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Friday, 2 August 1946

Mr CHIFLEY (Macquarie) (Prime Minister and Treasurer) . - by leave - I desire to inform the House that finality has now been reached in the detailed negotiations for the relief of double taxation between the United Kingdom and Australia, which have been taking place in London with the Board . of Inland Revenue. The agreement will, in due course, be signed in London by the Australian Resident Minister (Mr. J. A. Beasley) and the British Chancellor of the Exchequer (Dr. Dalton), and will then be published.

The agreement will apply in respect of ordinary income tax, super tax, undistributed profits tax, social services contribution and war-time (company) tax in Australia, and income tax, surtax, excess profits tax and national defence contribution in the United Kingdom. With the exception ofprofits from shipping and air transport, dividends, literary and industrial royalties, pensions and purchased annuities and certain agencies, priority of tax will be given to the country of the origin of the income. If the country of the taxpayer's residence also taxes the income, it will give a credit against its own tax of the tax paid to the country of origin. The present arrangement, under which the relief from double taxation suffered by United Kingdom residents on their Australian income is borne partly' by Australia and partly 'by the United Kingdom, will be discontinued. In future the United Kingdom will provide the full relief to its residents by giving them a tax credit of the Australian tax against the United Kingdom tax on that income. Except in relation to dividends from United Kingdom companies, Australia does sot tax its residents on income derived from sources in. the United Kingdom which is taxed in that country, so Australian residents do not suffer double taxation on their United Kingdom income.

One of the biggest obstacles which has hindered the British industrialist from extending his enterprise to Australia or from expanding his business already established in this country is the heavy -weight of the combined United Kingdom and Australian taxation on the profits, and on dividends paid out of those profits, where the Australian business is carried on through the medium of a separate subsidiary company.

In order to reduce the incidence of the combined taxes in these cases, Australia will exempt from its tax, dividends paid by an Australian subsidiary to its United Kingdom parent where the 'parent cornmany owns all the shares, less directors' qualifying shares, of the subsidiary .company. The United Kingdom .enterprise which carries on its business in- Australia through a wholly-owned separate subsidiary company will thus be placed in the same position for taxation purposes as the enterprise which carries on its business through a branch. Australia will get its full tax on the profits of the subsidiary company just as it will in the case of the branch, but will not charge tax on the dividends received by the parent company. .

In the case of other dividends paid by Australian companies to United. Kingdom shareholders who are subject to United Kingdam tax,' Australia will reduce the tax payable on the dividends by one-half, if the Shareholder is not engaged in trade or business through a permanent establishment in Australia.

Dividends paid by United Kingdom companies to United Kingdom shareholders will be exempt from Australian tax.

The United Kingdom will exempt from its surtax dividends paid by United Kingdom companies to Australian shareholders not engaged in trade or business through a permanent establishment in the United Kingdom.

United Kingdom companies which are private companies under the Australian ' Jaw, whether carrying on business in Australia through a separate subsidiary company or a branch, Will continue as heretofore to pay private company tax at full rates on their undistributed income, regardless of the exemptions and the 50 per cent, reduction in tax allowed in respect of the dividends paid to United Kingdom shareholders. United Kingdom public companies, whether carrying on business in Australia through a separate subsidiary or branch, will also pay undistributed profits tax on their undistributed profits at the rate of tax charged on those profits.

With regard to dividends from United Kingdom companies, Australian shareholders at- the present time are taxed on the net amount of the dividend remaining after deduction of the United Kingdom tax. If these shareholders elect to include . in their assessable income the United Kingdom tax appropriate to their dividends, calculated where necessary at the net United Kingdom rate payable by the company, they will be allowed a credit of the United Kingdom tax from the Australian tax payable in respect of the dividend.

With regard to dividends received by United Kingdom shareholders from Australian companies, the .United Kingdom will give a credit in respect of the Australian tax. In the case of ordinary and ' participating preference shares, this credit will take into account, in addition to any tax payable in respect of the dividends, the taxes, other than war-time company tax, payable by the company on profits out of which the dividend is paid.

Trading- profits, other than shipping and air transport, ''will remain on the origin basis and each country will tax the profit derived through a permanent establishment iri its territory by an enterprise of the other country. Thus, in the case of a United Kingdom concern with a permanent establishment in Australia, Australia will tax the profits and the United Kingdom will give full credit for the Australian tax against the United Kingdom tax on the profits. Australia will continue to tax profits from film, business controlled abroad and from insurance with non-residents in accordance with its present law, and the United Kingdom will allow credit for the Australian tax.

A permanent establishment will be defined as a branch or other fixed place of business and will include a management, factory, mine or agricultural or pastoral property. An enterprise of one country carrying on business in the other country through an agent will not be regarded as having a permanent establishment in the other country unless the agent has and habitually exercises authority to conclude contracts on behalf of the enterprise otherwise than at prices fixed by the enterprise or unless the agent regularly fills orders on behalf of- the enterprise from a stock of goods or merchandise in ' the other country. An enterprise will not, however, be regarded as having a, permanent establishment in the other country merely because it carries on business dealings in the other country through a bona fide commission agent or broker acting in the ordinary course of his business and receiving commission, at the customary rate for the class of business.

With regard to shipping and air transport profits, Australia will exempt profits derived by a resident of the United Kingdom from ships whose port of registry is in the United Kingdom or from aircraft registered in that country. A reciprocal exemption will be given by the United Kingdom in respect of shipping and air transport profits derived by a resident of Australia.

Literary and industrial royalties, other than mining royalties, pensions - governmental and private - and purchased annuities will be taxed on a residence basis, that is, the country of origin of the income will exempt, and the country of residence of the recipient of the income will tax.

Governmental remuneration v will be taxed by the employing government .and exempted in the country where the officer is employed except where the . officer is ordinarily a resident of the country in which he is employed or is not in that country solely for the purpose of rendering services to the employing government.

The' agreement will also contain provisions relating to the remuneration of businessmen, professors and teachers, of one of the countries visiting the other country.

Provision will also be made for the exchange of information between the Australian and United Kingdom taxation authorities.

The agreement will run for ten years certain, and thereafter will continue indefinitely unless terminated by either party.

The agreement will operate in respect of the current tax year and will thus apply in Australia, in respect of companies, to income derived during the year ended the 30th June, 1946, and, in respect of individuals, these being on pay-as-you-earn', to income derived during the year ended the 30th June, 1947. In the United Kingdom it will operate in respect of the year of assessment; 1946-47 in the case of the income tax. the year 1945-46 in the case of surtax, and as from the 1st April, 1946, in the case of excess profits tax and national defence contribution.

In entering into this agreement, the Australian Government has been guided by the hope that it will stimulate the flow of United Kingdom capital to Australia and so bind closer than ever the ties existing within the British Common- wealth.

In place of the present system of granting reliefs, which have frequently been inadequate, the agreement will implement a greatly simplified system, which will provide all the necessary relief from double taxation. The Government confidently anticipates that the increase in the flow of capital to Australia will lead to a consequential development of Australian secondary industries and substantially increase both the field of employment and the national income.

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