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House: House of Representatives

Portfolio: Treasury

Commencement: Royal Assent

+=5"> Purpose

To implement a Double Taxation Agreement between Australia and the Czech Republic.

+=5"> Background

Australia has agreements with a number of countries, known as Double Tax Agreements, aimed to prevent the double taxation of income where income is received by a resident of one of the parties to the agreement from activities in the other party to the agreement. The agreement also aims to help minimise tax avoidance and evasion. The agreements deal with income from a number of specific sources, such as business income, dividends, interest and royalties. A number of more recent agreements contain a general provision allowing the taxation by Australia of money derived in Australia where it is not specifically dealt with in the agreement. This process will be adopted in the new agreement with New Zealand.

The agreements provide for the taxation treatment which is to apply, particularly which country may tax various categories of income and limitations on the amount that may be taxed. Agreements, in most cases, overrule provisions of the Income Tax Assessment Act 1936, although a specific Australian law can overrule an agreement.

Agreements have a common format but differ to reflect the various tax rules applying in the countries with which Australia has an agreement. Australia

currently has agreements with 36 countries, including:

. China, Japan, Korea, Malaysia and Indonesia;

. Singapore, Thailand, India and Vietnam;

. most Western and Southern European and Scandinavian countries;

. Hungary and Poland;

. Ireland and the United Kingdom;

. the United States of America; and

. New Zealand.

The agreement to be implemented by this Bill between Australia and the Czech Republic was signed on 28 March 1995.

+=5"> Main Provisions

The text of the Agreement between Australia and the Czech Republic is contained in the Schedule to the Bill.

The Agreement between Australia and the Czech Republic reflects current double taxation and tax avoidance agreements entered into with other countries. For example, income from the alienation of real property is taxed in the country in which the property is situated (Article 13). Business profits may only be taxed in the source country if the entity has a permanent establishment in a country (Article 7). Dividends, interest and royalties may be taxed by either country but there are limits on the tax charged by the source country, while pensions are generally only taxable in the country of residence (Articles 10- 12 and 18).

Income not covered by a specific Article of the Agreement is taxable in the country of which the taxpayer is a resident, except to the extent to which it is derived in the other country to the Agreement. In the latter case, the income may also be taxed in the country in which it was derived (Article 22).

The measures to avoid double taxation provided for in the Agreement are based on each country allowing a credit for tax paid in the other country (Article 23).

Taxation anti- avoidance measure centre on the exchange of information between tax officials in Australia and the Czech Republic. Neither country is obliged to provide information that could not be obtained under the laws of the country to which the information is to be supplied or to disclose information that would be contrary to public policy (Article 25).

The Agreement may be terminated, five years after it commences to operate, by giving one year's notice (Article 28).

Ian Ireland (06 2772438)

Bills Digest Service

Parliamentary Research Service

26 September 1995

This Digest does not have any legal status. Other sources should be consulted to

determine whether this Bill has been enacted and, if so, whether the subsequent Act reflects further amendments.

Commonwealth of Australia 1995

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