Commonwealth Numbered Acts

INTERNATIONAL TAX AGREEMENTS AMENDMENT ACT (NO. 1) 1997 No. 80 of 1997 - SCHEDULE 1

Schedule 1-Amendments relating to tax agreement with Vietnam
International Tax Agreements Act 1953 1 Subsection 3(1) (at the end of the
definition of the Vietnamese agreement) Add ", as amended by the Vietnamese
notes". 2 Subsection 3(1) Insert:
the Vietnamese notes means the Exchange of Notes between the Government of
Australia and the Government of the Socialist Republic of Vietnam amending the
Vietnamese agreement, that was carried out on 22 November 1996. A copy of the
Notes is set out in Schedule 38A. 3 After section 11ZC Insert: 11ZCA Exchange
of Notes between Australia and the Socialist Republic of Vietnam

(1) Subject to this Act, on or after the date of entry into force of the
Vietnamese notes, the provisions of the notes, so far as those provisions
affect Australian tax, have the force of law according to their tenor.

(2) The Commissioner may amend an assessment made before the date of entry
into force of the Vietnamese notes for the purpose of giving effect to
subsection (1). 4 Schedule 38, paragraph 9.3 Omit "Where profits of which",
substitute "Where profits on which". 5 After Schedule 38 Insert: Schedule
38A-Exchange of Notes between the Government of Australia and the Government
of the Socialist Republic of Vietnam amending the Agreement between the
Government of Australia and the Government of the Socialist Republic of
Vietnam for the avoidance of double taxation and the prevention of fiscal
evasion with respect to taxes on income No. ALA 96/568 The Department of
Foreign Affairs and Trade presents its compliments to the Embassy of the
Socialist Republic of Vietnam and has the honour to refer to the Agreement
between the Government of Australia and the Government of the Socialist
Republic of Vietnam for the Avoidance of Double Taxation and the Prevention of
Fiscal Evasion with Respect to Taxes on Income, done at Hanoi on 13 April 1992
(hereinafter referred to as "the Head Agreement"). The Department notes that
paragraphs 3, 4 and 5 of Article 23 of the Head Agreement provide for "tax
sparing" by Australia in relation to tax forgone by Vietnam under the
provisions of certain Vietnamese tax laws. The Department has the honour to
propose that Article 23 be amended as follows: I. Paragraph 4 shall be deleted
and replaced with the following: "4. In paragraph 3, the term "Vietnamese tax
forgone" means, subject to paragraphs 5 and 6, the total amount which, under
the law of Vietnam relating to Vietnamese tax and in accordance with this
Agreement, would have been payable as Vietnamese tax on income but for an
exemption from, or reduction of, Vietnamese tax on that income (which total
amount shall be deemed to be no greater than 20 per cent of the Vietnamese
taxable income that relates to the income the subject of the exemption or
reduction), less the actual amount of Vietnamese tax payable on that income."
II. Paragraph 5 shall be deleted and replaced with the following: "5.
Paragraph 4 shall apply only in respect of exemptions or reductions resulting
from the operation of:

   (a)  (i) Articles 26, 27, 28 or 32 of the Law on Foreign Investment in
        Vietnam 1987; or

        (ii)   Articles 66, 67, 68, 69 or 72 of Decree No. 18-CP on
               implementing regulations of the Law on Foreign Investment in
               Vietnam dated 16 April 1993; or

        (iii)  Circular No. 48-TC-TCT on Profits Tax Rates and Exemption from
               and Reduction of Profits Tax dated 30 June 1993; or

        (iv)   Part A of Part II of Circular No. 51-TC-TCT on Taxation of
               Foreign Investment in Vietnam dated 3 July 1993; or

        (v)    Decree No. 87-CP on Build-Operate-Transfer (BOT) Contracts
               dated 23 November 1993 and the regulations issued with that
               Decree, to the extent those provisions were in force on, and
               have not been modified since, the date of this Note, or have
               been modified only in minor respects so as not to affect their
               general character; or

   (b)  any other provision which may subsequently be made granting an
        exemption from, or reduction of, Vietnamese tax which the Treasurer of
        Australia and the Minister of Finance of Vietnam determine from time
        to time in letters exchanged for this purpose to be provisions to
        which this paragraph applies. Subject to its terms, such a
        determination of applicable provisions shall be valid for as long as
        those provisions are not modified after the date of that determination
        or have been modified only in minor respects so as not to affect their
        general character." III. The following paragraphs shall be inserted
        after paragraph 5: "6. Paragraph 4 shall apply only to the extent that
        the exemption or reduction is granted in respect of Vietnamese tax on
        income from the following activities:

   (a)  construction of infrastructure facilities including communications,
        power production and supply, construction of infrastructure facilities
        for the export processing and industry intensive zones and information
        and telecommunication facilities in mountainous areas in which
        naturally and socio economically difficult conditions exist; or

   (b)  plantation of new forests for commercial exploitation; or

   (c)  extremely important activities listed in the investment portfolio
        announced by the Vietnamese State Committee for Co-operation and
        Investment for each period; or

   (d)  exploitation of natural resources except oil, gas or rare and precious
        natural resources; or

   (e)  heavy industry projects including metallurgy, mechanical engineering
        production, base chemical production, cement production, electrical
        and electronic materials manufacturing, fertiliser manufacturing and
        anti epidemic medicines for use in animal production or forestry; or

   (f)  plantation of long term industrial crops; or

   (g)  activities in mountainous areas in which naturally and socio
        economically difficult conditions exist including hotel undertaking
        projects; or

   (h)  any project satisfying at least 2 of the following criteria:

        (i)    employing at least 500 Vietnamese; or

        (ii)   applying advanced technology which satisfies the requirements
               listed in Article 4 of the Ordinance on the Transfer of Foreign
               Technology dated 5 December 1988, subject to the approval of
               the Ministry of Science and Technology and Environment; or

        (iii)  exporting at least 80% of the products manufactured by the
               project itself; or

        (iv)   the prescribed capital or contributed capital for the
               implementation of the business co-operation contract is at
               least US $10 million dollars; or

   (j)  projects carrying out infrastructure activities within a definite time
        period in which the foreign partner transfers the infrastructure to
        the Vietnamese Government without any compensation. 7. Notwithstanding
        the operation of paragraph 4, Vietnamese tax forgone shall not be
        deemed to have been paid in respect of income derived from:

   (a)  banking, insurance, consulting, accounting, auditing and commercial
        services of any kind; or

   (b)  the operation of ships or aircraft, other than ships or aircraft
        operated principally from places in Vietnam and used solely in
        carrying on a business in Vietnam; or

   (c)  any scheme entered into by an Australian resident with the purpose of
        using Vietnam as a conduit for income or as a location of property in
        order to evade or avoid Australian tax through the exploitation of the
        Australian foreign tax credit provisions or to confer a benefit on a
        person who is neither a resident of Australia, nor of Vietnam. 8.
        Paragraphs 4, 5, 6 and 7 shall not apply in relation to income derived
        in any year of income after the year of income that ends on:

   (a)  30 June 2003; or

   (b)  any later date that may be agreed by the Treasurer of Australia and
        the Minister of Finance of Vietnam in letters exchanged for this
        purpose, whichever is the later in time occurring." IV. Paragraph 6
        shall be renumbered as paragraph 9. If the foregoing is acceptable to
        the Government of the Socialist Republic of Vietnam, the Department
        has the honour to propose that this Note and the Embassy's
        confirmatory Note in reply shall constitute an Agreement between the
        Government of Australia and the Government of the Socialist Republic
        of Vietnam to amend the Head Agreement. The amendment to the Head
        Agreement shall enter into force when the two Governments have
        notified each other by a further exchange of notes that they have
        completed their domestic requirements for the entry into force of such
        amendment. The amendment to the Head Agreement shall have effect in
        respect of Australian tax in relation to income, profits or gains of
        the year of income that began on 1 July 1993 and of subsequent years
        of income. The Department of Foreign Affairs and Trade avails itself
        of this opportunity to renew to the Embassy of the Socialist Republic
        of Vietnam the assurances of its highest consideration. CANBERRA 22
        November 1996 Note in Reply
The Embassy of the Socialist Republic of Vietnam presents its compliments to
the Department of Foreign Affairs and Trade and has the honour to refer to the
Department's Note No ALA 96/568 of 22 November 1996 which reads as follows:

"[Text of Note No ALA 96/568 of 22 November 1996 of the Department of Foreign
Affairs and Trade of the Government of Australia.]"
The Embassy has the honour to advise that the Department's proposal is
acceptable to the Government of the Socialist Republic of Vietnam and that
accordingly the Agreement between the Government of Australia and the
Government of the Socialist Republic of Vietnam for the Avoidance of Double
Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income,
done at Hanoi on 13 April 1992, is to be regarded as amended from the date
when the two Governments have notified each other by a further exchange of
notes that they have completed their domestic requirements for the entry into
force of such amendment. The amendment to the Head Agreement shall have effect
in respect of Australian tax in relation to income, profits or gains of the
year of income that began on 1 July 1993 and of subsequent years of income.
The Embassy of the Socialist Republic of Vietnam avails itself of this
opportunity to renew to the Department of Foreign Affairs and Trade the
assurances of its highest consideration. CANBERRA 22 November 1996 6
Application
The amendment made by item 4 of this Schedule applies to assessments in
respect of income of the first year of income to which the Vietnamese
agreement, as defined under subsection 3(1) of the International Tax
Agreements Act 1953, applied and all later years of income.

(Minister's second reading speech made in-
House of Representatives on 26 March 1997
Senate on 26 May 1997)