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Double taxation agreement with the Philippines

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A double taxation agreement between Australia and the Philippines entered into force today. .

Details of the Agreement were made public at the time of its signature on 11 May 1979, and legislation providing for it to be given the force of law in Australia received the Royal Assent on 1 May 1980.

Corresponding action has been completed in the Philippines, and the formal exchange of instruments of ratification necessary to .bring the agreement into force was. effected today. _

The agreement will have effect in Australia from 1 January 1980, in respect of dividends and interest income subject to withholding tax paid to residents of the Philippines, and, in respect of other income, for income years commencing on or after 1 July 1980. The agreement will have effect in the Philippines in respect of

tax withheld at the source from 1 January 1980 and in respect of other taxes for taxable years beginning on or after 1 January 1980.

A particular feature of this agreement is that, except in specified circumstances, each country is to limit its tax on dividends

flowing to residents of the other country to 25 per cent of the gross amount of the dividends rather than 15 per cent as in other double taxation agreements entered into by Australia- .

Amendments to the Income Tax Regulations gazetted today accordingly provide for the rate at which dividend withholding tax is deducted

from dividends paid to residents of the Philippines to be reduced from 30 per cent to 25 per cent.

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Australian resident companies with shareholders resident in the Philippines should, therefore, note that the rate of withholding

tax on dividends paid to Philippine residents as from today will be reduced from 30 per cent to 25 per cent.

Where a Philippine company owns more than 50 per cent of the

voting stock of an Australian dividend paying company, the agreement provides for the Australian tax on dividends to be

limited to 15 per cent of the gross dividend.

Arrangements for application of this lower rate may be made on

application by the companies concerned to the Taxation Office.

The general rate of Philippine tax on dividends paid by Philippine companies to residents of Australia will be 25 per cent but in the

case of dividends paid to Australian companies, which are effectively freed from Australian tax by the rebate of tax on inter-company dividends, the Philippine tax will be limited to 15 per cent.

The agreement generally limits the source country tax on interest derived by residents of one country from a source in the other to 15 per cent. This limitation will not affect Australia's interest

withholding tax, which is payable at the rate of 10 per cent. .

In the case of royalties derived by residents of one country from

sources in the other, the agreement will generally limit tax in the country of source to 25 per cent of the gross royalties. The

Philippines will reduce its tax on royalties paid to residents of Australia to 15 per cent where the royalties are paid by an enterprise engaged in preferred areas of activities in the

Philippines. In these cases Australia, as a "tax sparing" concession, will tax the Australian recipient of the royalties and

give credit for Philippine tax, as if Philippine tax equal to 20 per cent of the royalties had been paid.

17 June 1980