshore projects relating to the exploration for or exploitation of 16 petroleum resources, imposed under the Petroleum Resource Rent Tax Act 17 1987. 18 19 2. With reference to subparagraph d) of paragraph 1 of Article 3 (General 20 Definitions) of the Convention: 21 22 The term "Australian tax" or "Japanese tax" shall not include any amount which 23 represents a penalty or interest imposed under the laws of Australia or Japan, 24 respectively, relating to the taxes to which the Convention applies. 25 26 3. With reference to paragraph 2 of Article 4 (Resident) of the 27 Convention: 28 29 It is understood that the fact of having an habitual abode in a Contracting State 30 rather than in the other Contracting State shall be taken into account in 31 determining where the individual's centre of vital interests is situated. 32 33 4. With reference to paragraph 3 of Article 4 (Resident) of the 34 Convention: 35 36 It is understood that the term "any other relevant factors" includes: 37 38 a) where the senior day-to-day management is carried on; 39 40 b) which Contracting State's law governs the legal status; 41 46 International Tax Agreements Amendment Bill (No. 1) 2008 No. , 2008 [Page Break] 1 c) where the accounting records are held; and 2 3 d) where business is carried on. 4 5 5. With reference to subparagraphs b) and c) of paragraph 4 of Article 5 6 (Permanent Establishment) of the Convention: 7 8 a) It is understood that an enterprise of a Contracting State shall not be 9 considered to operate equipment in the other Contracting State where 10 the enterprise leases equipment under a lease contract that is solely for 11 the provision of equipment, including a bareboat lease contract. 12 13 b) It is understood that the factors of size, quantity or value of equipment 14 or the role of equipment in income producing activities are relevant in 15 determining whether the equipment is substantial on the basis of the 16 facts and circumstances of each particular case. 17 18 c) It is understood that the term "substantial equipment" may include: 19 20 (i) industrial earthmoving equipment or construction equipment 21 used in road building, dam building or powerhouse 22 construction; 23 24 (ii) manufacturing or processing equipment used in a factory; and 25 26 (iii) oil or drilling rigs, platforms and other structures used in the 27 petroleum or mining industry. 28 29 6. With reference to paragraph 7 of Article 5 (Permanent Establishment) 30 of the Convention: 31 32 It is understood that the term "substantially negotiate" is included in order to 33 remove any doubt as to the existence of a permanent establishment where 34 contracts that have been negotiated by an agent in a Contracting State are 35 formally concluded in the other Contracting State. 36 37 7. With reference to Articles 6 (Income from Real Property), 7 (Business 38 Profits), 21 (Other Income) and 22 (Source of Income) of the Convention: 39 40 It is understood that nothing in these Articles shall prevent a Contracting State 41 from applying its domestic tax law in the case where income is derived by a International Tax Agreements Amendment Bill (No. 1) 2008 No. , 2008 47 [Page Break] 1 resident of that Contracting State from real property situated in that Contracting 2 State, even where such a resident carries on business in the other Contracting 3 State through a permanent establishment situated therein and the real property is 4 effectively connected with such permanent establishment. In this case, such 5 income shall not be deemed to arise from sources in that other Contracting State 6 for the purposes of applying the domestic tax law of the first-mentioned 7 Contracting State. 8 9 8. With reference to subparagraph f) of paragraph 2 of Article 6 (Income 10 from Real Property) of the Convention: 11 12 It is understood that the rights referred to in that subparagraph principally cover: 13 14 a) rights to receive payments where the person receiving the payments 15 grants rights to explore for or exploit natural resources; and 16 17 b) rights to receive payments which arise or are quantified by reference 18 to the exploitation of, or exploration for, natural resources in 19 circumstances where the person receiving the payments may not have 20 an interest in the natural resources or rights over the extraction of, or 21 exploration for, natural resources. 22 23 9. With reference to Articles 7 (Business Profits) and 13 (Alienation of 24 Property) of the Convention: 25 26 It is understood that, where an enterprise of a Contracting State which has 27 carried on business in the other Contracting State through a permanent 28 establishment situated therein, receives, after the enterprise has ceased to carry 29 on business as aforesaid, income, profits or gains attributable to the permanent 30 establishment, such income, profits or gains may be taxed in that other 31 Contracting State in accordance with the principles stated in Articles 7 and 13 32 of the Convention. 33 34 10. With reference to paragraph 6 of Article 7 (Business Profits) of the 35 Convention: 36 37 It is understood that, for the purposes of the paragraph, a good and sufficient 38 reason to the contrary shall be considered to exist where there is an alternative 39 method that gives the most appropriate determination of the profits in 40 accordance with the principles contained in the Article. 41 48 International Tax Agreements Amendment Bill (No. 1) 2008 No. , 2008 [Page Break] 1 11. With reference to subparagraph a) of paragraph 9 of Article 7 2 (Business Profits) of the Convention: 3 4 It is understood that in the case of Japan the term "a trust which is treated as a 5 company for tax purposes" means a trust, the trustee of which is subject to tax 6 in respect of profits derived from business carried on by the use of trust estate. 7 8 12. With reference to Articles 10 (Dividends), 11 (Interest) and 12 9 (Royalties) of the Convention: 10 11 The term "for the purposes of its tax" in relation to a resident of a Contracting 12 State refers to the case where a person is a resident of a Contracting State by 13 virtue of paragraph 1 of Article 4 of the Convention, even if the person is 14 deemed to be a resident of the other Contracting State by virtue of paragraph 2 15 or 3 of that Article. 16 17 13. With reference to subparagraph a) of paragraph 3 of Article 11 18 (Interest) of the Convention: 19 20 It is understood that the term "any other body exercising governmental 21 function" shall be determined according to the law of the Contracting State in 22 which the interest arises. 23 24 14. With reference to subparagraph b) of paragraph 3 of Article 11 25 (Interest) of the Convention: 26 27 It is understood that: 28 29 a) a financial institution shall be unrelated to a payer of the interest 30 where, in considering the level of participation in the ownership or 31 control of either the financial institution or the payer by the other 32 party, neither party is able to exert sufficient influence over the other 33 party; 34 35 b) an enterprise shall derive its profits substantially by a certain activity, 36 where the activity constitutes its main activity when compared to any 37 other activity that it undertakes in terms of its contribution to the 38 enterprise's overall profits. 39 40 15. With reference to paragraph 4 of Article 11 (Interest) of the 41 Convention: International Tax Agreements Amendment Bill (No. 1) 2008 No. , 2008 49 [Page Break] 1 2 It is understood that the term "arrangement involving back-to-back loans" 3 would cover, inter alia, any kind of arrangement structured in such a way that a 4 financial institution which is a resident of a Contracting State receives interest 5 arising in the other Contracting State and the financial institution pays an 6 equivalent interest to another person who is a resident of the first-mentioned 7 Contracting State and, if it received the interest directly from the other 8 Contracting State, would not be entitled to the exemption from tax with respect 9 to that interest in that other Contracting State. 10 11 16. With reference to paragraph 3 of Article 12 (Royalties) of the 12 Convention: 13 14 The term "royalties" shall not include payments for the use of spectrum 15 licences. The provisions of Article 7 of the Convention shall apply to such 16 payments. 17 18 17. With reference to subparagraph e) of paragraph 3 of Article 12 19 (Royalties) of the Convention: 20 21 It is understood that the term "forbearance in respect of the use or supply of any 22 property or right" applies to cases where the holder of any property or right 23 receives a payment or provides credits, as consideration, for not making such 24 property or right available to another person. 25 26 18. With reference to paragraph 3 of Article 13 (Alienation of Property) of 27 the Convention: 28 29 It is understood that where, in the case of schemes of reorganisation of 30 companies, the laws of a Contracting State allow for the taxation of the gains 31 arising from the disposal of shares in a company to be deferred, such gains shall 32 be regarded as subject to tax unless any part of the deferred gains is as a result 33 of a later disposal or reorganisation subject to a statutory exemption under the 34 laws of that Contracting State. 35 36 19. With reference to paragraph 1 of Article 25 (Elimination of Double 37 Taxation) of the Convention: 38 39 For the purposes of the paragraph, the income tax and the petroleum resource 40 rent tax referred to in subparagraph b) of paragraph 1 of Article 2 of the 41 Convention shall be treated as a unified tax on income. 50 International Tax Agreements Amendment Bill (No. 1) 2008 No. , 2008 [Page Break] 1 2 20. With reference to Article 26 (Non-Discrimination) of the Convention: 3 4 The provisions of the Article shall not apply to the following provisions of the 5 laws of Australia: 6 7 a) Subdivision A of Division 3 of Part III of the Income Tax Assessment 8 Act 1936 (hereinafter referred to as "ITAA 1936"), which provides 9 deductions to eligible taxpayers for research and development; 10 11 b) Section 26-25 of Part 2-5 of Chapter 2 of the Income Tax Assessment 12 Act 1997 (hereinafter referred to as "ITAA 1997"), which provides 13 measures to ensure that taxes can be effectively collected and 14 recovered, including conservancy measures under the general law; and 15 16 c) any provision adopted after the date of signature of the Convention 17 which is substantially similar in purpose or intent to a provision 18 covered by this paragraph, or is otherwise agreed between the 19 Governments of the Contracting States through an exchange of 20 diplomatic notes. 21 22 21. With reference to Article 26 (Non-Discrimination) of the Convention: 23 24 It is understood that nothing in the Article shall be construed as restricting the 25 application of any of the following provisions of the laws of Australia: 26 27 a) Subdivision D of Division 2 of Part III of the ITAA 1936, to the extent 28 those provisions do not allow tax rebates or credits to non-resident 29 taxpayers in relation to dividends paid by a company that is a resident 30 of Australia for the purposes of its tax; 31 32 b) Division 6AAA of Part III of the ITAA 1936, which provides for the 33 taxation of certain residents in relation to non-resident trust estates; 34 35 c) Division 13 of Part III of the ITAA 1936, which deals with transfer 36 pricing; 37 38 d) Section 177E of Part IVA of the ITAA 1936, which addresses 39 dividend stripping arrangements; 40 International Tax Agreements Amendment Bill (No. 1) 2008 No. , 2008 51 [Page Break] 1 e) Part X of the ITAA 1936, which provides for the taxation of certain 2 residents with interests in controlled foreign companies; 3 4 f) Part XI of the ITAA 1936, which provides for the taxation of certain 5 resident investors in foreign investment funds and foreign life 6 assurance policies; 7 8 g) Section 122-25 of Part 3-3 of Chapter 3 of the ITAA 1997, which does 9 not permit the deferral of tax arising on the transfer of an asset, where 10 the subsequent transfer of the asset by the transferee would be beyond 11 the taxing jurisdiction of Australia under its laws; 12 13 h) Part 3-90 of Chapter 3 of the ITAA 1997, which provides for 14 consolidation of group entities for treatment as a single entity for tax 15 purposes; 16 17 i) Division 820 of Part 4-5 of Chapter 4 of the ITAA 1997, which 18 addresses thin capitalisation; and 19 20 j) any provision adopted after the date of signature of the Convention 21 which is substantially similar in purpose or intent to a provision 22 covered by this paragraph, or is otherwise agreed between the 23 Governments of the Contracting States through an exchange of 24 diplomatic notes. 25 26 22. With reference to paragraph 1 of Article 28 (Exchange of Information) 27 of the Convention: 28 29 In the case of Australia, the term "taxes of every kind and description imposed 30 on behalf of the Contracting States" means taxes of every kind and description 31 imposed under the federal tax laws administered by the Commissioner of 32 Taxation. 33 34 23. It is understood that under paragraph 5 of Article 28 of the Convention 35 a refusal to supply information held by a bank, other financial institution, 36 nominee or person acting in an agency or a fiduciary capacity or information 37 relating to ownership interests must be based on reasons unrelated to the 38 person's status as a bank, other financial institution, nominee, agent or 39 fiduciary, or the fact that the information relates to ownership interests. It is also 40 understood that under paragraph 5 of Article 28 a Contracting State may decline 41 to supply information relating to confidential communications between 52 International Tax Agreements Amendment Bill (No. 1) 2008 No. , 2008 [Page Break] 1 attorneys, solicitors or other admitted legal representatives in their role as such 2 and their clients to the extent that the communications are protected from 3 disclosure under the domestic law of that Contracting State. 4 5 IN WITNESS WHEREOF the undersigned, being duly authorised thereto by 6 their respective Governments, have signed this Protocol. 7 8 9 DONE in duplicate at Tokyo this thirty-first day of January, 2008, in the 10 English and Japanese languages, each text being equally authentic. 11 12 For Australia For Japan Hon. Stephen Smith Hon. Masahiko Koumura Minister for Foreign Affairs Minister for Foreign Affairs [Signatures omitted] 13 14 International Tax Agreements Amendment Bill (No. 1) 2008 No. , 2008 53 [Page Break] 1 2 3 (Japanese Note) 4 5 Translation 6 7 8 Tokyo, 31 January, 2008 9 10 11 Excellency: 12 13 14 I have the honour to refer to the Convention between Japan and 15 Australia for the Avoidance of Double Taxation and the Prevention of Fiscal 16 Evasion with respect to Taxes on Income which was signed today (hereinafter 17 referred to as "the Convention") and to the Protocol also signed today which 18 forms an integral part of the Convention, and to make, on behalf of the 19 Government of Japan, the following proposals: 20 21 22 1. It is understood that both Contracting States shall cooperate for the 23 avoidance of double taxation through appropriate application of the provisions 24 of the Convention and other necessary measures. 25 26 27 2. With reference to Article 9 (Associated Enterprises) of the Convention: 28 29 It is understood that both Contracting States shall undertake to conduct 30 transfer pricing examinations of enterprises and evaluate applications for 31 advance pricing arrangements in accordance with the Transfer Pricing 32 Guidelines for Multinational Enterprises and Tax Administrations of the 33 Organisation for Economic Cooperation and Development (hereinafter referred 34 to as "the OECD Transfer Pricing Guidelines"), which reflect the international 35 consensus with respect to these issues. The domestic transfer pricing rules, 36 including the transfer pricing methods, of each Contracting State may be 37 applied in resolving transfer pricing cases under the Convention only to the 38 extent that they are consistent with the OECD Transfer Pricing Guidelines. 39 40 41 His Excellency 42 The Hon. Stephen Smith 43 Minister for Foreign Affairs 44 of Australia 45 54 International Tax Agreements Amendment Bill (No. 1) 2008 No. , 2008 [Page Break] 1 3. With reference to paragraph 3 of Article 10 (Dividends) and 2 subparagraph a) of paragraph 3 of Article 23 (Limitation on Benefits) of the 3 Convention: 4 5 It is understood that the date on which entitlement to the dividends is 6 determined is: 7 8 a) in the case of Japan, the end of the accounting period for which 9 the distribution of profits takes place; or 10 b) in the case of Australia, the date the dividends are declared. 11 12 If the foregoing understanding is acceptable to the Government of 13 Australia, I have the honour to suggest that the present note and Your 14 Excellency's reply to that effect should be regarded as constituting an 15 agreement between the two Governments in this matter, which shall enter into 16 force at the same time as the Convention. 17 18 I avail myself of this opportunity to extend to Your Excellency the 19 assurance of my highest consideration. 20 21 22 23 24 25 26 Masahiko Koumura 27 Minister for Foreign Affairs 28 of Japan 29 [Signature omitted] 30 31 International Tax Agreements Amendment Bill (No. 1) 2008 No. , 2008 55 [Page Break] 1 2 3 (Australian Note) 4 5 Tokyo, 31 January, 2008 6 7 8 Excellency: 9 10 I have the honour to acknowledge receipt of Your Excellency's Note of 11 today's date which in translation reads as follows: 12 13 14 "(Japanese Note)" 15 16 17 The foregoing understanding being acceptable to the Government of 18 Australia, I have the honour to confirm that Your Excellency's Note and this 19 reply shall be regarded as constituting an agreement between the two 20 Governments in this matter, which shall enter into force at the same time as the 21 entry into force of the Convention. 22 23 I take this opportunity to extend to Your Excellency the assurance of 24 my highest consideration. 25 26 27 28 29 30 31 Stephen Smith 32 Minister for Foreign Affairs 33 of Australia 34 [Signature omitted] 35 36 37 38 39 His Excellency 40 Mr. Masahiko Koumura 41 Minister for Foreign Affairs 42 of Japan 56 International Tax Agreements Amendment Bill (No. 1) 2008 No. , 2008