[Senate Treaty Document 107-20]
[From the U.S. Government Publishing Office]
107th Congress Treaty Doc.
2d Session SENATE 107-20
_______________________________________________________________________
PROTOCOL AMENDING CONVENTION WITH AUSTRALIA REGARDING DOUBLE TAXATION
AND PREVENTION OF FISCAL EVASION
__________
MESSAGE
from
THE PRESIDENT OF THE UNITED STATES
transmitting
PROTOCOL AMENDING THE CONVENTION BETWEEN THE GOVERNMENT OF THE UNITED
STATES OF AMERICA AND THE GOVERNMENT OF AUSTRALIA FOR THE AVOIDANCE OF
DOUBLE TAXATION AND THE PREVENTION OF FISCAL EVASION WITH RESPECT TO
TAXES ON INCOME, SIGNED AT CANBERRA ON SEPTEMBER 27, 2001 (THE
``PROTOCOL'')
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November 14, 2002.--Protocol was read the first time, and together with
the accompanying papers, referred to the Committee on Foreign Relations
and ordered to be printed for the use of the Senate
LETTER OF TRANSMITTAL
----------
The White House, November 14, 2002.
To the Senate of the United States:
I transmit herewith, for Senate advice and consent to
ratification, a Protocol Amending the Convention Between the
Government of the United States and the Government of Australia
for the Avoidance of Double Taxation and the Prevention of
Fiscal Evasion with Respect to Taxes on Income, signed at
Canberra on September 27, 2001 (the ``Protocol''). I also
transmit, for the information of the Senate, the report of the
Department of State concerning the Protocol.
The Convention, as amended by the Protocol, would be
similar to recent tax treaties between the United States and
other developed nations. It provides maximum rates of tax to be
applied to various types of income and protection from double
taxation of income. The Convention, as amended by the Protocol,
also provides for resolution of disputes and sets forth rules
making its benefits unavailable to residents that are engaged
in treaty shopping.
I recommend that the Senate give early and favorable
consideration to this Protocol, and that the Senate give its
advice and consent to ratification.
George W. Bush.
LETTER OF SUBMITTAL
----------
The Secretary of State,
Washington, DC, November 5, 2002.
The President,
The White House.
The President: I have the honor to submit to you, with a
view to its transmission to the Senate for advice and consent
to ratification, the Protocol Amending the Convention Between
the Government of the United States of America and the
Government of Australia for the Avoidance of Double Taxation
and the Prevention of Fiscal Evasion with Respect to Taxes on
Income, signed at Canberra on September 27, 2001 (``the
Protocol'').
The proposed Protocol to the Income Tax Convention with
Australia was negotiated to bring the existing Convention,
concluded in 1982, up to date and in closer conformity with the
1996 U.S. Model Income Tax Convention, while also incorporating
some provisions found in the Australian Model Income Tax
Convention. The Convention, as amended by the Protocol, would
continue to provide for maximum rates of tax to be applied to
various types of income, protection from double taxation of
income, and exchange of information, along with more detailed
rules making its benefits unavailable to persons that are
engaged in treaty shopping. The withholding tax rates on
investment income in the proposed Protocol are the same or
lower than those in the existing Convention.
New withholding rates are applicable to certain dividends,
pursuant to Article 6 of the proposed Protocol, which replaces
Article 10 of the existing Convention. Whereas the existing
Convention allows for taxation at source of a maximum rate of
15 percent on all dividends, the proposed Protocol provides for
a maximum withholding tax rate of 5 percent on direct dividends
meeting a 10-percent ownership threshold (consistent with the
U.S. Model Convention) and a maximum withholding tax rate of
zero on dividends from certain 80-percent owned corporate
subsidiaries. Portfolio dividends will continue to be subject
to a maximum withholding tax rate of 15 percent.
The withholding tax on interest payments would be
eliminated in two key cases, under Article 7 of the proposed
Protocol, which replaces Article 11 of the existing Convention.
Interest that is derived by a financial institution which is
unrelated to and dealing wholly independently with the payor
and interest paid to governmental entities will be exempt from
withholding tax at source. All other types of interest
(including interest received by financial institutions in back-
to-back loans or their economic equivalent) will continue to be
subject to withholding tax at a maximum rate of 10 percent as
prescribed in the existing Convention.
The proposed Protocol (Article 8) also reduces the maximum
level of withholding tax on royalty payments from the 10-
percent rate in the existing Convention to a 5-percent rate.
Consistent with the U.S. Model Convention, the proposed
Protocol also modifies the existing Convention so that payments
for the use of or the right to use any industrial, commercial
or scientific equipment will be taxed as business profits which
are not subject to withholding tax. The existing Convention
treats this type of rental income as a royalty subject to a
maximum 10-percent withholding tax rate.
The reduced withholding rates described above do not apply
if the beneficial owner of the income is a resident of one
Contracting State who carries on business in the other
Contracting State and the income is attributable to a permanent
establishment or fixed base situated in that other State. If
the income is attributable to a permanent establishment, it
will be taxed as business profits, and, if the income is
attributable to a fixed base, it will be taxed as a payment for
independent personal services.
The maximum rates of withholding tax described in the
preceding paragraphs will be subject to the standard anti-abuse
rules for certain classes of investment income found in other
U.S. tax treaties and agreements.
Articles 5 and 9 of the proposed Protocol bring the
existing Convention's treatment of income from the operation of
ships, aircraft and containers in international traffic closer
to that of the U.S. Model Convention. The proposed Protocol
provides for exclusive residence-country taxation of profits
from the rental of ships and aircraft on a bareboat basis when
the income is incidental to the international operation of
ships or aircraft by the lessor. All income from the use,
maintenance or rental of containers used in international
traffic likewise is exempt from source-country taxation under
the proposed Protocol.
The proposed Protocol (Article 2) resolves a case of
potential double taxation that has arisen under the existing
Convention by clarifying that Australia's tax on capital gains
is a covered tax for purposes of the Convention. As a result,
the income re-sourcing rules of Article 27 (Miscellaneous) of
the Convention will apply to capital gains taxed by Australia.
In most other cases, the proposed Protocol preserves the
existing Convention's tax treatment of capital gains, while
incorporating some aspects of Australia's domestic law
regarding expatriation. The proposed Protocol (Article 9)
provides rules that coordinate both countries' tax systems with
respect to these expatriation rules.
The existing Convention preserves the U.S. right to tax
former citizens whose loss of citizenship had, as one of its
principal purposes, the avoidance of tax. The proposed Protocol
(Article 1) expands this right to include former long-term
residents whose loss of such status had, as one of its
principal purposes, the avoidance of tax. Therefore, the United
States may fully apply section 877 of the Internal Revenue Code
as amended in 1996.
Article 10 of the proposed Protocol replaces Article 16 of
the existing Convention with significant new anti-treaty-
shopping rules, making the benefits of the amended Convention
unavailable to persons engaged in treaty shopping.
The Protocol is subject to ratification. In accordance with
Article 13, it will enter into force when the instruments of
ratification are exchanged. It will have effect, with respect
to taxes withheld at source, on the later of the first day of
the second month next following the exchange of instruments, or
July 1, 2003. The effective date for other types of Australian
taxes is for years of income beginning on or after the first
day of July in the calendar year next following the exchange of
instruments. The effective date for other types of U.S. taxes
is for taxable periods beginning on or after the first day of
January in the calendar year next following the exchange of
instruments.
The Department of the Treasury and the Department of State
cooperated in the negotiation of the Protocol. It has the full
approval of both Departments.
Respectfully submitted,
Colin L. Powell.
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