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2013-2014
THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA
HOUSE OF REPRESENTATIVES
INTERNATIONAL TAX AGREEMENTS AMENDMENT BILL 2014
EXPLANATORY MEMORANDUM
(Circulated by the authority of the
Treasurer, Hon J. B. Hockey MP)
Table of contents
Glossary .................................................................................................. 1
General outline and financial impact ....................................................... 3
Chapter 1 The Australia-Switzerland Convention ........................... 5
Chapter 2 Amendments to the International Tax
Agreements Act 1953 ................................................ 115
Chapter 3 Statement of Compatibility with Human Rights .......... 117
Glossary
The following abbreviations and acronyms are used throughout this
explanatory memorandum.
Abbreviation Definition
Agreements Act 1953 International Tax Agreements Act 1953
CGT capital gains tax
Existing Swiss Agreement Agreement between Australia and
Switzerland for the Avoidance of Double
Taxation with Respect to Taxes on Income
and Protocol, signed at Canberra on
28 February 1980
FBTAA 1986 Fringe Benefits Tax Assessment Act 1986
GATS General Agreement on Trade in Services
GST goods and services tax
ITAA 1936 Income Tax Assessment Act 1936
ITAA 1997 Income Tax Assessment Act 1997
OECD Organisation for Economic Cooperation and
Development
OECD Model Organisation for Economic Cooperation and
Development Model Tax Convention on
Income and on Capital
PE permanent establishment
Swiss Convention Convention between Australia and the Swiss
Confederation for the Avoidance of Double
Taxation with Respect to Taxes on Income,
and Protocol, signed at Sydney on
30 July 2013
1
General outline and financial impact
Swiss Confederation convention
Schedule 1 of this Bill amends the International Tax Agreements Act 1953
(Agreements Act 1953) to give the force of law in Australia to the
Convention between Australia and the Swiss Confederation for the
Avoidance of Double Taxation with Respect to Taxes on Income and its
Protocol (the Swiss Convention), which was signed in Sydney on
30 July 2013.
Once in force, the Swiss Convention will replace the Agreement between
Australia and Switzerland for the Avoidance of Double Taxation with
Respect to Taxes on Income and Protocol (the existing Swiss Agreement),
which entered into force on 13 February 1981.
Date of effect: The Swiss Convention must first enter into force. For
entry into force, Australia and Switzerland are required to provide
notification to each other on the completion of the necessary domestic
procedures. Once the Convention enters into force, it will take effect in
Australia in four stages, namely:
· in respect of fringe benefits tax, on fringe benefits provided
on or after 1 April next following entry into force;
· in respect of withholding tax on income derived by a resident
of Switzerland, on income derived on or after 1 January next
following entry into force;
· in respect of other Australian tax, on income, profits or gains
derived in the income year beginning 1 July next following
entry into force; and
· in respect of exchange of information, to information that
relates to taxation or business years in course on, or
beginning on or after, 1 January next following entry into
force.
Proposal announced: Negotiations to update the existing tax treaty
between Australia and Switzerland were announced by the former
Government, in the then Assistant Treasurer`s Media Release No. 026 of
9 February 2011. Signature of the Swiss Convention was announced in
the then Assistant Treasurer`s Media Release No. 144 of 30 July 2013.
Financial impact: Minimal.
Human rights implications: This Bill is compatible with human rights.
See Statement of Compatibility with Human Rights -- Chapter 3,
paragraphs 3.1 to 3.39.
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International Tax Agreements Amendment Bill 2014
Compliance cost impact: The text of the Swiss Convention is broadly
consistent with international norms and no significant additional
compliance costs are expected to result from its entry into force.
4
The Australia-Switzerland Convention
Outline of chapter
1.1 Schedule 1 of this Bill amends the International Tax Agreements
Act 1953 (Agreements Act 1953) to define and give the force of law to the
Convention between Australia and the Swiss Confederation for the
Avoidance of Double Taxation with Respect to Taxes on Income, with
Protocol (Swiss Convention). This chapter explains the rules that apply
under the Swiss Convention.
Context of amendments
1.2 The Swiss Convention was signed in Sydney on 30 July 2013
and, once in force, will replace the Agreement between Australia and
Switzerland for the Avoidance of Double Taxation with respect to Taxes
on Income and Protocol, which entered into force on 13 February 1981.
1.3 The Swiss Convention modernises the tax treaty arrangements
between Australia and Switzerland. It broadly follows the Organisation
for Economic Cooperation and Development Model Tax Convention on
Income and on Capital (OECD Model) and, in doing so, broadly reflects
current Australian and international tax policy settings.
Summary of new law
1.4 The main features of the Swiss Convention are as follows:
· The Swiss Convention applies to taxes on income. Certain
existing taxes imposed by each country are explicitly
covered. Australian taxes covered are income tax, fringe
benefits tax and resource rent taxes (for example, petroleum
resource rent tax). Swiss taxes covered are federal, cantonal
and communal taxes on income. [Article 2]
· Dual resident individuals (for example, individuals who are
residents of both Australia and Switzerland according to the
domestic taxation laws of each country) are, in accordance
with the specified criteria, to be treated for the purposes of
the Swiss Convention as being resident of only one country.
Where a non-individual such as a company is a resident of
both countries for their domestic law purposes, then the
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International Tax Agreements Amendment Bill 2014
Convention deems the entity to be a resident of the country in
which its place of effective management is situated. [Article 4]
· Prescribed time periods will apply for the purpose of
deeming certain business activities to constitute a permanent
establishment`. The rules will also prescribe the range of
circumstances in which Australia can tax business profits
derived by Swiss residents from construction and mining
activities, and the operation of substantial equipment in
Australia. [Article 5]
· Income from immovable property (including income from
agriculture or forestry) may be taxed by the country in which
the property is situated. [Article 6]
· Business profits are generally taxed only in the country of
residence of the recipient unless they are derived by a
resident of one country through a permanent establishment
located in the other country, in which case the other country
may also tax the profits. These rules will also apply to
business profits derived through a trust. [Article 7]
· Profits derived by an enterprise of one country from the
operation of ships and aircraft in international traffic are only
taxable in that country. [Article 8]
· Profits of associated enterprises may be adjusted by the
Australian and Swiss revenue authorities for tax purposes,
where transactions have been entered into on terms other
than at arm`s length. [Article 9]
· Dividends, interest and royalties may generally be taxed in
both countries, but there are limits on the tax that the country
in which they are sourced may charge on such income
flowing to residents of the other country who are the
beneficial owners of the income. [Articles 10 to 12]
· With respect to dividends:
- No source country tax is payable on intercorporate
dividends where the beneficial owner of those dividends
is a company that holds, directly or indirectly, at least
80 per cent of the voting power (in the case of Australia)
or the capital (in the case of Switzerland) of the company,
subject to certain conditions. [Article 10, paragraph 3]
- No source country tax is payable on dividends where the
beneficial owner of those dividends holds directly no
more than 10 per cent of the voting power in the company
paying the dividend (in the case of Australia) or the
capital (in the case of Switzerland) of the company, and
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The Australia-Switzerland Convention
the beneficial owner is a Contracting State, a political
subdivision or a local authority thereof, a central bank, a
complying Australian superannuation fund (or other
Australian resident carrying on complying superannuation
activities) or a tax exempt Swiss pension scheme.
[Article 10, paragraph 4]
- A 5 per cent limitation applies to intercorporate dividends
where the beneficial owner of those dividends is a
company that holds directly at least 10 per cent of the
voting power (in the case of Australia) or the capital (in
the case of Switzerland) of the company paying the
dividends. [Article 10, subparagraph 2a)]
- A 15 per cent limitation applies to all other dividends.
[Article 10, subparagraph 2b)]
· With respect to interest, source country taxation on interest is
limited to 10 per cent [Article 11, paragraph 2]. However,
exemptions from source country taxation have been provided
for interest paid to:
- certain government bodies (including a government
investment fund) and banks performing central banking
functions; [Article 11, subparagraph 3a)]
- financial institutions that are unrelated to and dealing
wholly independently with the payer, subject to certain
conditions; [Article 11, subparagraph 3b)]; and
- complying Australian superannuation funds (or other
Australian residents carrying on complying
superannuation activities) or tax exempt Swiss pension
schemes. [Article 11, subparagraph 3c) and 3d)]
· With respect to royalties, the rate limit on source country
taxation is 5 per cent. The definition of royalties` excludes
payments or credits in respect of the use of, or the right to
use, industrial, commercial or scientific equipment.
[Article 12, paragraphs 2 and 3]
· Income, profits or gains from the alienation of immovable
property may be taxed by the country in which the property
is situated. Subject to that rule and other specific rules in
relation to business assets and shares or other interests in
land-rich entities (the alienation of which may be taxed by
the country in which the underlying property is situated), all
other capital gains will be taxable only in the country of
residence. [Article 13]
· Income derived from professional services or other activities
of an independent nature are generally to be taxed only in the
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International Tax Agreements Amendment Bill 2014
country of residence of the recipient unless they are derived
through a fixed base located in the other country. In such
cases, the other country may also tax the income. [Article 14]
· Income from dependent personal services (that is, salaries,
wages and other similar employees` remuneration) will
generally be taxable in the country where the services are
performed. However, where the services are performed
during certain short visits to one country by a resident of the
other country, the income will be exempt in the country
visited. [Article 15]
· Fringe benefits provided to employees that would otherwise
be subject to tax in both countries will be taxable only in the
country that has the primary taxing right in respect of salary
or wages to which the benefit relates. [Article 15]
· Directors` remuneration may be taxed in the country in
which the company of which the person is a director is a
resident for tax purposes. [Article 16]
· Income derived by entertainers and sportspersons may
generally be taxed by the country in which the activities are
performed. However, where the income is derived from
public (government) funds of the other country, the income
will be taxable only in the country in which the entertainer or
sportsperson is a resident. [Article 17]
· Pensions, social security payments and annuities will be
taxable only in the country of residence of the recipient,
unless the recipient is not liable to tax in that country in
respect of that income. In such cases, such income arising in
the other country may be taxed in that other country. Subject
to certain conditions, pensions paid from government funds
of a country in respect of services rendered to that
government will be taxable only in that country. Certain
lump sum payments may be taxed in the country in which
they arise. [Articles 18 and 19]
· Income from government service will generally be taxed only
in the country that pays the remuneration. However, the
remuneration will be taxed only in the other country where
the services are rendered in that other country by a resident
of that other country who is a national of that other country,
or did not become a resident of that other country solely for
the purpose of rendering the services. [Article 19]
8
The Australia-Switzerland Convention
· Payments made from abroad to visiting students or business
apprentices for the purposes of their maintenance, education
or training will be exempt from tax in the country visited.
[Article 20]
· Source rules in the Swiss Convention prescribe, for domestic
law purposes and for the purposes of the Swiss Convention,
that income, profits or gains derived by a resident of a
country, which under the provisions of the Swiss Convention
may be taxed in the other country, are deemed to have a
source in that other country. [Article 21]
· Relief from double taxation will be provided for income
which, under the Swiss Convention, may be taxed in both
countries. Such relief is required to be provided by the
country of which the taxpayer is a resident as follows:
- In Australia, by allowing a credit for Swiss tax paid,
against Australian tax payable, on income derived by an
Australian resident from sources in Switzerland [Article 22,
paragraph 1]; and
- in Switzerland by exempting income derived by a Swiss
resident from sources in Australia, on which Australian
tax is payable, from Swiss tax, subject to certain
conditions. In relation to dividends, interest or royalties
derived by a Swiss resident and taxed in Australia,
Switzerland will determine the applicable relief in
accordance with Article 22. [Article 22, paragraph 2]]
· The Swiss Convention will protect nationals and businesses
from one country from tax discrimination in the other
country whilst ensuring that laws intended to maintain tax
system integrity continue to apply. [Article 23]
· The Swiss Convention will provide an administrative process
to assist in the resolution of taxpayer disputes arising from
the application of the Convention. This includes the
possibility of referring disputes that remain unresolved after
three years to independent arbitration. [Article 24]
· The Swiss Convention will authorise the exchange of
information between the competent authorities of Australia
and Switzerland, by obliging each country to provide
information to the other country on request [Article 25]. It will
authorise the competent authorities to exchange information
as is foreseeably relevant for carrying out the provisions of
the Convention or for administering the laws of each country.
Although this provision does not restrict the possible
methods for exchanging information, it does not oblige either
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International Tax Agreements Amendment Bill 2014
country to exchange information on an automatic or
spontaneous basis. [Protocol subparagraph 14c)]
· The Swiss Convention will enter into force on the date of
receipt of the later diplomatic notification that the domestic
processes to approve the Convention in the respective
countries have been completed. [Article 27]
- For Australian fringe benefits tax purposes, it will apply
to fringe benefits provided on or after 1 April next
following the date of entry into force. [Article 27,
sub-subparagraph 2a)(i)]
- For Australian withholding tax, it will apply to income
derived by residents of Switzerland on or after 1 January
following the date on which the Convention enters into
force. [Article 27, sub-subparagraph 2a)(ii)]
- For other Australian taxes, it will apply in relation to any
year of income beginning on or after 1 July next following
the date on which the Convention enters into force.
[Article 27, sub-subparagraph 2a)(iii)]
- In respect of exchange of information` the Convention
will apply to taxation years in course, or beginning on or
after 1 January of the year following entry into force.
[Article 27, subparagraph 2c)]
· The Swiss Convention will continue in effect until
terminated. Either country may terminate the agreement by
giving notice of termination at least six months before the
end of the calendar year. Termination is by notice through
the diplomatic channel. [Article 28]
· Treaty benefits under the Swiss Convention will not apply if
one of the principal purposes of a person in creating or
assigning property or rights in respect of which income was
paid, or in becoming a resident of Australia or Switzerland,
was to take advantage of the Swiss Convention in order to
obtain such benefits. [Protocol, paragraph 1]
Comparison of key features of new law and current law
New law Current law
This Schedule implements a revised The existing treaty between Australia
treaty: the Convention between and Switzerland: the Agreement
Australia and the Swiss between Australia and Switzerland
Confederation for the Avoidance of for the Avoidance of Double Taxation
Double Taxation with Respect to with Respect to taxes on Income, and
10
The Australia-Switzerland Convention
New law Current law
Taxes on Income and Protocol, Protocol, signed at Canberra on 28
signed at Sydney on 30 July 2013 February 1980 (existing Swiss
(Swiss Convention); which will Agreement); will terminate upon the
replace the existing Australia- entry into force of the Swiss
Switzerland tax treaty. Convention. However, the existing
Swiss Agreement will continue to
have effect for taxable years and
periods which expired before the time
when the Swiss Convention takes
effect.
All Articles have been updated, Not applicable.
having regard to Australian, Swiss
and international tax treaty
developments since the existing
Swiss Agreement was entered into.
Article 2 (Taxes covered) has been In the case of Australia, the taxes to
expanded to more broadly clarify that which all Articles of the existing
the Swiss Convention applies to taxes Swiss Agreement apply are the
on income imposed by Australia and Australian income tax (including the
Switzerland, and by Switzerland`s former additional tax on the
political subdivisions or local undistributed amount of the
authorities. This includes taxes distributable income of a private
imposed on total income or on company and income tax on the
elements of income (including taxes reduced taxable income of a non-
on gains from the alienation of resident company) and any identical
property), taxes on wages or salaries or substantially similar taxes
paid by enterprises, as well as taxes subsequently imposed under the laws
on capital appreciation. In the case of of Australia.
Australia, the existing taxes on
income expressly include income tax,
fringe benefits tax and resource rent
taxes imposed under the federal law
of Australia (such as the petroleum
resource rent tax). The Swiss
Convention will also apply to any
identical or substantially similar taxes
to the existing taxes that are
subsequently imposed under the
federal laws of Australia or the laws
of Switzerland.
However, Article 23
(Non-discrimination) and Article 25
(Exchange of information) apply to a
broader range of taxes.
The definition of Australia` in No express reference.
Article 3 (General definitions)
expressly refers to the exclusive
economic zone.
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International Tax Agreements Amendment Bill 2014
New law Current law
The definition of person` in Article 3 The definition of person` in Article 3
(General definitions) of the Swiss of the existing Swiss Agreement does
Convention includes a trust. not include a trust.
Article 3 (General definitions) No equivalents.
defines the terms:
· international traffic`;
· national`;
· pension scheme`; and
· recognised stock exchange`.
Article 4 (Resident) sets out rules to Article 4 of the existing Swiss
help determine the residency status of Agreement seeks to resolve cases of
dual resident individuals. dual residence by giving
These rules give consideration to an consideration only to the location of
individual`s nationality if the the individual`s permanent home or
individual`s residence cannot be their centre of vital interests.
determined from the location of their
permanent home, their centre of vital
interests or their place of habitual
abode. If the individual is a dual
national (or a national of neither
country), the competent authorities
shall attempt to determine the
individual`s residence by mutual
agreement.
The Swiss Convention will not No equivalent.
require Switzerland to provide treaty
benefits in relation to Swiss-source
income derived by Australian
temporary residents if that income is
exempt from tax in Australia.
12
The Australia-Switzerland Convention
New law Current law
Article 5 (Permanent establishment) The definition of permanent
defines the term permanent establishment` in Article 5 of the
establishment` (PE) to no longer existing Swiss Agreement includes,
include assembly projects. The among other things, an assembly
article also deems a PE to exist in project that lasts for more than
relation to the following activities 12 months.
undertaken in a country by an Article 5 of the existing treaty also
enterprise that is a resident of the deems a PE to exist in relation to the
other country: following activities:
· Supervisory or consultancy · Supervisory activities carried on
activities (carried on in for more than 12 months in
connection with a building site or connection with a building site or
construction or installation a construction, installation or
project) carried on for more than assembly project.
12 months; · The use of substantial equipment
· activities (including the operation for more than 12 months by, for
of substantial equipment) in the or under contract with the
exploration for or exploitation of enterprise in relation to natural
natural resources for an aggregate resource activities.
period of at least 6 months in any
24 month period; or
· the operation of substantial
equipment for more than
12 months.
Article 6 (Income from immovable Article 6 of the existing Swiss
property) applies to the taxation of Agreement applies to the taxation of
income from immovable property income from real property. Real
(including income from agriculture or property is defined to include: rights
forestry activities). to royalties and other payments in
respect of the operation of mines or
The definition of immovable property
quarries or the exploitation of any
includes: a lease or other interest in or
natural resource.
over land; property accessory to
immovable property; livestock and
equipment used in agriculture or
forestry; rights to which the general
law applicable to landed property
apply; usufruct of immovable
property; certain rights in connection
with natural resource activities; and
rights to receive variable or fixed
payments in respect of certain natural
resource activities.
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International Tax Agreements Amendment Bill 2014
New law Current law
Article 7 (Business profits) applies to No change.
the taxation of business profits and
provides that such profits are taxable
only in the country of residence of the
enterprise that derives the profits
unless that enterprise carries on
business in the other country through
a PE situated therein. Any profits
attributable to that PE may also be
taxed by the other country.
Article 7 will apply to business No equivalent in existing Swiss
profits of an enterprise carried on by Agreement but equivalent clause in
a trust. Agreements Act 1953.
Article 8 (Shipping and air transport) No substantive change.
applies to the taxation of profits from
The amount of tax that the other
the operation of ships or aircraft in
country may charge cannot exceed 5
international traffic.
per cent of the amount paid or
payable in respect of the carriage
(unless the relevant enterprise has its
principal place of business in that
other country or its profits are derived
otherwise than from certain transport
activities - in both cases, the
provisions of Article 7 (Business
profits) apply instead).
Such profits are taxable only in the No equivalent.
country of residence of the shipping
or airline operator. However, profits
derived from shipping or airline
operations conducted solely between
two places in the other country may
also be taxed in that other country.
Profits derived from operations
conducted solely between two places
in one country include profits from
the leasing of ships or aircraft for
such purposes.
Article 9 (Associated enterprises) No change.
applies to profits derived from
associated entities and authorises the
revenue authorities of the two
countries to adjust such profits on an
arm`s-length basis.
14
The Australia-Switzerland Convention
New law Current law
Where such an adjustment is made to No equivalent.
increase the profits of an enterprise of
one country, and those profits have
also been taxed in the hands of an
associated enterprise that is a resident
of the other country, the revenue
authorities of the other country are
required to make an appropriate
compensatory adjustment to the
profits of the associated enterprise.
Article 10 (Dividends) will limit The existing Swiss Agreement
source country taxation of cross- prescribes a single source country tax
border dividends as follows: rate limit of 15 per cent for all
· Zero for intercorporate dividends dividends.
on non-portfolio holdings of more
than 80 per cent, subject to certain
conditions;
· Zero for dividends beneficially
owned by a State, political
subdivision or local authority
(including a government
investment fund), central bank,
complying Australian
superannuation funds (or other
Australian residents carrying on
complying superannuation
activities) and tax exempt Swiss
pension schemes where they have
direct holdings of no more than
10 per cent;
· 5 per cent for intercorporate
dividends on other non-portfolio
holdings; and
· 15 per cent in all other cases.
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International Tax Agreements Amendment Bill 2014
New law Current law
Article 11 (Interest) will limit source The existing Swiss Agreement
country taxation of cross-border prescribes a single source country tax
interest as follows: rate limit of 10 per cent for all
· Zero for interest paid to interest.
government bodies (including
government investment funds)
and central banks, subject to
certain conditions;
· Zero for interest paid to financial
institutions that are unrelated to
and dealing wholly independently
with the payer, subject to certain
conditions;
· Zero for interest paid to
complying Australian
superannuation funds (or other
Australian residents carrying on
complying superannuation
activities) and tax exempt Swiss
pension schemes, subject to
certain conditions; and
· 10 per cent in all other cases.
Article 12 (Royalties) will limit The existing Swiss Agreement
source country taxation of cross- prescribes a source country tax rate
border royalties to 5 per cent. limit on all royalties of 10 per cent.
The definition of royalties` excludes The definition of royalties` includes
payments for the right to use such payments.
industrial, commercial or scientific
equipment. Such payments therefore
fall for consideration under Articles 7
(Business profits), 8 (Shipping and
air transport) or 14 (Independent
personal services).
Under Article 13 (Alienation of No substantive change (the existing
property), income, profits or gains Swiss Agreement applies to income
from the alienation of immovable or gains made from the alienation of
property may be taxed in the country real property).
where the property is situated.
The corresponding rule in the existing
Income profits or gains from the Swiss Agreement only applies to
alienation of interests in land-rich income, profits or gains from the
entities will be taxable in the country alienation of interests in land-rich
where the underlying land is situated. companies.
Residual capital gains will be taxable No equivalent.
only in the country of residence of the
alienator.
16
The Australia-Switzerland Convention
New law Current law
Australia may continue to tax its No equivalent.
former resident individuals on the
capital gains if they alienate property
within four years of ceasing to be a
resident.
Under Article 15 (Dependent No equivalent.
personal services), Taxing rights over
fringe benefits provided to employees
will be allocated exclusively to the
country that has the sole or primary
taxing right over the underlying
employment income to which the
benefit relates.
Under Article 17 (Entertainers and No equivalent
sportspersons), income derived by
entertainers and sportspersons that is
paid from public funds of their
country of residence will be taxable
only in that country.
Under Article 18 (Pensions), The existing treaty allocates exclusive
pensions and similar payments will taxing rights over pensions to the
be taxable only in the recipient`s country of residence of the recipient,
country of residence, provided the without regard to whether such
recipient is taxable on those payments income is taxable in that country.
in that country. If not, the other
country may also tax the income if
the income arises in that other
country.
Lump sum payments in respect of No equivalent.
retirement, invalidity, disability,
death or injury may also be taxed in
the source (paying) country.
No equivalent. Certain pensions are exempt in the
country of residence of the recipient
if they are exempt in the source
(paying) country.
Under Article 19 (Government Government pensions paid in respect
service), government pensions paid in of past government service are
respect of past government service taxable in the country of residence of
will be taxable only in the source the recipient.
country, unless the individual is a
resident and a national of the other
country and not a national of the
source country (in which case, the
pension will be taxable only in the
country of residence).
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International Tax Agreements Amendment Bill 2014
New law Current law
The Swiss Convention will include a No equivalent.
comprehensive article to prevent tax
discrimination under each country`s
tax laws.
The mutual agreement procedure in No equivalent.
the Swiss Convention will provide
taxpayers with the option of referring
unresolved tax disputes to
independent arbitration.
The Swiss Convention will provide a The existing Swiss Agreement only
legal basis for the exchange of provides for taxpayer information
taxpayer information, including for exchange for the prevention of double
the purpose of detecting and taxation under the existing Swiss
preventing tax evasion. Agreement.
The Swiss Convention will enable the No equivalent.
revenue authorities of Australia and
Switzerland to deny treaty benefits if
a person`s principal purpose is to take
advantage of the treaty.
The Swiss Convention
1.5 A full transcript of the Swiss Convention and detailed
explanation follows:
CONVENTION BETWEEN AUSTRALIA AND THE SWISS
CONFEDERATION FOR THE AVOIDANCE OF DOUBLE
TAXATION WITH RESPECT TO TAXES ON INCOME
THE GOVERNMENT OF AUSTRALIA
AND
THE SWISS FEDERAL COUNCIL
DESIRING to conclude a Convention for the avoidance of double taxation
with respect to taxes on income
HAVE AGREED as follows:
CHAPTER I
SCOPE OF THE CONVENTION
Article 1
Persons covered
This Convention shall apply to persons who are residents of one or both of
the Contracting States.
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The Australia-Switzerland Convention
Article 2
Taxes covered
1. This Convention shall apply to taxes on income imposed on behalf of a
Contracting State and, in the case of Switzerland, on behalf of its political
subdivisions or local authorities, irrespective of the manner in which they
are levied.
2. There shall be regarded as taxes on income all taxes imposed on total
income or on elements of income, including taxes on gains from the
alienation of movable or immovable property, taxes on the total amounts
of wages or salaries paid by enterprises, as well as taxes on capital
appreciation.
3. The existing taxes to which this Convention shall apply are in
particular:
a) in Australia:
the income tax, the fringe benefits tax and resource rent taxes
imposed under the federal law of Australia;
(hereinafter referred to as "Australian tax");
b) in Switzerland:
the federal, cantonal and communal taxes on income (total
income, earned income, income from capital, industrial and
commercial profits, capital gains, and other items of income)
(hereinafter referred to as "Swiss tax").
4. The Convention shall apply also to any identical or substantially
similar taxes which are imposed under the federal laws of Australia or the
laws of Switzerland after the date of signature of the Convention in
addition to, or in place of, the existing taxes. The competent authorities of
the Contracting States shall notify each other of any substantial changes
which have been made in their respective taxation laws.
5. The Convention shall not apply to taxes withheld at source on prizes in
a lottery.
CHAPTER II
DEFINITIONS
Article 3
General definitions
1. For the purposes of this Convention, unless the context otherwise
requires:
a) the term "Australia", when used in a geographical sense, excludes all
external territories other than:
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International Tax Agreements Amendment Bill 2014
(i) the Territory of Norfolk Island;
(ii) the Territory of Christmas Island;
(iii) the Territory of Cocos (Keeling) Islands;
(iv) the Territory of Ashmore and Cartier Islands;
(v) the Territory of Heard Island and McDonald Islands; and
(vi) the Coral Sea Islands Territory,
and includes any area adjacent to the territorial limits of Australia
(including the Territories specified in this subparagraph) in respect of
which there is for the time being in force, consistently with international
law, a law of Australia dealing with the exploration for or exploitation of
any of the natural resources of the exclusive economic zone or the seabed
and subsoil of the continental shelf;
b) the term "Switzerland" means the Swiss Confederation;
c) the term "person" includes an individual, a company, a trust and any
other body of persons;
d) the term "company" means any body corporate or any entity which is
treated as a company or body corporate for tax purposes;
e) the terms "enterprise of a Contracting State" and "enterprise of the
other Contracting State" mean respectively an enterprise carried on by a
resident of a Contracting State and an enterprise carried on by a resident
of the other Contracting State;
f) the term "international traffic" means any transport by a ship or aircraft
operated by an enterprise of a Contracting State, except when the ship or
aircraft is operated solely between places in the other Contracting State;
g) the term "competent authority" means:
(i) in the case of Australia, the Commissioner of Taxation or an
authorised representative of the Commissioner;
(ii) in the case of Switzerland, the Head of the Federal Department
of Finance or his or her authorised representative;
h) the term "national", in relation to a Contracting State, means:
(i) any individual possessing the nationality or citizenship of that
Contracting State;
(ii) any legal person, company, partnership or association deriving
its status as such from the laws in force in that Contracting
State;
i) the term "pension scheme" means any plan, scheme, fund, foundation,
trust or other arrangement established in a Contracting State or, in the case
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The Australia-Switzerland Convention
of Australia, that is an Australian superannuation fund for the purposes of
Australian tax, which is:
(i) regulated by that State; and
(ii) operated principally to administer or provide pension or
retirement benefits or to earn income for the benefit of one or
more such schemes.
j) the term "tax" means Australian tax or Swiss tax as the context
requires, but does not include any penalty or interest imposed under the
law of either Contracting State relating to its tax;
k) the term "recognised stock exchange" means:
(i) the Australian Securities Exchange and any other Australian
stock exchange recognised as such under Australian law;
(ii) the SIX Swiss Exchange and any other Swiss stock exchange
recognised as such under Swiss law;
(iii) the London Stock Exchange, the Irish Stock Exchange and the
stock exchanges of Amsterdam, Brussels, Dusseldorf,
Frankfurt, Hamburg, Hong Kong, Johannesburg, Lisbon,
Luxembourg, Madrid, Mexico, Milan, New York, Paris, Sao
Paulo, Seoul, Singapore, Stockholm, Toronto and Vienna, and
the NASDAQ System; and
(iv) any other stock exchange agreed upon by the competent
authorities.
2. As regards the application of the Convention at any time by a
Contracting State, any term not defined therein shall, unless the context
otherwise requires, have the meaning that it has at that time under the law
of that State for the purposes of the taxes to which the Convention applies,
any meaning under the applicable tax laws of that State prevailing over a
meaning given to the term under other laws of that State.
Article 4
Resident
1. For the purposes of this Convention, the term "resident of a
Contracting State" means any person who, under the laws of that State, is
liable to tax as a resident of that State, and also includes the Government
of that State and any political subdivision or local authority thereof. This
term, however, does not include any person who is liable to tax in that
State in respect only of income from sources in that State.
2. Where by reason of the provisions of paragraph 1 an individual is a
resident of both Contracting States, then that individual`s status shall be
determined as follows:
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a) the individual shall be deemed to be a resident only of the
State in which a permanent home is available to that
individual; if a permanent home is available in both States,
that individual shall be deemed to be a resident only of the
State with which the individual`s personal and economic
relations are closer (centre of vital interests);
b) if the State in which the centre of vital interests is situated
cannot be determined, or if a permanent home is not available
to the individual in either State, the individual shall be deemed
to be a resident only of the State in which that individual has
an habitual abode;
c) if the individual has an habitual abode in both States or in
neither of them, the individual shall be deemed to be a resident
only of the State of which the individual is a national;
d) if the individual is a national of both States or of neither of
them, the competent authorities of the Contracting States shall
endeavour to resolve the question by mutual agreement.
3. Where by reason of the provisions of paragraph 1 a person other than
an individual is a resident of both Contracting States, then it shall be
deemed to be a resident only of the State in which its place of effective
management is situated.
Article 5
Permanent establishment
1. For the purposes of this Convention, the term "permanent
establishment" means a fixed place of business through which the
business of an enterprise is wholly or partly carried on.
2. The term "permanent establishment" includes especially:
a) a place of management;
b) a branch;
c) an office;
d) a factory;
e) a workshop;
f) a mine, an oil or gas well, a quarry or any other place of
extraction of natural resources; and
g) an agricultural, pastoral or forestry property.
3. A building site or construction or installation project constitutes a
permanent establishment only if it lasts more than twelve months.
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4. Notwithstanding the provisions of paragraphs 1, 2 and 3, where an
enterprise of a Contracting State:
a) carries on supervisory or consultancy activities in the other
State for a period exceeding 12 months in connection with a
building site or construction or installation project which is
being undertaken in that other State;
b) carries on activities (including the operation of substantial
equipment) in the other State in the exploration for or
exploitation of natural resources situated in that other State for
an aggregate period of at least 6 months in any 24 month
period; or
c) operates substantial equipment in the other State (including as
provided in subparagraph b)) for a period exceeding 12
months,
such activities shall be deemed to be carried on through a permanent
establishment of the enterprise situated in that other State, unless the
activities are limited to those mentioned in paragraph 5 which, if exercised
through a fixed place of business, would not make this place of business a
permanent establishment under the provisions of that paragraph.
5. An enterprise shall not be deemed to have permanent establishment
merely by reason of:
a) the use of facilities solely for the purpose of storage, display or
delivery of goods or merchandise belonging to the enterprise;
b) the maintenance of a stock of goods or merchandise belonging
to the enterprise solely for the purpose of storage, display or
delivery;
c) the maintenance of a stock of goods or merchandise belonging
to the enterprise solely for the purpose of processing by
another enterprise;
d) the maintenance of a fixed place of business solely for the
purpose of purchasing goods or merchandise, or for collecting
information, for the enterprise;
e) the maintenance of a fixed place of business solely for the
purpose of activities which have a preparatory or auxiliary
character for the enterprise, such as advertising or scientific
research.
6. A person acting in one of the Contracting States on behalf of an
enterprise of the other Contracting State - other than an agent of an
independent status to whom paragraph 7 applies - shall be deemed to be a
permanent establishment of that enterprise in the first-mentioned State if:
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a) the person has, and habitually exercises in that State, an
authority to conclude contracts on behalf of the enterprise,
unless that person`s activities are limited to the purchase of
goods or merchandise for the enterprise; or
b) in so acting, the person manufactures or processes in that State
for the enterprise goods or merchandise belonging to the
enterprise, provided that this provision shall apply only in
relation to the goods or merchandise so manufactured or
processed.
7. An enterprise shall not be deemed to have a permanent establishment
in a Contracting State merely because it carries on business in that State
through a broker, general commission agent or any other agent of an
independent status, provided that such persons are acting in the ordinary
course of their business.
8. The fact that a company which is a resident of a Contracting State
controls or is controlled by a company which is a resident of the other
Contracting State, or which carries on business in that other State
(whether through a permanent establishment or otherwise), shall not of
itself constitute either company a permanent establishment of the other.
9. The principles set forth in paragraphs 1 to 8 inclusive shall be applied
in determining for the purposes of this Agreement whether an enterprise,
not being an enterprise of one of the Contracting States, has a permanent
establishment in one of the Contracting States.
CHAPTER III
TAXATION OF INCOME
Article 6
Income from immovable property
1. Income derived by a resident of a Contracting State from immovable
property (including income from agriculture or forestry) situated in the
other Contracting State may be taxed in that other State.
2. The term "immovable property" shall have the meaning which it has
under the law of the Contracting State in which the property in question is
situated. The term shall in any case include:
a) a lease of land or any other interest in or over land;
b) property accessory to immovable property;
c) livestock and equipment used in agriculture and forestry;
d) rights to which the provisions of general law respecting landed
property apply;
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The Australia-Switzerland Convention
e) usufruct of immovable property;
f) a right to explore for mineral, oil or gas deposits or other
natural resources, and a right to mine those deposits or resources; and
g) a right to receive variable or fixed payments either as
consideration for or in respect of the exploitation of, or the
right to explore or exploit, mineral, oil or gas deposits,
quarries or other places of extraction or exploitation of natural
resources.
Ships and aircraft shall not be regarded as immovable property.
3. Any interest or right referred to in paragraph 2 shall be regarded as
situated where the land, mineral, oil or gas deposits, quarries or natural
resources, as the case may be, are situated or where the exploration may
take place.
4. The provisions of paragraph 1 shall apply to income derived from the
direct use, letting, or use in any other form of immovable property.
5. The provisions of paragraphs 1, 3 and 4 shall also apply to the income
from immovable property of an enterprise and to income from immovable
property used for the performance of independent personal services.
Article 7
Business profits
1. The profits of an enterprise of one of the Contracting States shall be
taxable only in that State unless the enterprise carries on business in the
other Contracting State through a permanent establishment situated
therein. If the enterprise carries on business as aforesaid, the profits of the
enterprise may be taxed in the other State, but only so much of them as is
attributable to that permanent establishment.
2. Subject to the provisions of paragraph 3, where an enterprise of one of
the Contracting States carries on business in the other Contracting State
through a permanent establishment situated therein, there shall in each
Contracting State be attributed to that permanent establishment the profits
which it might be expected to make if it were a distinct and separate
enterprise engaged in the same or similar activities under the same or
similar conditions and dealing wholly independently with the enterprise of
which it is a permanent establishment or with other enterprises with which
it deals.
3. In the determination of the profits of a permanent establishment, there
shall be allowed as deductions expenses of the enterprise, being expenses
which are incurred for the purposes of the permanent establishment
(including executive and general administrative expenses so incurred) and
which would be deductible if the permanent establishment were an
independent entity which paid those expenses, whether incurred in the
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Contracting State in which the permanent establishment is situated or
elsewhere.
4. No profits shall be attributed to a permanent establishment by reason
of the mere purchase by that permanent establishment of goods or
merchandise for the enterprise.
5. Where profits include items of income which are dealt with separately
in other Articles of this Agreement, then the provisions of those Articles
shall not be affected by the provisions of this Article.
Article 8
Shipping and air transport
1. Profits of an enterprise of a Contracting State from the operation of
ships or aircraft in international traffic shall be taxable only in that State.
2. Notwithstanding the provisions of paragraph 1, profits of an enterprise
of a Contracting State derived from the carriage by ships or aircraft of
passengers, livestock, mail, goods or merchandise which are shipped in
the other Contracting State and are discharged at a place in that other
State, or from leasing on a full basis of a ship or aircraft for purposes of
such carriage, may be taxed in that other State.
3. The provisions of paragraph 1 shall also apply to profits from the
participation in a pool, a joint business or an international operating
agency.
Article 9
Associated enterprises
1. Where
a) an enterprise of a Contracting State participates directly or
indirectly in the management, control or capital of an
enterprise of the other Contracting State, or
b) the same persons participate directly or indirectly in the
management, control or capital of an enterprise of a
Contracting State and an enterprise of the other Contracting
State,
and in either case conditions operate between the two enterprises in
their commercial or financial relations which differ from those which
might be expected to operate between independent enterprises, then
any profits which would, but for those conditions, have accrued to one
of the enterprises, but, by reason of those conditions, have not so
accrued, may be included in the profits of that enterprise and taxed
accordingly.
2. Where a Contracting State includes in the profits of an enterprise of
that State - and taxes accordingly - profits on which an enterprise of the
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The Australia-Switzerland Convention
other Contracting State has been charged to tax in that other State and the
profits so included are profits which might have been expected to have
accrued to the enterprise of the first-mentioned State if the conditions
operative between the enterprises had been those which might have been
expected to have operated between independent enterprises dealing
wholly independently with one another, then that other State shall make
an appropriate adjustment to the amount of the taxes charged therein on
those profits. In determining such adjustment, due regard shall be had to
the other provisions of this Convention and the competent authorities of
the Contracting States shall if necessary consult each other.
Article 10
Dividends
1. Dividends paid by a company which is a resident of a Contracting
State to a resident of the other Contracting State may be taxed in that other
State.
2. However, such dividends may also be taxed in the Contracting State of
which the company paying the dividends is a resident and according to the
laws of that State, but if the beneficial owner of the dividends is a resident
of the other Contracting State, the tax so charged shall not exceed:
a) 5 per cent of the gross amount of the dividends if the
beneficial owner is a company which, in the case of Australia,
holds directly at least 10 per cent of the voting power in the
company paying the dividends, or in the case of Switzerland,
holds directly at least 10 per cent of the capital in the company
paying the dividends;
b) 15 per cent of the gross amount of the dividends in all other
cases.
3. Notwithstanding the provisions of paragraph 2 of this Article,
dividends shall not be taxed in the Contracting State of which the
company paying the dividends is a resident if the beneficial owner of the
dividends is a company that is a resident of the other Contracting State
that has held directly or indirectly through one or more residents of either
Contracting State, shares representing 80 per cent or more, in the case of
Australia, of the voting power, or in the case of Switzerland, of the capital
of the company paying the dividends for a 12 month period ending on the
date the dividend is declared and the company that is the beneficial owner
of the dividends:
a) has its principal class of shares listed on a recognised stock
exchange specified in subsubparagraph (1)k)(i) or (ii) of
Article 3 and regularly traded on one or more recognised stock
exchanges;
b) is owned directly or indirectly by one or more companies:
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(i) whose principal class of shares is listed on a
recognised stock exchange specified in
subsubparagraph (1)k)(i) or (ii) of Article 3 and
regularly traded on one or more recognised stock
exchanges; or
(ii) each of which, if it directly held the shares in respect
of which the dividends are paid, would be entitled to
equivalent benefits in respect of such dividends under
a tax treaty between the State of which that company
is a resident and the Contracting State of which the
company paying the dividends is a resident; or
c) does not meet the requirements of subparagraphs a) or b) of
this paragraph but the competent authority of the first-
mentioned Contracting State determines that paragraph 1 of
the Protocol to this Convention does not apply. The
competent authority of the first-mentioned Contracting State
shall consult the competent authority of the other Contracting
State before refusing to grant benefits of this Convention
under this subparagraph.
4. Notwithstanding the provisions of subparagraph 2b), dividends shall
not be taxed in the Contracting State of which the company paying the
dividends is a resident if the beneficial owner of the dividends holds, in
the case of Australia, directly no more than 10 per cent of the voting
power in the company paying the dividends, or in the case of Switzerland,
directly no more than 10 per cent of the capital of the company paying the
dividends, and the beneficial owner is:
a) a Contracting State, or political subdivision or a local authority
thereof (including a government investment fund);
b) a central bank of a Contracting State;
c) in the case of Australia, a resident of Australia deriving such
dividends from the carrying on of complying superannuation
activities; or
d) in the case of Switzerland, a pension scheme whose
investment income is exempt from Swiss tax.
5. Paragraphs 2, 3 and 4 shall not affect the taxation of the company in
respect of the profits out of which the dividends are paid.
6. The term "dividends" as used in this Article means income from
shares, "jouissance" shares or "jouissance" rights, mining shares, founders'
shares or other rights, not being debt-claims, participating in profits, as
well as other amounts which are subjected to the same taxation treatment
as income from shares by the laws of the State of which the company
making the distribution is a resident for the purposes of its tax.
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7. The provisions of paragraphs 1, 2, 3 and 4 shall not apply if the
beneficial owner of the dividends, being a resident of a Contracting State,
carries on business in the other Contracting State of which the company
paying the dividends is a resident through a permanent establishment
situated therein, or performs in that other State independent personal
services from a fixed base situated therein, and the holding in respect of
which the dividends are paid is effectively connected with such permanent
establishment or fixed base. In such case the provisions of Article 7 or
Article 14, as the case may be, shall apply.
8. Where a company which is a resident of a Contracting State derives
profits or income from the other Contracting State, that other State may
not impose any tax on the dividends paid by the company--being
dividends beneficially owned by a person who is not a resident of the
other Contracting State--except insofar as the holding in respect of which
such dividends are paid is effectively connected with a permanent
establishment or a fixed base situated in that other State, nor subject the
company`s undistributed profits to a tax on the company`s undistributed
profits, even if the dividends paid or the undistributed profits consist
wholly or partly of profits or income arising in such other State.
9. Notwithstanding paragraph 8, dividends paid by a company that is
deemed to be a resident only of one Contracting State pursuant to
paragraph 3 of Article 4 may be taxed in the other Contracting State, but
only to the extent that the dividends are paid out of profits arising in that
State. Where such dividends are beneficially owned by a resident of the
first-mentioned State, paragraph 2 of this Article shall apply as if the
company paying the dividends were a resident only of the other State.
Article 11
Interest
1. Interest arising in a Contracting State and paid to a resident of the
other Contracting State may be taxed in that other State.
2. However, such interest may also be taxed in the Contracting State in
which it arises and according to the laws of that State, but if the beneficial
owner of the interest is a resident of the other Contracting State, the tax so
charged shall not exceed 10 per cent of the gross amount of the interest.
3. Notwithstanding paragraph 2, interest arising in a Contracting State
and beneficially owned by a resident of the other Contracting State shall
not be taxed in the first-mentioned State if the interest is derived by:
a) a Contracting State or by a political or administrative sub-
division or a local authority thereof (including a government
investment fund), or by any other body exercising
governmental functions in a Contracting State, or by a bank
performing central banking functions in a Contracting State;
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b) a financial institution which is unrelated to and dealing wholly
independently with the payer. For the purposes of this Article,
the term "financial institution" means a bank or other
enterprise substantially deriving its profits by raising debt
finance in the financial markets or by taking deposits at
interest and using those funds in carrying on a business of
providing finance;
c) in the case of Australia, a resident of Australia deriving such
interest from the carrying on of complying superannuation
activities; or
d) in the case of Switzerland, a pension scheme whose
investment income is exempt from Swiss tax.
4. Notwithstanding paragraph 3,
a) interest referred to in subparagraph b) of that paragraph may
be taxed in the State in which it arises at a rate not exceeding
10 per cent of the gross amount of the interest if the interest is
paid as part of an arrangement involving back-to-back loans or
other arrangement that is economically equivalent and
intended to have a similar effect to back-to-back loans; and
b) interest referred to in subparagraphs a), c) or d) of that
paragraph may be taxed in the State in which it arises at a rate
not exceeding 10 per cent of the gross amount of the interest if
the beneficial owner of the interest participates directly or
indirectly in the management, control or capital, or has an
existing or contingent right to participate in the financial,
operating or policy decisions, of the issuer of the debt-claim.
5. The term "interest" as used in this Article means income from debt-
claims of every kind, whether or not secured by mortgage and whether or
not carrying a right to participate in the debtor`s profits, and in particular,
interest from government securities and income from bonds or debentures,
as well as income which is subjected to the same taxation treatment as
income from money lent by the law of the Contracting State in which the
income arises.
6. The provisions of paragraphs 1 and 2, subparagraph b) of paragraph 3
and paragraph 4 of this Article shall not apply if the beneficial owner of
the interest, being a resident of a Contracting State, carries on business in
the other Contracting State in which the interest arises through a
permanent establishment situated therein, or performs in that other State
independent personal services from a fixed base situated therein, and the
debt-claim in respect of which the interest is paid is effectively connected
with such permanent establishment or fixed base. In such case the
provisions of Article 7 or Article 14, as the case may be, shall apply.
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7. Interest shall be deemed to arise in a Contracting State when the payer
is a resident of that State for the purposes of its tax. Where, however, the
person paying the interest, whether the person is a resident of a
Contracting State or not, has in a Contracting State or outside both
Contracting States a permanent establishment or a fixed base in
connection with which the indebtedness on which the interest is paid was
incurred, and such interest is borne by such permanent establishment or
fixed base, then such interest shall be deemed to arise in the State in
which the permanent establishment or fixed base is situated.
8. Where, by reason of a special relationship between the payer and the
beneficial owner of the interest, or between both of them and some other
person, the amount of the interest, having regard to the debt-claim for
which it is paid, exceeds the amount which might have been expected to
have been agreed upon by the payer and the beneficial owner in the
absence of such relationship, the provisions of this Article shall apply only
to the last-mentioned amount. In such case, the excess part of the
payments shall remain taxable according to the laws of each Contracting
State, due regard being had to the other provisions of this Convention.
Article 12
Royalties
1. Royalties arising in a Contracting State and paid or credited to a
resident of the other Contracting State may be taxed in that other State.
2. However, such royalties may also be taxed in the Contracting State in
which they arise and according to the laws of that State, but if the
beneficial owner of the royalties is a resident of the other Contracting
State, the tax so charged shall not exceed 5 per cent of the gross amount of
the royalties.
3. The term "royalties" as used in this Article means payments or credits,
whether periodical or not, and however described or computed, to the
extent to which they are made as consideration for:
a) the use of, or the right to use, any copyright, patent, design or
model, plan, secret formula or process, trademark or other like
property or right;
b) the supply of scientific, technical, industrial or commercial
knowledge or information;
c) the supply of any assistance that is ancillary and subsidiary to,
and is furnished as a means of enabling the application or
enjoyment of, any such property or right as is mentioned in
subparagraph a) or any such knowledge or information as is
mentioned in subparagraph b);
d) the use of, or the right to use:
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(i) motion picture films;
(ii) films or audio or video tapes or disks, or any other
means of image or sound reproduction or transmission
for use in connection with television, radio or other
broadcasting; or
e) total or partial forbearance in respect of the use or supply of
any property or right referred to in this paragraph.
4. The provisions of paragraphs 1 and 2 shall not apply if the beneficial
owner of the royalties, being a resident of a Contracting State, carries on
business in the other Contracting State in which the royalties arise through
a permanent establishment situated therein, or performs in that other State
independent personal services from a fixed base situated therein, and the
right or property in respect of which the royalties are paid or credited is
effectively connected with such permanent establishment or fixed base. In
such case the provisions of Article 7 or Article 14, as the case may be,
shall apply.
5. Royalties shall be deemed to arise in a Contracting State when the
payer is a resident of that State for the purposes of its tax. Where,
however, the person paying the royalties, whether the person is a resident
of a Contracting State or not, has in a Contracting State or outside both
Contracting States a permanent establishment or a fixed base in
connection with which the liability to pay the royalties was incurred, and
the royalties are borne by the permanent establishment or fixed base, then
such royalties shall be deemed to arise in the State in which the permanent
establishment or fixed base is situated.
6. Where, by reason of a special relationship between the payer and the
beneficial owner of the royalties, or between both of them and some other
person, the amount of the royalties paid or credited, having regard to what
they are paid or credited for, exceeds the amount which might have been
expected to have been agreed upon by the payer and the beneficial owner
in the absence of such relationship, the provisions of this Article shall
apply only to the last-mentioned amount. In such case, the excess part of
the payments or credits shall remain taxable according to the laws of each
Contracting State, due regard being had to the other provisions of this
Convention.
Article 13
Alienation of property
1. Income, profits or gains derived by a resident of a Contracting State
from the alienation of immovable property referred to in Article 6 and
situated in the other Contracting State may be taxed in that other State.
2. Income, profits or gains from the alienation of movable property
forming part of the business property of a permanent establishment which
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an enterprise of a Contracting State has in the other Contracting State or
pertaining to a fixed base available to a resident of a Contracting State in
the other Contracting State for the purpose of performing independent
personal services, including such income, profits or gains from the
alienation of such a permanent establishment (alone or with the whole
enterprise) or of such fixed base, may be taxed in that other State.
3. Income, profits or gains of an enterprise of a Contracting State from
the alienation of ships or aircraft operated by that enterprise in
international traffic or movable property pertaining to the operation of
such ships or aircraft, shall be taxable only in that State.
4. Income, profits or gains derived by a resident of a Contracting State
from the alienation of any shares or comparable interests deriving more
than 50 per cent of their value directly or indirectly from immovable
property situated in the other Contracting State may be taxed in that other
State.
5. Gains of a capital nature from the alienation of any property other than
that referred to in paragraphs 1, 2, 3 and 4 shall be taxable only in the
Contracting State of which the alienator is a resident.
Article 14
Independent personal services
1. Income derived by an individual, who is a resident of a Contracting
State in respect of professional services or other activities of an
independent character shall be taxable only in that State unless a fixed
base is regularly available to that individual in the other Contracting State
for the purpose of performing the individual`s activities. If such a fixed
base is available to the individual, the income may be taxed in the other
State but only so much of it as is attributable to that fixed base.
2. The term "professional services" includes especially independent
scientific, literary, artistic, educational or teaching activities as well as the
independent activities of physicians, lawyers, engineers, architects,
dentists and accountants.
Article 15
Dependent personal services
1. Subject to the provisions of Articles 16, 18 and 19, salaries, wages and
other similar remuneration derived by a resident of a Contracting State in
respect of an employment shall be taxable only in that State unless the
employment is exercised in the other Contracting State. If the employment
is so exercised, such remuneration as is derived therefrom may be taxed in
that other State.
2. Notwithstanding the provisions of paragraph 1, remuneration derived
by a resident of a Contracting State in respect of an employment exercised
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in the other Contracting State shall be taxable only in the first-mentioned
State if:
a) the recipient is present in the other State for a period or
periods not exceeding in the aggregate 183 days in the fiscal
year concerned, and
b) the remuneration is paid by, or on behalf of, an employer who
is not a resident of the other State, and
c) the remuneration is not borne by a permanent establishment or
a fixed base which the employer has in the other State.
3. Notwithstanding the preceding provisions of this Article, remuneration
derived in respect of an employment exercised aboard a ship or aircraft
operated in international traffic, may be taxed in the Contracting State of
which the enterprise operating the ship or aircraft is a resident.
4. Where, except for the application of this paragraph, a fringe benefit is
taxable in both Contracting States, the benefit will be taxable only in the
Contracting State that has the sole or primary taxing right in accordance
with the Convention in respect of salary or wages from the employment to
which the benefit relates. A Contracting State has a "primary taxing
right" to the extent that a taxing right in respect of salary or wages from
the relevant employment is allocated to that State in accordance with this
Convention and the other Contracting State is required to provide relief
for the tax imposed in respect of such remuneration by the first-mentioned
State.
Article 16
Directors' fees
Directors' fees and other similar payments derived by a resident of a
Contracting State in that person`s capacity as a member of the board of
directors of a company which is a resident of the other Contracting State
may be taxed in that other State.
Article 17
Entertainers and sportspersons
1. Notwithstanding the provisions of Articles 14 and 15, income derived
by a resident of a Contracting State as an entertainer, such as a theatre,
motion picture, radio or television artiste, or a musician, or as a
sportsperson, from that person`s personal activities as such exercised in
the other Contracting State, may be taxed in that other State.
2. Where income in respect of personal activities exercised by an
entertainer or a sportsperson in that person`s capacity as such accrues not
to that person but to another person, that income may, notwithstanding the
provisions of Articles 7, 14 and 15, be taxed in the Contracting State in
which the activities of the entertainer or sportsperson are exercised. The
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provisions of the preceding sentence shall not apply if it is established that
neither the entertainer or the sportsperson, nor persons related to the
entertainer or the sportsperson, participate directly or indirectly in the
profits of such person.
3. Paragraphs 1 and 2 shall not apply to income from activities performed
in a Contracting State by entertainers or sportspersons if such income is
derived, directly or indirectly, wholly or mainly from public funds of the
other Contracting State, a political subdivision or a local authority thereof.
In such a case, the income shall be taxable only in the Contracting State of
which the entertainer or sportsperson is a resident.
Article 18
Pensions
1. Subject to the provisions of paragraph 2 of Article 19, pensions, social
security payments and annuities paid to a resident of a Contracting State
shall be taxable only in that State. However, where such income arises in
the other Contracting State and the recipient is not liable to tax in the first
mentioned State in respect of that income, the income may be taxed in that
other Contracting State.
2. Subject to the provisions of paragraph 2 of Article 19, lump sums
arising in a Contracting State and paid to a resident of the other
Contracting State under a pension scheme, or in consequence of
retirement, invalidity, disability or death, or by way of compensation for
injuries, may be taxed in the first-mentioned State.
3. The term "annuity" means a stated sum payable periodically at stated
times during life or during a specified or ascertainable period of time
under an obligation to make the payments in return for adequate and full
consideration in money or money`s worth.
Article 19
Government service
1. a) Salaries, wages and other similar remuneration paid
by a Contracting State or a political subdivision or a local
authority thereof to an individual in respect of services
rendered to that State or subdivision or authority shall be
taxable only in that State.
b) However, such salaries, wages and other similar
remuneration shall be taxable only in the other Contracting
State if the services are rendered in that State and the
individual is a resident of that State who:
(i) is a national of that State; or
(ii) did not become a resident of that State solely for the
purpose of rendering the services.
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2. a) Pensions and other similar remuneration paid by, or
out of funds created by, a Contracting State or a political
subdivision or a local authority thereof to an individual in
respect of services rendered to that State or subdivision or
authority shall be taxable only in that State.
b) However, such pensions and other similar
remuneration shall be taxable only in the other Contracting
State if the individual is a resident of, and a national of, that
State and is not also a national of the first-mentioned State.
3. The provisions of Articles 15, 16, 17 and 18 shall apply to salaries,
wages, pensions, and other similar remuneration in respect of services
rendered in connection with a business carried on by a Contracting State
or a political subdivision or a local authority thereof.
Article 20
Students
Payments which a student or business apprentice who is or was
immediately before visiting a Contracting State a resident of the other
Contracting State and who is temporarily present in the first mentioned
State solely for the purpose of their education or training receives for the
purpose of their maintenance, education or training shall not be taxed in
that State, provided that such payments arise from sources outside that
State.
Article 21
Source of income
Income, profits or gains derived by a resident of a Contracting State
which, under any one or more of Articles 6 to 8 and 10 to 19, may be
taxed in the other Contracting State shall for the purposes of the law of
that other Contracting State relating to its tax be deemed to arise from
sources in that other Contracting State.
CHAPTER IV
RELIEF FROM DOUBLE TAXATION
Article 22
Elimination of double taxation
1. Subject to the provisions of the laws of Australia which relate to the
allowance of a credit against Australian tax of tax paid in a country
outside Australia (which shall not affect the general principle of this
Article), Swiss tax paid under the laws of Switzerland and in accordance
with this Convention, in respect of income derived by a resident of
Australia shall be allowed as a credit against Australian tax payable in
respect of that income.
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The Australia-Switzerland Convention
2. In the case of Switzerland, double taxation shall be avoided as follows:
a) Where a resident of Switzerland derives income which, in
accordance with the provisions of this Convention, may be
taxed in Australia, Switzerland shall, subject to the provisions
of subparagraph b), exempt such income from tax but may, in
calculating tax on the remaining income of that resident, apply
the rate of tax which would have been applicable if the
exempted income had not been so exempted. However, such
exemption shall apply to gains referred to in paragraph 4 of
Article 13 only if actual taxation of such gains in Australia is
demonstrated.
b) Where a resident of Switzerland derives dividends, interest or
royalties which, in accordance with the provisions of Articles
10, 11 or 12, may be taxed in Australia, Switzerland shall
allow, upon request, a relief to such resident. The relief may
consist of:
(i) a deduction from the tax on the income of that resident
of an amount equal to the tax levied in Australia in
accordance with the provisions of Articles 10, 11 or
12; such deduction shall not, however, exceed that
part of the Swiss tax, as computed before the
deduction is given, which is appropriate to the income
which may be taxed in Australia; or
(ii) a lump sum reduction of the Swiss tax; or
(iii) a partial exemption of such dividends, interest or
royalties from Swiss tax, in any case consisting at
least of the deduction of the tax levied in Australia
from the gross amount of the dividends, interest or
royalties.
Switzerland shall determine the applicable relief and regulate
the procedure in accordance with the Swiss provisions relating
to the carrying out of international conventions of the Swiss
Confederation for the avoidance of double taxation.
3. A company which is a resident of Switzerland and which derives
dividends from a company which is a resident of Australia shall be
entitled, for the purposes of taxation in Switzerland with respect to such
dividends, to the same relief which would be granted to the company if
the company paying the dividends were a resident of Switzerland.
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CHAPTER V
SPECIAL PROVISIONS
Article 23
Non-discrimination
1. Nationals of a Contracting State shall not be subjected in the other
Contracting State to any taxation or any requirement connected therewith,
which is other or more burdensome than the taxation and connected
requirements to which nationals of that other State in the same
circumstances, in particular with respect to residence, are or may be
subjected. This provision shall, notwithstanding the provisions of Article
l, also apply to persons who are not residents of one or both of the
Contracting States.
2. The taxation on a permanent establishment which an enterprise of a
Contracting State has in the other Contracting State shall not be less
favourably levied in that other State than the taxation levied on enterprises
of that other State carrying on the same activities. This provision shall not
be construed as obliging a Contracting State to grant to residents of the
other Contracting State any personal allowances, reliefs and reductions for
taxation purposes on account of civil status or family responsibilities
which it grants to its own residents.
3. Except where the provisions of paragraph 1 of Article 9, paragraph 8
of Article 11, or paragraph 6 of Article 12, apply, interest, royalties and
other disbursements paid by an enterprise of a Contracting State to a
resident of the other Contracting State shall, for the purpose of
determining the taxable profits of such enterprise, be deductible under the
same conditions as if they had been paid to a resident of the first-
mentioned State.
4. Enterprises of a Contracting State, the capital of which is wholly or
partly owned or controlled, directly or indirectly, by one or more residents
of the other Contracting State, shall not be subjected in the first-mentioned
State to any taxation or any requirement connected therewith which is
other or more burdensome than the taxation and connected requirements
to which other similar enterprises of the first-mentioned State are or may
be subjected.
5. The provisions of this Article shall, notwithstanding the provisions of
Article 2, apply to taxes of every kind and description.
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The Australia-Switzerland Convention
Article 24
Mutual agreement procedure
1. Where a person considers that the actions of one or both of the
Contracting States result or will result for the person in taxation not in
accordance with the provisions of this Convention, the person may,
irrespective of the remedies provided by the domestic law of those States,
present a case to the competent authority of the Contracting State of which
the person is a resident or, if the case comes under paragraph 1 of Article
23, to that of the Contracting State of which the person is a national. The
case must be presented within three years from the first notification of the
action resulting in taxation not in accordance with the provisions of the
Convention.
2. The competent authority shall endeavour, if the objection appears to it
to be justified and if it is not itself able to arrive at a satisfactory solution,
to resolve the case by mutual agreement with the competent authority of
the other Contracting State, with a view to the avoidance of taxation
which is not in accordance with the Convention.
3. The competent authorities of the Contracting States shall endeavour to
resolve by mutual agreement any difficulties or doubts arising as to the
interpretation or application of the Convention. They may also consult
together for the elimination of double taxation in cases not provided for in
the Convention.
4. The competent authorities of the Contracting States may communicate
with each other directly for the purpose of reaching an agreement in the
sense of the preceding paragraphs.
5. Where,
a) under paragraph 1, a person has presented a case to the
competent authority of a Contracting State on the basis that the
actions of one or both of the Contracting States have resulted
for that person in taxation not in accordance with the
provisions of this Convention, and
b) the competent authorities are unable to reach an agreement to
resolve that case pursuant to paragraph 2 within three years
from the presentation of the case to the competent authority of
the other Contracting State,
any unresolved issues arising from the case shall be submitted to
arbitration if the person so requests. These unresolved issues shall not,
however, be submitted to arbitration if a decision on these issues has
already been rendered by a court or administrative tribunal of either State.
Unless a person directly affected by the case does not accept the mutual
agreement that implements the arbitration decision or the competent
authorities and the persons directly affected by the case agree on a
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different solution within six months after the decision has been
communicated to them, the arbitration decision shall be binding on both
States and shall be implemented notwithstanding any time limits in the
domestic laws of these States. The competent authorities of the
Contracting States shall by mutual agreement settle the mode of
application of this paragraph.
6. The Contracting States may release to the arbitration board,
established under the provisions of paragraph 5, such information as is
necessary for carrying out the arbitration procedure. The members of the
arbitration board shall be subject to the limitations of disclosure described
in paragraph 2 of Article 25 with respect to the information so released.
7. For the purposes of paragraph 3 of Article XXII (Consultation) of the
General Agreement on Trade in Services, the Contracting States agree
that, notwithstanding that paragraph, any dispute between them as to
whether a measure falls within the scope of this Convention may be
brought before the Council for Trade in Services, as provided by that
paragraph, only with the consent of both Contracting States. Any doubt as
to the interpretation of this paragraph shall be resolved under paragraph 3
of this Article or, failing agreement under that procedure, pursuant to any
other procedure agreed to by both Contracting States.
Article 25
Exchange of information
1. The competent authorities of the Contracting States shall exchange
such information as is foreseeably relevant for carrying out the provisions
of this Convention or to the administration or enforcement of the domestic
laws concerning taxes of every kind and description imposed on behalf of
the Contracting States, or of their political subdivisions or local
authorities, insofar as the taxation thereunder is not contrary to the
Convention. The exchange of information is not restricted by Articles 1
and 2.
2. Any information received under paragraph 1 by a Contracting State
shall be treated as secret in the same manner as information obtained
under the domestic laws of that State and shall be disclosed only to
persons or authorities (including courts and administrative bodies)
concerned with the assessment or collection of, the enforcement or
prosecution in respect of, or the determination of appeals in relation to the
taxes referred to in paragraph 1, or the oversight of the above. Such
persons or authorities shall use the information only for such purposes.
They may disclose the information in public court proceedings or in
judicial decisions. Notwithstanding the foregoing, information received by
a Contracting State may be used for other purposes when such
information may be used for such other purposes under the laws of both
States and the competent authority of the supplying State authorises such
use.
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3. In no case shall the provisions of paragraphs 1 and 2 be construed so
as to impose on a Contracting State the obligation:
a) to carry out administrative measures at variance with the laws
and administrative practice of that or of the other Contracting
State;
b) to supply information which is not obtainable under the laws
or in the normal course of the administration of that or of the
other Contracting State;
c) to supply information which would disclose any trade,
business, industrial, commercial or professional secret or trade
process, or information the disclosure of which would be
contrary to public policy (ordre public).
4. If information is requested by a Contracting State in accordance with
this Article, the other Contracting State shall use its information gathering
measures to obtain the requested information, even though that other State
may not need such information for its own tax purposes. The obligation
contained in the preceding sentence is subject to the limitations of
paragraph 3 but in no case shall such limitations be construed to permit a
Contracting State to decline to supply information solely because it has no
domestic interest in such information.
5. In no case shall the provisions of paragraph 3 be construed to permit a
Contracting State to decline to supply information solely because the
information is held by a bank, other financial institution, nominee or
person acting in an agency or a fiduciary capacity or because it relates to
ownership interests in a person. In order to obtain such information, the
tax authorities of the requested Contracting State, if necessary to comply
with its obligations under this paragraph, shall have the power to enforce
the disclosure of information covered by this paragraph, notwithstanding
paragraph 3 or any contrary provisions in its domestic laws.
Article 26
Members of diplomatic missions and consular posts
1. Nothing in this Convention shall affect the fiscal privileges of
members of diplomatic missions or consular posts under the general rules
of international law or under the provisions of special agreements.
2. Notwithstanding the provisions of Article 4, an individual who is a
member of a diplomatic mission, consular post or permanent mission of a
Contracting State which is situated in the other Contracting State or in a
third State shall be deemed, for the purposes of this Convention, to be a
resident of the sending State if:
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International Tax Agreements Amendment Bill 2014
a) in accordance with international law the individual is not
liable to tax in the receiving Contracting State in respect of
income from sources outside that State and
b) the individual is liable in the sending State to the same
obligations in relation to tax on the total income as are
residents of that State.
3. The Convention shall not apply to international organisations, to
organs or officials thereof and to persons who are members of a
diplomatic mission, consular post or permanent mission of a third State,
being present in a Contracting State and not treated in either Contracting
State as residents in respect of taxes on income.
CHAPTER VI
FINAL PROVISIONS
Article 27
Entry into force
1. Each Contracting State shall notify to the other, through diplomatic
channels, the completion of the procedures required by its law for the
bringing into force of this Convention. The Convention shall enter into
force on the date on which the later of those notifications has been
received.
2. The provisions of the Convention shall have effect:
a) in the case of Australia:
(i) in respect of fringe benefits tax, in relation to fringe
benefits provided on or after 1 April next following
the date on which this Convention enters into force;
(ii) in respect of withholding tax on income that is derived
by a resident of Switzerland, in relation to income
derived on or after the first day of January of the
calendar year next following the date on which the
Convention enters into force;
(iii) in respect of other Australian tax, in relation to
income, profits or gains of any income year beginning
on or after 1 July next following the date on which the
Convention enters into force;
b) in the case of Switzerland:
i) in respect of taxes withheld at source on amounts paid
or credited on or after the first day of January of the
calendar year next following the entry into force of the
Convention;
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The Australia-Switzerland Convention
ii) in respect of other taxes for taxation years beginning
on or after the first day of January of the calendar year
next following the entry into force of the Convention;
c) in respect to Article 25, to information that relates to taxation
years or business years in course on, or beginning on or after, the first
day of January of the calendar year next following the entry into force
of the Convention.
3. The Agreement between Australia and Switzerland for the avoidance
of double taxation with respect to taxes on income, with Protocol, signed
at Canberra on 28 February, 1980 shall terminate upon the entry into force
of this Convention. However, the provisions of the first mentioned
Agreement shall continue to have effect for taxable years and periods
which expired before the time at which the provisions of this Convention
shall be effective.
Article 28
Termination
This Convention shall remain in force until terminated by a Contracting
State. Either Contracting State may terminate the Convention, through
diplomatic channels, by giving notice of termination at least six months
before the end of any calendar year. In such event, the Convention shall
cease to have effect:
a) in respect of taxes withheld at source on amounts paid or
credited on or after the first day of January of the calendar
year next following that in which the notice was given;
b) in respect of other taxes for taxation years beginning on or
after the first day of January of the calendar year next
following that in which the notice was given.
IN WITNESS WHEREOF the undersigned, duly authorised thereto, have
signed this Convention.
Done in duplicate at this day of
, 2013, in the German and English languages, both texts being equally
authentic.
For the Government of Australia: For the Swiss Federal Council:
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International Tax Agreements Amendment Bill 2014
PROTOCOL
THE GOVERNMENT OF AUSTRALIA
AND
THE SWISS FEDERAL COUNCIL
Have agreed at the signing at Sydney on the 30th of July, 2013, of the
Convention between the two States for the avoidance of double taxation
with respect to taxes on income upon the following provisions which shall
form an integral part of the said Convention.
1. In general
The benefits of this Convention shall not apply if it was one of the
principal purposes of any person concerned with the creation or
assignment of the property or right in respect of which the income is paid,
or if a person has become a resident of a Contracting State, to take
advantage of the provisions of the Convention by means of such creation,
assignment or residence.
2. ad Article 3
It is understood that the term "pension scheme" in subparagraph i) of
paragraph 1 includes the following and any identical or substantially
similar schemes which are established pursuant to legislation introduced
after the date of signature of this Convention:
a) in Australia, a fund that is
(i) an approved deposit fund as defined in the Income Tax
Assessment Act 1997;
(ii) a pooled superannuation trust as defined in the Income
Tax Assessment Act 1997;
b) in Switzerland, any pension schemes covered by
(i) the Federal Act on old age and survivors` insurance,
of 20 December 1946;
(ii) the Federal Act on disabled persons` insurance of 19
June 1959;
(iii) the Federal Act on supplementary pensions in respect
of old age, survivors` and disabled persons` insurance
of 6 October 2006;
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The Australia-Switzerland Convention
(iv) the Federal Act on old age, survivors` and disabled
persons` insurance payable in respect of employment
or self-employment of 25 June 1982, including the
non-registered pension schemes which offer
occupational pension plans and the forms of
individual recognised pension schemes comparable
with the occupational pension plans.
3. ad Article 4
a) In respect of paragraph 1 of Article 4, it is understood that the
term "resident of a Contracting State" includes, in particular, a
person that is:
(i) a pension scheme established in that State; and
(ii) an organization that is established and is operated
exclusively for religious, charitable, scientific,
cultural, sporting, or educational purposes (or for
more than one of those purposes) and that is a resident
of that State according to its laws, notwithstanding
that all or part of its income, profits or gains may be
exempt from tax under the domestic law of that State.
b) Where under this Convention any income, profits or gains are
relieved from tax in Switzerland and, under the law in force in
Australia, an individual in respect of that income or those
profits or gains is exempt from tax by virtue of being a
temporary resident of Australia within the meaning of the
applicable tax laws of Australia, then the relief to be allowed
under this Convention in Switzerland shall not apply to the
extent that that income or those profits or gains are exempt
from tax in Australia.
4. ad Articles 5 and 7
For the purposes of preventing misuse of Articles 5 and 7, in determining
the duration of activities under paragraphs 3 and 4 of Article 5, the period
during which activities are carried on in a Contracting State by an
enterprise associated with another enterprise (other than enterprises of that
Contacting State) may be aggregated with the period during which
activities are carried on by the enterprise with which it is associated if the
first mentioned activities are connected with the activities carried on in
that State by the last mentioned enterprise, provided that any period
during which two or more associated enterprises are carrying on
concurrent activities is counted only once. An enterprise shall be deemed
to be associated with another enterprise if one is controlled directly or
indirectly by the other, or if both are controlled directly or indirectly by a
third person or persons.
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International Tax Agreements Amendment Bill 2014
5. ad Article 7
a) This Article shall not apply to profits of an enterprise from
carrying on a business of any form of insurance, other than life
insurance.
b) Where:
(i) a resident of a Contracting State is beneficially
entitled, whether directly or through one or more
interposed trust estates, to a share of the business
profits of an enterprise carried on in the other
Contracting State by the trustee of a trust estate other
than a trust estate which is treated as a company for
tax purposes; and
(ii) in relation to that enterprise, that trustee would, in
accordance with the principles of Article 5, have a
permanent establishment in that other State,
the enterprise carried on by the trustee shall be deemed to be a
business carried on in the other State by that resident through a
permanent establishment situated therein and that share of business
profits shall be attributed to that permanent establishment.
6. ad Articles 7 and 9
Where the information available to the competent authority of one of the
Contracting States is inadequate to determine the profits of an enterprise
on which tax may be imposed in that State in accordance with Article 7 or
Article 9 of the Convention, nothing in those Articles shall affect the
application of any law of that State relating to the determination of the tax
liability of an enterprise in special circumstances, provided that that law
shall be applied, so far as the information available to the competent
authority permits, in accordance with the principles of those Articles.
7. ad Articles 7, 8, 12 and 14
It is understood that payments received as a consideration for the use of,
or the right to use industrial, commercial or scientific equipment
constitute profits covered by Articles 7, 8 or 14.
8. ad Articles 10, 11 and 12
a) It is understood that for dividends and interest arising in
Switzerland and derived by an Australian pension scheme, that
pension scheme shall be regarded as the beneficial owner of
such income where that income is treated as the income of that
pension scheme for the purposes of Australian tax.
b) It is understood that for dividends, interest and royalties
arising in Switzerland and derived by or through a
discretionary trust, the trustee of that trust shall not be
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The Australia-Switzerland Convention
regarded as the beneficial owner of such income where the
trustee subsequently distributes that income to a beneficiary
that is not a resident of Australia, unless that income is subject
to tax in Australia in the hands of the trustee and the
Australian tax paid by the trustee is not subsequently refunded
to that beneficiary.
9. ad Article 11
It is understood that subparagraph b) of paragraph 4 is intended to ensure
that the exemptions prescribed in subparagraphs a), c) and d) of paragraph
3 apply only where the beneficial owner of the interest holds a portfolio-
like interest in the issuer of the debt-claim and will not apply where the
beneficial owner is associated with, or in a position to control or influence
the key decision-making of, the issuer of the debt-claim.
10. ad Article 13
The provisions of Article 13 shall not affect the right of Australia to tax,
in accordance with its laws, income, profits or gains from the alienation of
any movable property derived by an individual who is a resident of
Australia at any time during the year of income in which the property is
alienated, or has been so resident at any time during the 4 years
immediately preceding the year of alienation.
11. ad Article 18
With respect to paragraph 2, it is understood that in the case of payments
arising in Australia, "a pension scheme" includes a retirement savings
account, and a payment by the Commissioner under the Superannuation
(Unclaimed Money and Lost Members) Act 1999 shall be treated as a
lump sum paid under a pension scheme.
12. ad Article 19
It is understood that the term "pensions and other similar remuneration" as
used in Article 19 includes both periodic payments and lump sum
payments.
13. ad Article 23
This Article shall not apply to any provision of the laws of a Contracting
State which are intended to prevent tax abuse, address thin capitalisation
or to ensure that taxes can be effectively collected or recovered.
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International Tax Agreements Amendment Bill 2014
14. ad Article 25
a) It is understood that an exchange of information will only be
requested once the requesting Contracting State has pursued
all reasonable means available under its internal taxation
procedure to obtain the information.
b) It is understood that the tax authorities of the requesting State
shall provide the following information to the tax authorities
of the requested State when making a request for information
under Article 25:
(i) the identity of the person under examination or
investigation;
(ii) the period of time for which the information is
requested;
(iii) a statement of the information sought including its
nature and the form in which the requesting State
wishes to receive the information from the requested
State;
(iv) the tax purpose for which the information is sought;
(v) to the extent known, the name and address of any
person believed to be in possession of the requested
information.
The purpose of referring to information that may be
foreseeably relevant is intended to provide for exchange of
information in tax matters to the widest possible extent
without allowing the Contracting States to engage in "fishing
expeditions" or to request information that is unlikely to be
relevant to the tax affairs of a given taxpayer. While this
subparagraph contains important procedural requirements that
are intended to ensure that fishing expeditions do not occur,
clauses (i) through (v) nevertheless need to be interpreted with
a view not to frustrate effective exchange of information.
c) Although Article 25 does not restrict the possible methods for
exchanging information, it is understood that the Article does
not require the Contracting States to exchange information on
an automatic or a spontaneous basis.
d) It is understood that in case of an exchange of information, the
administrative procedural rules regarding taxpayers` rights
provided for in the requested Contracting State remain
applicable before the information is transmitted to the
requesting Contracting State. It is further understood that these
provisions aim at guaranteeing the taxpayer a fair procedure
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The Australia-Switzerland Convention
and not at preventing or unduly delaying the exchange of
information process.
15. ad Article 27
It is understood that in the case of Australia, the references to "taxation
years" in subparagraph c) of paragraph 2 and to "taxable years" in
paragraph 3 refer to "income years" or "fringe benefits tax years" as
required.
IN WITNESS WHEREOF the undersigned, duly authorised thereto, have
signed this Protocol.
Done in duplicate at this day of
, 2013, in the German and English languages, both texts being equally
authentic.
For the Government of Australia: For the Swiss Federal Council:`
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International Tax Agreements Amendment Bill 2014
Detailed explanation of new law
CHAPTER I - SCOPE OF THE CONVENTION
Article 1 - Persons covered
1.6 This Article establishes the scope of the application of the Swiss
Convention by providing for it to apply to persons` (defined to include
individuals, companies, trusts and any other body of persons) who are
residents of one or both of the countries. It generally precludes extra-
territorial application of the Swiss Convention. [Article 1]
1.7 The Swiss Convention also applies to third country residents in
relation to Article 23 (Non-discrimination) in its application to nationals
of one of the treaty countries, Article 24 (Mutual agreement procedure) so
far as the person is a national of one of the treaty countries, and in relation
to the exchange of information under Article 25 (Exchange of
information).
1.8 The application of the Swiss Convention to persons who are
dual residents (that is, residents of both countries) is dealt with in Article 4
(Resident).
Article 2 - Taxes covered
1.9 This Article specifies the taxes of each country to which the
Swiss Convention applies. The Convention applies to federal taxes on
income imposed by Australia and Switzerland and to taxes on income
imposed by Swiss political subdivisions or local authorities. Taxes on
income includes all taxes imposed on total income, or elements of total
income, including taxes on gains from the alienation of movable or
immovable property, taxes on the total amounts of wages or salaries paid
by enterprises, as well as taxes on capital appreciation. [Article 2,
paragraphs 1 and 2]
1.10 The existing taxes to which the Swiss Convention applies are, in
the case of Australia, the Australian income tax, the fringe benefits tax
and resource rent taxes imposed under Australian federal law.
1.11 The term income tax` includes Australian income tax imposed
on capital gains. The term resource rent taxes` includes the petroleum
resource rent tax. [Article 2, subparagraph 3a)]
1.12 As with the existing Swiss Agreement, the Swiss Convention
generally does not cover Australia`s goods and services tax (GST),
customs duties, state taxes and duties and estate tax and duties.
1.13 For Switzerland, the Swiss Convention applies to federal,
cantonal and communal taxes on income, encompassing total income,
earned income, income from capital, industrial and commercial profits,
capital gains, and other items of income. [Article 2, subparagraph 3b)]
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The Australia-Switzerland Convention
Extended scope for non-discrimination and exchange of information
1.14 While the taxes specified in Article 2 are covered for all
purposes of the Swiss Convention, a wider range of taxes is covered for
the purposes of Article 23 (Non-discrimination) and Article 25 (Exchange
of information). Paragraph 5 of Article 23 provides that the article applies
to taxes of every kind and description. Article 25 applies to taxes of every
kind and description imposed on behalf of Australia or Switzerland, or of
their political subdivisions or local authorities. [Article 23, paragraph 5 and
Article 25, paragraph 1]
Identical or substantially similar taxes
1.15 The application of the Convention is also extended to any
identical or substantially similar taxes which are subsequently imposed by
either country in addition to, or in place of, the existing taxes. [Article 2,
paragraph 4]
1.16 The competent authorities (that is, the Commissioner of
Taxation in the case of Australia and the Head of the Federal Department
of Finance in the case of Switzerland, or their authorised representatives)
are required to notify each other in the event of a significant change in the
taxation law of the respective countries. [Article 2, paragraph 4]
1.17 The Swiss Convention does not apply to taxes withheld at
source from lottery prizes. [Article 2, paragraph 5]
CHAPTER II - DEFINITIONS
Article 3 - General definitions
1.18 This Article provides general definitions and rules of
interpretation applicable throughout the Swiss Convention. In particular,
paragraph 1 defines a number of basic terms used in the Convention.
These definitions apply for all purposes of the Convention unless the
context requires otherwise.
1.19 Certain other terms are defined in other articles of the Swiss
Convention. For example, the terms resident of a Contracting State`,
permanent establishment`, and immovable property` are defined in
Articles 4 (Resident), 5 (Permanent establishment) and 6 (Income from
immovable property) respectively. These definitions are to be applied
consistently throughout the Swiss Convention. In contrast, a number of
terms, such as dividends`, interest` and royalties` are defined in specific
articles for use only in those articles.
Definition of Australia
1.20 As in Australia`s other modern tax treaties, Australia is defined
to include certain external territories and the continental shelf. The Swiss
Convention also refers specifically to the exclusive economic zone`.
Although the exclusive economic zone is considered to be covered by the
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International Tax Agreements Amendment Bill 2014
definition used in Australia`s other modern tax treaties, it is specifically
included in the Swiss Convention for additional clarity. By reason of this
definition, Australia preserves its taxing rights, for example, over mineral
exploration and mining activities carried on by non-residents on the
seabed and subsoil of the relevant continental shelf areas (under section
6AA of the Income Tax Assessment Act 1936 (ITAA 1936), certain sea
installations and offshore areas are to be treated as part of Australia).
[Article 3, subparagraph 1a)]
Definition of Switzerland
1.21 The definition of Switzerland means the Swiss Confederation.
[Article 3, subparagraph 1b)]
Definition of person
1.22 The definition of person in the Swiss Convention includes an
individual, a company, a trust and any other body of persons. This
includes a partnership (as a body of persons). [Article 3, subparagraph 1c)]
Definition of company
1.23 The definition of company in the Swiss Convention accords
with the OECD Model, and means any body corporate or any entity which
is treated as a body corporate for tax purposes.
1.24 The Australian tax law treats certain trusts (public unit trusts and
public trading trusts) and corporate limited partnerships (limited liability
partnerships) in the same way as companies for income tax purposes.
These trusts and partnerships are included as companies for the purposes
of the Convention. [Article 3, subparagraph 1d)]
Definition of enterprise of a Contracting State and enterprise of the other
Contracting State
1.25 The terms enterprise of a Contracting State and enterprise of
the other Contracting State are defined as an enterprise carried on by
residents of the respective countries. An enterprise of a Contracting State
need not be carried on in that State. It may be carried on in the other
Contracting State or a third state (that is, an Australian company doing all
its business in Switzerland would still be an Australian enterprise).
[Article 3, subparagraph 1e)]
Definition of international traffic
1.26 In the Swiss Convention, this term is relevant to the taxation of
profits from shipping and air transport operations (Article 8 (Shipping and
air transport)), the taxation of income, profits or gains from the alienation
of ships and aircraft (paragraph 3 of Article 13 (Alienation of property))
and the taxation of employment income derived by the crew of a ship or
aircraft (paragraph 3 of Article 15 (Dependent personal services)).
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The Australia-Switzerland Convention
1.27 The definition of international traffic covers international
transport by a ship or aircraft operated by an enterprise of one country, as
well as domestic transport within that country. However, it does not
include transport where a ship or aircraft is operated solely between places
in the other country; that is, where the place of departure and the place of
arrival of the ship or aircraft are both in that other country, irrespective of
whether any part of the journey occurs in international waters or airspace.
For example, a voyage to nowhere` which begins and ends in Sydney on
a ship operated by a Swiss enterprise would not come within the definition
of international traffic`, even if the ship travels through international
waters in the course of the cruise. [Article 3, subparagraph 1f)]
Definition of competent authority
1.28 The competent authority is the person specifically authorised to
perform certain actions under the Swiss Convention. For instance, they
are required to notify each other of any significant changes to the relevant
tax laws of their respective countries (paragraph 4 of Article 2 (Taxes
covered)), and to gather and exchange certain tax information (Article 25
(Exchange of information)).
1.29 In the case of Australia, the competent authority is the
Commissioner of Taxation or an authorised representative. In the case of
Switzerland, the competent authority is the Head of the Federal
Department of Finance or his or her authorised representative. [Article 3,
subparagraph 1g)]
Definition of national
1.30 The Swiss Convention defines national by reference to an
individual`s nationality or citizenship. A company, partnership,
association or any other legal person will be a national if it is created or
organised under the laws of Australia or Switzerland. For example, a
company`s nationality is determined by where it is incorporated. [Article 3,
subparagraph 1h)]
1.31 The concept of nationality is used in paragraph 2 of Article 4
(Resident), paragraphs 1 and 2 of Article 19 (Government service),
paragraph 1 of Article 23 (Non-discrimination) and paragraph 1 of
Article 24 (Mutual agreement procedure).
Definition of pension scheme
1.32 The term pension scheme means, for Australia, any plan,
scheme, fund, foundation or trust that is established in Australia, or an
Australian superannuation fund`, which is regulated by Australia and
operated principally to administer or provide pension or retirement
benefits or to earn income for the benefit of one or more such pension
schemes. The meaning of Australian superannuation fund` is set out in
section 295-95 of the Income Tax Assessment Act 1997 (ITAA 1997).
[Article 3, sub-subparagraph 1i)]
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1.33 During negotiations, the delegations agreed to insert the words
or to earn income for the benefit of one or more such schemes` in the
definition of the term pension scheme`:
... to deal with fund of funds` arrangements`.
1.34 In addition, an approved deposit fund` or pooled
superannuation trust` as defined in the ITAA 1997 (and any identical or
substantially similar schemes that are established under legislation
introduced after signature of the Swiss Convention) falls within the scope
of a pension scheme. [Protocol, subparagraph 2a)]
1.35 In Switzerland, a pension scheme includes any plan, scheme,
fund, foundation or trust that is established and regulated in Switzerland
and is operated principally to administer or provide pension or retirement
benefits or to earn income for the benefit of one or more such schemes.
[Article 3, sub-subparagraphs 1i)(i) and 1i)(ii)]
1.36 More specifically, the Swiss Convention is also intended to
cover any Swiss pension scheme covered by:
· the Federal Act on old age and survivors` insurance, of
20 December 1946;
· the Federal Act on disabled persons` insurance of
19 June 1959;
· the Federal Act on supplementary pensions in respect of old
age, survivors` and disabled persons` insurance of
6 October 2006; or
· the Federal Act on old age, survivors` and disabled persons`
insurance payable in respect of employment or
self-employment of 25 June 1982, including the
non-registered pension schemes which offer occupational
pension plans and the forms of individual recognised pension
schemes comparable with the occupational pension plans
and any identical or substantially similar schemes that are established under
legislation introduced after signature of the Swiss Convention. [Protocol,
subparagraph 2b)]
Definition of tax
1.37 For the purposes of the Swiss Convention, the term tax does not
include any amount of penalty or interest imposed under the respective
domestic tax law of the two countries. [Article 3, subparagraph 1j)]
1.38 In the case of a resident of Australia, any penalty or interest
component of a liability determined under the domestic taxation law of
Switzerland with respect to income that Switzerland is entitled to tax
under the Convention would not be a creditable Swiss tax for the purposes
of paragraph 1 of Article 22 (Elimination of double taxation). This is in
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The Australia-Switzerland Convention
keeping with the meaning of foreign income tax` in subsection 770-15(1)
of the ITAA 1997. Accordingly, such a penalty or interest liability would
be excluded from calculations when determining the Australian resident
taxpayer`s foreign income tax offset entitlement under paragraph 1 of
Article 22 (pursuant to Division 770 of the ITAA 1997 - Foreign income
tax offsets).
Definition of recognised stock exchange
1.39 The term is used in relation to the limits on source country
taxation contained in Article 10 (Dividends). For example, subject to
certain other conditions in paragraph 3 of Article 10 being met, Australia
will not impose dividend withholding tax on a dividend paid by an
Australian resident company to a Swiss resident company where the
principal class of shares of the Swiss company is listed and regularly
traded on a recognised stock exchange.
1.40 The term recognised stock exchange is defined as:
· the Australian Securities Exchange and any other Australian
stock exchange recognised as such under Australian law;
· the SIX Swiss Exchange and any other Swiss stock exchange
recognised as such under Swiss law;
· the London Stock Exchange, the Irish Stock Exchange and
the stock exchanges of Amsterdam, Brussels, Dusseldorf,
Frankfurt, Hamburg, Hong Kong, Johannesburg, Lisbon,
Luxembourg, Madrid, Mexico, Milan, New York, Paris, Sao
Paulo, Seoul, Singapore, Stockholm, Toronto and Vienna,
and the NASDAQ System; and
· any other stock exchange agreed upon by the competent
authorities. [Article 3, subparagraph 1k)]
Terms not specifically defined
1.41 Unless the context requires otherwise, a term not specifically
defined in the Swiss Convention will have the same meaning that it has
under the law of the country applying the Convention at the time of its
application. In that case, the meaning of the term under the taxation law
of that country will have precedence over the meaning it may have under
other domestic laws.
1.42 The same term may have a differing meaning and a varied scope
within different Acts relating to specific taxation measures. For example,
GST definitions are sometimes broader than income tax definitions. The
definition more specific to the type of tax should be applied in such cases.
For example, where the matter subject to interpretation is an income tax
matter, but definitions exist in either the ITAA 1936 or the ITAA 1997
and the A New Tax System (Goods and Services Tax) Act 1999, the
income tax definition would be the relevant definition to be applied.
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International Tax Agreements Amendment Bill 2014
1.43 If a term is not defined in the Convention, but has an
internationally understood meaning in tax treaties and a meaning under
the domestic law, the context would normally require that the
international meaning be applied. [Article 3, paragraph 2]
Article 4 - Resident
Resident status
1.44 This Article sets out the basis upon which the residence of a
person is to be determined for the purposes of the Swiss Convention.
Residence in one or the other country is a necessary condition for the
provision of relief under the Convention. For both Australia and
Switzerland, resident` status is determined by reference to the person`s
liability to tax as a resident under the laws of the respective country.
[Article 4, paragraph 1]
1.45 The term liable to tax as a resident` is intended to capture those
persons who are subject to comprehensive taxation under a country`s
domestic taxation laws. A person may be regarded as liable to tax as a
resident even where the country does not in fact impose tax on the income
of that person.
1.46 For example, under Australian law charitable institutions are
exempt from income tax if they meet certain requirements. Such
institutions are liable to tax for the purposes of the Article, however, and
are therefore residents` under the Convention. [Protocol,
sub-subparagraph 3a)(ii)].
1.47 In addition, the term resident of a Contracting State` includes a
pension scheme established in that State. [Protocol, sub-subparagraph 3a)i)]
1.48 The second sentence of paragraph 1 of the Article deals with a
person who may be considered a resident of a country according to its
domestic laws but is only liable to taxation on income from sources in that
country, such as foreign diplomatic and consular staff. In the Australian
context, this also means, for example, that Norfolk Island residents, who
are generally subject to Australian tax on Australian source income only,
are not residents of Australia for the purposes of the Swiss Convention.
Accordingly, Switzerland will not have to forgo tax in accordance with
the Convention on income derived by residents of Norfolk Island from
sources in Switzerland (which will not be subject to Australian tax).
[Article 4, paragraph 1]
Temporary residents
1.49 The Protocol to the Swiss Convention clarifies the application of
the Convention to a person who is a temporary resident of Australia (as
defined in section 995-1 of the ITAA 1997). Switzerland is not obliged to
provide any relief from Swiss tax under the Convention in respect of
income that is not taxed in Australia because the person is a temporary
resident. [Protocol, subparagraph 3b)]
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The Australia-Switzerland Convention
1.50 In the absence of the above provision, the interaction of the
usual treaty rules and Australia`s domestic law rules for temporary
residents could result in the relevant income, profits or gains escaping
taxation in both countries. During the course of negotiations, the two
delegations noted that:
...For instance, without this provision, the treaty would provide that a
Swiss-sourced pension paid in respect of past employment would be
taxable only in Australia but Australia would exempt this income if it
is derived by a temporary resident. In this example, the provision
ensures that Switzerland can tax that pension at source if it so wishes.`
Residency of governments
1.51 Article 4 follows the OECD Model in specifically providing that
the Government of that State, or a political subdivision, or local authority
thereof, is a resident for the purposes of the Swiss Convention. This
means that the Australian Government, the state governments and local
councils of Australia will be residents for the purpose of the Convention.
This does not necessarily mean that income, profits or gains derived by
these bodies from sources in Switzerland will be subject to tax in
Switzerland as sovereign immunity principles may apply. [Article 4,
paragraph 1]
Dual residents
1.52 A set of tie-breaker rules is included for determining how
residence is to be allocated to one or other of the countries for the
purposes of the Swiss Convention if a person qualifies as a dual resident;
that is, as a resident of both countries in accordance with paragraph 1 of
the Article.
1.53 Notwithstanding that the Swiss Convention deems certain dual
residents to be a resident only of one country for treaty purposes, that
person remains a resident for the purposes of Australian domestic tax law.
Accordingly, that person remains liable to tax in Australia as a resident,
insofar as the Swiss Convention allows.
Individuals
1.54 The tie-breaker rules for individuals apply certain tests, in a
descending hierarchy. These rules, in order of application, are:
· if the individual has a permanent home available to them in
only one of the countries, the person will be deemed to be a
resident solely of that country;
· if the individual has a permanent home available to them in
both countries, then the person`s residence status takes into
account their personal or economic relations; and the person
is deemed to be a resident only of the country with which the
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International Tax Agreements Amendment Bill 2014
person has the closer personal and economic relations (centre
of vital interests);
· if the individual does not have a permanent home in either
country or their centre of vital interests cannot be determined,
the individual shall be deemed to be a resident of the country
in which they have an habitual abode;
· if the individual has an habitual abode in both countries or in
neither of them, they shall be deemed to be a resident only of
the country of which they are a national;
· if the individual is a national of both countries or is not a
national of either of them, the competent authorities of
Australia and Switzerland will endeavour to resolve the
question by mutual agreement.
[Article 4, paragraph 2]
Other persons
1.55 Where a person who is not an individual (for example, a
company) is a resident of both countries in accordance with paragraph 1,
the person will be deemed to be a resident of the country in which its
place of effective management is situated. [Article 4, paragraph 3]
1.56 Consistent with paragraph 24 in the Commentary on Article 4 of
the OECD Model, the place of effective management is generally
regarded as the place where key management and commercial decisions
that are necessary for the conduct of the entity`s business as a whole are in
substance made.
Article 5 - Permanent establishment
1.57 The application of the various provisions of the Swiss
Convention (Articles 7 (Business profits), 10 (Dividends), 11 (Interest), 12
(Royalties), 13 (Alienation of property), 15 (Dependent personal services)
and 23 (Non-discrimination)) is dependent upon whether a person who is
a resident of one country carries on business through a permanent
establishment in the other country, and if so, whether income derived by
that person is attributable to, or assets of that person are effectively
connected with, that permanent establishment.
Meaning of permanent establishment
1.58 A permanent establishment` is a fixed place of business through
which the business of an enterprise is wholly or partly carried on. The
critical elements of this term are:
· There must be a place of business;
· The place of business must be fixed (both in physical
location and in time); and
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The Australia-Switzerland Convention
· The business of the enterprise must be carried on through this
fixed place.
[Article 5, paragraph 1]
1.59 The article provides a non-exhaustive list of examples of
permanent establishments:
· a place of management;
· a branch;
· an office;
· a factory;
· a workshop;
· a mine, an oil or gas well, a quarry or any other place of
extraction of natural resources; and
· an agricultural, pastoral or forestry property.
[Article 5, paragraph 2]
1.60 As paragraph 2 of this article is subordinate to paragraph 1, the
examples listed in paragraph 2 will only constitute a permanent
establishment if the primary definition in paragraph 1 is satisfied.
Building site or construction or installation project
1.61 A building site or construction or installation project will
constitute a permanent establishment only if it lasts for longer than
12 months. [Article 5, paragraph 3]
1.62 The phrase building site or construction or installation project`
includes not only places used for the construction of buildings but also for
the construction of roads, bridges or canals, the renovation (involving
more than mere maintenance or redecoration) of buildings, roads, bridges
or canals, the laying of pipelines and excavating and dredging.
1.63 Planning and supervision are considered part of the building site
if carried out by the construction contractor. However, planning and
supervision carried out by an unassociated enterprise will not be
considered in determining whether the construction contractor has a
permanent establishment in Australia.
Agricultural, pastoral or forestry property
1.64 Most of Australia`s tax treaties include as a permanent
establishment an agricultural, pastoral or forestry property. This reflects
Australia`s usual practice of providing for taxation of profits from the
exploitation of Australian land for the purposes of primary production
under Article 7 (Business Profits).
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International Tax Agreements Amendment Bill 2014
1.65 Under the Swiss Convention, profits from agriculture or forestry
activities are dealt with under Article 6 (Income from immovable
property). This is reflected in the phrase including income from
agriculture or forestry` in paragraph 1 of that article.
1.66 A fixed place of business used for primary production purposes,
such as a farm or forestry property, will constitute a permanent
establishment. This has significance for the application of articles where
the concept of permanent establishment is relevant, for example in
determining the right of a country to tax income (Article 15 (Dependent
personal services) or determining the country in which the income arises
(for example, Article 10 (Interest)).
Deemed permanent establishment
Supervisory and consultancy activities
1.67 Where an enterprise of one country performs supervisory or
consultancy activities in the other country in connection with a building
site or construction or installation project in the other country for more
than 12 months, such activities will be deemed to be carried on through a
permanent establishment of the enterprise located in that other country.
[Article 5, subparagraph 4a)]
Natural resource activities
1.68 A permanent establishment will also be deemed to exist where
an enterprise of one country carries on natural resource exploration or
exploitation activities (including operating substantial equipment) in the
other country for at least six months in any 24 month period. [Article 5,
subparagraph 4b)]
Substantial equipment
1.69 In addition, a permanent establishment is deemed to exist where
an enterprise of one country operates substantial equipment in the other
country for more than 12 months. [Article 5, subparagraph 4c)]
1.70 The meaning of the term substantial` in reference to substantial
equipment` is determined by reference to the relevant facts and
circumstances of each case. Factors such as size, quantity or value of the
equipment or the role of the equipment in income producing activities are
relevant. Examples of such equipment include:
· Industrial earthmoving equipment used in road or dam
building;
· Manufacturing or processing equipment used in a factory; or
· Oil or drilling rigs, or platforms and other structures used in
the petroleum, gas or mining industry.
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The Australia-Switzerland Convention
1.71 Subparagraphs 4b) and 4c) together reflect Australia`s
reservation to the OECD Model concerning activities relating to natural
resources and the use of substantial equipment. Australia`s experience is
that the permanent establishment provision in the OECD Model may be
inadequate to deal with high value mobile activities, in particular those
involving the use of such equipment. The reference to operation` and
operates` have been included to clarify that only the active use of
substantial equipment will be captured by subparagraphs 4b) and 4c).
This means that an enterprise that merely leases substantial equipment to
another person for that other person`s own use in a country would not be
deemed to have a permanent establishment in that country under these
provisions.
1.72 For example, if a Swiss enterprise itself operates a mobile crane
at an Australian port for more than12 months, the enterprise would be
deemed to have a permanent establishment in Australia under
subparagraph 4c). However, if that Swiss enterprise merely leases the
mobile crane to another person and that other person operates the crane at
an Australian port for its own purposes, the Swiss enterprise would not be
deemed to have a permanent establishment in Australia under
subparagraph 4c). However, if that other person operates the crane for or
on behalf of the Swiss enterprise in Australia, the Swiss enterprise would
be considered to operate the crane in Australia.
1.73 The deeming provisions in Article 5 are limited by the terms of
paragraph 5. [Article 5, paragraph 4]
Where an enterprise is deemed not to have a permanent establishment
Preparatory and auxiliary activities
1.74 Certain activities do not generally give rise to a permanent
establishment. The economic link between such activities and the country
in which they are carried on is generally insufficient to warrant the
allocation of taxing rights to that country.
1.75 An enterprise will not be deemed to have a permanent
establishment solely because of:
· Facilities used solely for the storage, display or delivery of
goods or merchandise belonging to an enterprise;
· Maintenance of a stock of goods or merchandise owned by
the enterprise solely for the purpose of storage, display or
delivery;
· Maintenance of a stock of goods or merchandise owned by
the enterprise solely for the purpose of processing by another
enterprise;
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· The maintenance of a fixed place of business for the sole
purpose of purchasing goods or merchandise or collecting
information for the enterprise; or
· The maintenance of a fixed place of business solely for the
purpose of undertaking preparatory or auxiliary activities for
the enterprise, such as advertising or scientific research.
[Article 5, paragraph 5].
Dependent Agents
1.76 An enterprise of one country is deemed to have a permanent
establishment in the other country if a person acts on its behalf in that
other country where that person has and habitually exercises, an authority
to conclude contracts (other than in relation to the mere purchase of goods
or merchandise for the enterprise) on behalf of the enterprise. Such
persons are referred to as dependent agents.
1.77 During negotiations, the delegations noted in their discussion of
subparagraph a) of paragraph 6 of Article 5, that:
... a person who substantially negotiates the essential parts of a
contract on behalf of an enterprise would be regarded as exercising an
authority to conclude contracts on behalf of that enterprise within the
meaning of paragraph 6, even if the contract is subject to final
approval or formal signature by another person` [Article 5,
subparagraph 6a)].
1.78 Consistent with Australia`s reservation to the OECD Model,
where a person acts on behalf of another in manufacturing or processing
the other`s goods or merchandise, this will give rise to a deemed
permanent establishment. An example of this is where a mineral plant
refines minerals for a foreign enterprise at cost, so that the plant
operations produce no Australian profits. Title to the refined product
remains with the foreign enterprise and profits on sale are realised mainly
outside of Australia.
1.79 The refining activities performed for the enterprise through such
a plant are deemed to be carried on through a permanent establishment of
the enterprise because the manufacturing or processing activity (which
gives the minerals much of their value) is conducted in Australia on behalf
of the enterprise. Accordingly, Australia should have taxing rights over
the business profits attributable to the processing activities carried on in
Australia. Subparagraph 6b) of Article 5 prevents an enterprise which
carries on substantial manufacturing or processing activities in a country
through an intermediary from avoiding tax in that country.
1.80 The inclusion of this subparagraph is consistent with Australia`s
policy of retaining taxing rights over profits from manufacturing or
processing on behalf of others, importantly in the exploitation of
Australia`s mineral resources. [Article 5 subparagraph 6b)]
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The Australia-Switzerland Convention
Independent Agents
1.81 Business conducted through an independent agent will not, of
itself, give rise to a permanent establishment, provided that the
independent agent is acting in the ordinary course of its business. An
independent agent includes a broker, general commission agent or any
other agent of independent status. [Article 5, paragraph 7]
Subsidiary Companies
1.82 A subsidiary company will not generally be a permanent
establishment of its parent company. [Article 5, paragraph 8]
1.83 However a subsidiary company can be regarded as giving rise to
a permanent establishment if the subsidiary permits the parent company to
operate from its premises such that the tests in paragraphs 1 are met, or
the subsidiary acts as an agent such that a dependent agent permanent
establishment is constituted. [Article 5, paragraph 8]
Application of the meaning of permanent establishment to enterprises of
other countries
1.84 The principles set out in this article are also to be applied in
determining whether an enterprise of a third country has a permanent
establishment in Australia or Switzerland. [Article 5, paragraph 9]
Anti-Avoidance Rule
1.85 In order to prevent the misuse of this Article and Article 7
(Business profits), particularly the practice of contract splitting in order to
avoid the existence of a deemed permanent establishment, an
anti-avoidance rule is contained in the Protocol to the Swiss Convention.
This applies to the determination of the duration of activities under
paragraphs 3 and 4 of Article 5. [Protocol, paragraph 4]
1.86 The anti-avoidance rule provides for duration of connected
activities undertaken in a country by associated enterprises to be
aggregated for the purpose of applying the relevant time period. Such
aggregation will not apply, however, to concurrent activities undertaken
by the associated enterprises. An enterprise will be deemed to be
associated with another enterprise if one is controlled, directly or
indirectly, by the other or if both are controlled directly or indirectly by a
third person or persons. [Protocol, paragraph 4]
CHAPTER III - TAXATION OF INCOME
Article 6 - Income from immovable property
1.87 Article 6 of the Swiss Convention adopts the term immovable
property` in place of Australia`s past tax treaty practice wording real
property`. New subsection 3(5) of the Agreements Act 1953 confirms that
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International Tax Agreements Amendment Bill 2014
the expression immovable property` for the purposes of this Convention
includes real property`. In this respect, no difference in meaning between
the two terms is intended.
Where income from immovable property is taxable
1.88 This Article provides that the income of a resident of one
country, from immovable property situated in the other country, may be
taxed by that other country. Thus, income derived from immovable
property located in Australia will be subject to Australian tax laws that
apply to income derived from real property.
1.89 Some of Australia`s tax treaties exclude profits of an enterprise
from agriculture or forestry from the operation of this Article. Such
profits are generally dealt with under Article 7 (Business profits) of
Australian treaties. However, under the Swiss Convention, the allocation
of taxing rights over such profits is determined by Article 6 (Income from
immovable property). Accordingly, profits from the relevant activities
may be taxed in Australia where the real property is situated in Australia,
irrespective of whether the enterprise has a permanent establishment in
Australia. [Article 6, paragraph 1]
1.90 In the case of agriculture and forestry activities, an enterprise
would in any event generally have a permanent establishment in the
country in which the property is situated.
Definition
1.91 Immovable property is primarily defined as having the meaning
which it has under the domestic law of the country where the immovable
property is situated. It expressly includes:
· a lease of land or any other interest in or over land;
· property accessory to immovable property;
· livestock and equipment used in agriculture and forestry;
· rights to which the provisions of general law respecting
landed property apply;
· usufruct of immovable property;
· a right to explore for mineral, oil or gas deposits or other
natural resources, and a right to mine those deposits or
resources; and
· a right to receive variable or fixed payments either as
consideration for or in respect of the exploitation of, or the
right to explore or exploit, mineral, oil or gas deposits,
quarries or other places of extraction or exploitation of
natural resources.
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The Australia-Switzerland Convention
Ships and aircraft are excluded from the definition of immovable
property`. Therefore this Article does not cover income derived from
their use. [Article 6, paragraph 2]
Deemed situs
1.92 Under Australian law, the place where an interest in land or
natural resources, such as a lease, is situated (situs) is not necessarily
where the underlying property is situated. Paragraph 3 of the Article puts
the situation of the interest or right beyond doubt by deeming the situs to
be where the underlying immovable property, over which the lease or
right is granted, is situated or where any exploration may take place.
[Article 6, paragraph 3]
Form of exploitation of immovable property
1.93 Paragraph 4 makes it clear that the general rule in paragraph 1
applies irrespective of the form of exploitation of the immovable property.
The Article applies to income derived from the direct use, letting or use in
any other form of immovable property. [Article 6, paragraph 4]
Immovable property of an enterprise
1.94 Paragraphs 1, 3 and 4 of Article 6 are extended to income from
immovable property of an enterprise or income from immovable property
that is used for the performance of independent personal services.
1.95 This article provides that the country in which the immovable
property is situated may also impose tax on the income derived from that
immovable property by a resident of the other country, irrespective of
whether that income is attributable to a permanent establishment or fixed
base available to that resident in the first-mentioned country. [Article 6,
paragraph 5]
Article 7 - Business profits
1.96 This Article is concerned with the taxation by one country of
business profits derived by an enterprise carried on by a resident of the
other country.
1.97 The taxing of these profits depends on whether they are
attributable to the carrying on of a business through a permanent
establishment in that country. If a resident of one country carries on
business through a permanent establishment (as defined in Article 5
(Permanent establishment)) in the other country, the country in which the
permanent establishment is situated may tax the profits of the enterprise
that are attributable to that permanent establishment. [Article 7, paragraph 1]
1.98 If an enterprise which is a resident of one country derives
business profits in the other country that are not attributable to a
permanent establishment in that other country, the general principle of this
Article is that the enterprise will not be liable to tax in the other country
on such profits.
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International Tax Agreements Amendment Bill 2014
Determination of business profits
1.99 Profits of a permanent establishment are to be determined for the
purposes of this Article on the basis of arm`s length dealings. The
provisions in the Swiss Convention correspond to international practice
and corresponding provisions in Australia`s other tax treaties. [Article 7,
paragraphs 2 and 3]
1.100 No deductions are allowed in respect of expenses which would
not be deductible if the permanent establishment were an independent
enterprise which incurred the expense. [Article 7, paragraph 3]
1.101 No profits are to be attributed to a permanent establishment
merely because it purchases goods or merchandise for the enterprise.
Accordingly, profits of a permanent establishment will not be increased
by any profits attributable to the purchasing activities undertaken for the
head office. It follows, of course, that any expenses incurred by the
permanent establishment in respect of those purchasing activities will not
be deductible in determining the taxable profits of the permanent
establishment. [Article 7, paragraph 4]
1.102 In determining what constitutes business profits, payments
received as a consideration for the use of, or the right to use industrial,
commercial or scientific equipment would be covered by this Article
(unless those profits are instead covered under Articles 8 (Shipping and
air transport) or 14 (Independent personal services)) and, in the case of
Australia, be taxed on a net basis. [Protocol, paragraph 7]
1.103 Subparagraph 5a) of the Protocol excludes the application of
Article 7 to profits that are derived from an enterprise carrying on any
form of insurance business, other than life insurance. Therefore, each
country has the right to continue to apply any provisions in its domestic
law relating to the taxation of income from general insurance activities.
An effect of this subparagraph is to preserve, in the case of Australia, the
application of Division 15 of Part III of the ITAA 1936 (Insurance with
non-residents). This is consistent with Australia`s reservation to Article 7
(Business profits) of the OECD Model.
Application of domestic law
1.104 The domestic law of the country in which the permanent
establishment is situated (for example, Australia`s Division 815 of the
ITAA 1997) may be applied to determine the tax liability of a person in
cases where the information is inadequate, provided that that law is
applied, so far as the information available to the competent authority
permits, consistently with the principles stated in this Article. This is also
the case under the existing Swiss Agreement. This is of particular
relevance where, due to the inadequate information, the correct amount of
profits attributable on the arm`s length principle basis to a permanent
establishment cannot be determined, or can only be ascertained with
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The Australia-Switzerland Convention
extreme difficulty. This is especially important where there is no data
available or the available data is not of sufficient quality to rely on the
traditional transaction methods for the attribution of the arm`s length
profits. [Protocol, paragraph 6]
1.105 Paragraph 6 of the Protocol is generally consistent with
Australia`s reservation to Article 7 (Business profits) of the OECD Model.
Profits dealt with under other Articles
1.106 Where income is specifically dealt with under other Articles of
the Swiss Convention, the effect of those particular Articles is not
overridden by this Article.
1.107 This provision lays down the general rule of interpretation that
categories of income, profits or gains which are the subject of other
Articles of the Swiss Convention (for example, Article 8 (Shipping and
air transport), Article 10 (Dividends), Article 11 (Interest), Article 12
(Royalties) and Article 13 (Alienation of property)) are to be treated in
accordance with the terms of those Articles. However, under certain
articles, for example paragraph 7 of Article 10 (Dividends), where the
holding in respect of which the income is paid is effectively connected
with a permanent establishment that income will be dealt with under
Article 7 (Business profits). [Article 7, paragraph 5]
Trust beneficiaries
1.108 The principles of this Article will apply to profits derived by a
resident of one of the countries (directly or through one or more
interposed trusts) as a beneficiary of a trust, except where the trust is
treated as a company for tax purposes. [Protocol, subparagraph 5b)]
1.109 In accordance with this Article, Australia has the right to tax a
share of business profits, originally derived by a trustee of a trust estate
(other than a trust that is treated as a company for tax purposes) from the
carrying on of a business through a permanent establishment situated in
Australia, to which a resident of Switzerland is beneficially entitled under
the trust.
1.110 Subparagraph 5b) of the Protocol ensures that such business
profits will be subject to tax in Australia where the trustee of the relevant
trust has, or would have if it were a resident of Switzerland, a permanent
establishment in Australia in relation to that business. This subparagraph
will also apply where relevant to other Articles of the Swiss Convention,
such as Article 13 (Alienation of property) in its application to income,
profits or gains arising from the alienation of movable property forming
part of the property of the permanent establishment or the permanent
establishment itself. That is, the beneficiary of the trust will also have a
permanent establishment for the purposes of paragraph 2 of Article 13.
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Article 8 - Shipping and air transport
Profits from international traffic
1.111 The main effect of this Article is that the right to tax profits from
the operation of ships or aircraft in international traffic, including profits
attributable to participation in a pool, joint business or an international
operating agency, is generally reserved to the country in which the
operator is a resident for tax purposes. [Article 8, paragraphs 1 and 3]
1.112 The profits covered consist in the first place of the profits
directly obtained by the enterprise from the transportation of passengers or
cargo by ships or aircraft (whether owned, leased or otherwise at the
disposal of the enterprise) that it operates in international traffic.
However, as international transport has evolved, shipping and air transport
enterprises invariably carry on a large variety of activities to facilitate or
support their international operations.
1.113 Consistent with the OECD Model Commentary on Article 8
(Shipping, Inland Waterways Transport and Air Transport), paragraph 1
also covers profits from activities directly connected with such operations
as well as profits from activities which are not directly connected with the
operation of the enterprise`s ships or aircraft in international traffic but
which are ancillary to such operation. An example of such ancillary
profits would be profits derived by a ship operator in the business of
transport who undertakes a one-off bareboat lease of one of their ships.
1.114 In addition, payments (such as lease payments) received as a
consideration for the use of, or the right to use industrial, commercial or
scientific equipment insofar as such use (or the right to use) falls within
the scope of international traffic would constitute profits covered by this
Article. [Protocol, paragraph 7]
1.115 The definition of international traffic` refers only to transport
and accordingly limits the scope of paragraph 1 of Article 8 to transport
activities. Profits from the operation of ships or aircraft for non-transport
activities are treated under Article 7 (Business profits) of the Swiss
Convention in the same way as profits derived from the use of other types
of substantial equipment, such as mining equipment and trucks. [Article 3,
subparagraph 1f)]
Profits from internal traffic
1.116 Profits derived by an enterprise of one country from the
operation of ships or aircraft, to the extent that they relate to operations
are confined solely to places in the other country, may be taxed in the
other country.
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The Australia-Switzerland Convention
1.117 Australia`s (and Switzerland`s) taxing rights are specifically
preserved over profits derived by an enterprise of the other country from
the carriage by ships or aircraft of passengers, livestock, mail, goods or
merchandise where the passenger or cargo is shipped and discharged in
Australia (or Switzerland). [Article 8, paragraph 2]
1.118 This will also apply to profits derived from leasing a ship or
aircraft, on full basis, for the purposes of such carriage. Leasing on a full
basis` would generally mean that the leased ship or aircraft is provided to
the lessee on a fully equipped, crewed and supplied basis.
1.119 There is no specified limit on the amount of tax that can be
charged on profits from the operation of ships or aircraft in international
traffic. However, for Australian tax purposes, Division 12 of Part III of
the ITAA 1936 (Overseas ships) deems 5 per cent of the amount paid in
respect of the transport of passengers, livestock, mail or goods shipped in
Australia to be the taxable income of a ship owner or charterer who has
their principal place of business outside Australia.
Example 1.1
A ship operated by a Swiss enterprise, in the course of an international
voyage, makes a stop in Perth to pick up cargo. Profits derived from
the transport of the goods loaded in Perth and discharged in Sydney
would be profits from the carriage of goods shipped and discharged at
a place in Australia under paragraph 2. Australia would therefore have
the right to tax those profits. Under Australia`s current income tax
law, five per cent of the amount paid in respect of the transport of
those goods would be deemed to be taxable income of the Swiss
enterprise for Australian tax purposes pursuant to Division 12 of
Part III of the ITAA 1936 (Overseas ships).
Example 1.2
A Swiss enterprise operates sightseeing flights over the Southern
Ocean. Passengers aboard the aircraft in Hobart and disembark at the
same airport later on the same day. The profits from the carriage of the
passengers shipped in and discharged at a place in Australia would be
covered by paragraph 2 of Article 8, notwithstanding that the aircraft
passes through international airspace. Australia would therefore have
the right to tax the profits relating to the carriage of these passengers.
Article 9 - Associated enterprises
Reallocation of profits
1.120 This Article deals with associated enterprises (such as parent
and subsidiary companies and companies under common control). It
authorises the reallocation of profits between related enterprises in
Australia and Switzerland on an arm's length basis where the commercial
or financial arrangements between the enterprises differ from those that
might be expected to operate between unrelated enterprises dealing
independently with one another. [Article 9, paragraph 1]
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1.121 This Article would not generally authorise the rewriting of
accounts of associated enterprises where it can be satisfactorily
demonstrated that the transactions between such enterprises have taken
place on normal, open market commercial terms. The term might be
expected to operate` in paragraph 1 is included to broadly conform to
Australia`s treaty practice and allows adjustments where it is not possible
to determine the conditions that would have been made or occurred`
between the associated enterprises.
1.122 The broad scheme of the Australia`s domestic law provisions
relating to international profit shifting arrangements under which profits
are shifted out of Australia, whether by transfer pricing or other means, is
to impose arm`s length standards in relation to international dealings.
1.123 Each country has the right to apply its domestic law relating to
the determination of the tax liability of a person (for example, Australia`s
Division 815 of the ITAA 1997) to enterprises in cases where the
available information is inadequate, provided that such provisions are
applied, so far as the information available to the competent authority
permits, consistently with the principles of the Article. This is also the
case under the existing Swiss Agreement. This is of particular relevance
where there is no data available or the available data is not of sufficient
quality to rely on the traditional transaction methods for the attribution of
arm`s length profits. This is generally consistent with Australia`s
reservation to Article 9 (Associated enterprises) of the OECD Model.
[Protocol, paragraph 6]
Correlative adjustments
1.124 Where a reallocation of profits is made so that the profits of an
enterprise of one country are adjusted upwards, economic double taxation
(that is, taxation of the same income in the hands of different persons)
would arise if the profits so reallocated continued to be subject to tax in
the hands of an associated enterprise in the other country. To avoid this
result, the other country is required to make an appropriate compensatory
adjustment to the amount of tax charged on the profits involved to relieve
any such double taxation.
1.125 It would generally be necessary for the affected enterprise to
apply to the competent authority of the country not initiating the
reallocation of profits for an appropriate compensatory adjustment to
reflect the reallocation of profits made by the other treaty partner country.
If necessary, the competent authorities of Australia and Switzerland will
consult with each other to determine the appropriate adjustment. [Article 9,
paragraph 2]
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Article 10 - Dividends
1.126 This Article allocates taxing rights in respect of dividends
flowing between Australia and Switzerland. The Article provides that:
· certain cross-border inter-corporate dividends will be either
exempt from source taxation or subject to a maximum
5 per cent rate of tax in that country;
· dividends beneficially owned by a State, or political
subdivision or a local authority (including a government
investment fund), dividends beneficially owned by a central
bank and dividends beneficially owned by complying
Australian superannuation funds (or other Australian resident
carrying on complying superannuation activities) and tax
exempt Swiss pension schemes will be exempt from source
taxation where the recipient holds directly no more than
10 per cent of the voting power (or capital) of the company
paying the dividends;
· a maximum 15 per cent rate of source country tax may be
applied on all other dividends;
· dividends paid in respect of a holding which is effectively
connected with a permanent establishment or fixed base
located in the source country are to be dealt with under
Article 7 (Business profits) and Article 14 (Independent
personal services) respectively; and
· the extra-territorial application by either country of taxing
rights over dividend income is not permitted.
1.127 The tax treatment of dividends provided in the Swiss
Convention fulfils Australia`s most favoured nation` obligation
contained in the Protocol to the existing Swiss Agreement, to enter into
negotiations to reduce its dividend withholding tax rates to those agreed to
by Australia in a subsequent treaty with another member state of the
OECD. In this regard, the dividend withholding tax rates in the Swiss
Convention are generally aligned to the corresponding rates set out in
Australia`s tax treaty with the United States of America.
Permissible rate of source country taxation
Five per cent rate limit on source country tax of certain cross-border
intercorporate dividends
1.128 This Article allows both Australia and Switzerland to tax
dividends flowing between them but limits the rate of tax that the country
of source may impose on dividends paid by companies that are resident of
that country under its domestic law to companies resident in the other
country who are the beneficial owners of the dividends. [Article 10,
paragraphs 1 and 2]
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International Tax Agreements Amendment Bill 2014
1.129 A limit of 5 per cent will apply for dividends paid in respect of
direct company shareholdings that:
· in the case of Australia, constitute at least 10 per cent of the voting
power in the company paying the dividends; or
· in the case of Switzerland, constitute at least 10 per cent of the
capital in the company paying the dividends. [Article 10,
subparagraph 2a)]
Fifteen per cent rate limit for other dividends
1.130 In all other cases (other than those to which an exemption
applies as explained below), the Swiss Convention provides that the
source country may tax dividends that are beneficially owned by residents
of the other country, but will limit its tax to 15 per cent of the gross
amount of the dividend. [Article 10, subparagraph 2b)]
1.131 Although the provisions in Article 10 would allow Australia to
impose withholding tax on both franked and unfranked dividends in the
specified circumstances, the dividend withholding tax exemption provided
by Australia under its current domestic law for franked dividends paid to
non-residents will continue to apply. That is, franked dividends paid to
Swiss residents will not be subject to Australian dividend withholding tax.
Exemption for certain cross-border intercorporate dividends
1.132 No tax will be payable in the source country on dividends paid
to a company that is the beneficial owner of those dividends and is
resident in the other country where the recipient company:
· holds, directly or indirectly, shares representing 80 per cent
or more of the voting power (in the case of Australia) or of
the capital (in the case of Switzerland) of the company
paying the dividends; and
· has held those shares for a 12 month period ending on the
date of declaration of the dividend.
[Article 10, paragraph 3]
1.133 To qualify for the exemption, the company that is the beneficial
owner of the dividends must either be:
· a company that has its principal class of shares;
- listed on the Australian Securities Exchange and any other
Australian stock exchange recognised as such under
Australian law, or the SIX Swiss Exchange and any other
Swiss stock exchange recognised as such under Swiss
law; and
- regularly traded on one or more recognised stock
exchanges as defined under Article 3 (General
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The Australia-Switzerland Convention
definitions) of the Convention (that is, any of the stock
exchanges set out in subparagraphs 1k)(i) to (iv) of
Article 3);
· a company that is owned either directly or indirectly by one
or more such companies;
· a company that is owned either directly or indirectly by one
or more third country resident companies that would be
entitled to equivalent treaty benefits (that is, an exemption
from source country taxation); or
· a company that does not meet the above requirements but
which is nevertheless granted benefits with respect to those
dividends by the competent authority of the country in which
the dividends arose.
[Article 10, subparagraphs 3a) - c)]
1.134 Provision has also been made to allow the competent authorities
to reach agreement that other stock exchanges constitute a recognised
stock exchange for the purpose of the Swiss Convention. [Article 3, sub-
subparagraph 1k)(iv)]
Equivalent benefits
1.135 Under subparagraph b) of paragraph 3 of this Article, an
exemption applies to dividends:
· paid by a company in a country (the paying company) to a
company in the other country (the receiving company); and
· where the receiving company is itself wholly-owned by one
or more companies (the owning companies) that are either
themselves listed on a recognised stock exchange or would
be entitled to equivalent benefits under another treaty
between the country of which the owning company or
companies are a resident and the country of which the paying
company is a resident had the owning companies owned the
holding in the paying company directly.
1.136 The exemption would apply to dividends paid by an Australian
company to a Swiss company that is itself owned by one or more
companies entitled to equivalent benefits under another tax treaty between
the country of which that company (or those companies) were a resident
and Australia. Similarly, dividends paid by a Swiss company to an
Australian company that is itself owned by one or more companies
entitled to equivalent benefits under another tax treaty between the
country of which that company (or those companies) were a resident and
Switzerland, would also be exempt.
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Example 1.3
Chiasso Co is an unlisted Swiss company which owns all the shares in
Kingston Co, an Australian company, and has done so for more than
12 months. Assume Chiasso Co is the beneficial owner of the
dividends paid by Kingston Co.
Kent Co, a company resident in the United Kingdom, is listed on a
stock exchange that is a 'recognised stock exchange' within the
meaning of Article 3 of the 2003 Australia-United Kingdom
Convention, and wholly owns Chiasso Co.
If Kent Co had owned the shares held by Chiasso in Kingston Co
directly, then an exemption would apply to the dividends paid on those
shares under subparagraph a) of paragraph 3 of Article 10 of the 2003
Australia-United Kingdom Convention. In such case Kent Co is
considered to be entitled to equivalent benefits to those provided under
paragraph 3 of the Swiss Convention. Accordingly, the Australian
dividend paid to Chiasso Co will be exempt under
sub-subparagraph b)(ii) of paragraph 3.
Example 1.4
Assume Chiasso Co is now owned by a second Swiss resident
company, Berne Co, and a Japanese resident company, Osaka Co.
Berne Co is listed on a stock exchange that is a recognised stock
exchange` specified in subparagraph 1k)(ii) of Article 3 of the Swiss
Convention. Osaka Co is listed on a stock exchange that is a
'recognised stock exchange' within the meaning of Article 23 of the
2008 Australia-Japan Convention. Each company owns 50 per cent of
the shares in Chiasso Co.
Chiasso Co owns all the shares in Kingston Co, an Australian
company, and has done so for more than 12 months. Assume Chiasso
Co is the beneficial owner of the dividends paid by Kingston Co.
If Berne Co had owned the shares held by Chiasso Co directly, then an
exemption would apply to the dividends paid on those shares under
subparagraph a) of paragraph 3 of Article 10 of the Swiss Convention.
If Osaka Co had owned the shares held by Chiasso Co directly, then an
exemption would apply to the dividends paid on those shares under
subparagraph a) of paragraph 3 of Article 10 of the 2008
Australia-Japan Convention.
In both cases, Berne Co and Osaka Co are considered to be entitled to
equivalent benefits to those provided under paragraph 3 of the Swiss
Convention. Accordingly, the Australian dividend paid to Chiasso Co
will be exempt under sub-subparagraph b)(ii) of paragraph 3.
Example 1.5
Lucerne Co is an unlisted Swiss company which owns all the shares in
Sydney Co, an Australian company, and has done so for more than
12 months. Assume Lucerne Co is the beneficial owner of dividends
paid by Sydney Co.
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The Australia-Switzerland Convention
Lucerne Co is owned by a second Swiss resident company, Basel Co,
and Oculum Co, a company that is a resident of a treaty partner
country of Australia`s. Basel Co and Oculum Co each own 50 per cent
of the shares in Lucerne Co.
Basel Co is listed on a stock exchange that is a recognised stock
exchange` specified in subparagraph 1 k)(ii) of Article 3 of the Swiss
Convention. If Basel Co had owned the shares held by Lucerne Co
directly, then an exemption would apply to the dividends paid on those
shares under subparagraph a) of paragraph 3 of Article 10 of the Swiss
Convention.
Under the tax treaty between Australia and Oculum Co`s country of
residence, a withholding tax rate of 15 per cent applies for all
dividends. If Oculum Co had owned the shares held by Lucerne Co
directly, the dividends would have been subject to dividend
withholding tax of 15 per cent.
The requirements of sub-subparagraph b)(ii) of paragraph 3 are not met
because one of the companies owning Lucerne Co (that is, Oculum Co)
is not entitled to equivalent benefits. Accordingly, that provision will
not apply to exempt the Australian dividends paid to Lucerne Co from
dividend withholding tax.
Competent authority determination
1.137 Dividends which are beneficially owned by a company that does
not meet the conditions in subparagraph a) or b) of paragraph 3 of the
Article will also be exempt from tax in the source country if the
competent authority of that country determines that obtaining the
exemption was not one of the principal purposes of any person concerned
with creating the arrangement under which the dividend was paid. Before
concluding that the company is not entitled to relief under this
subparagraph (for example, because the arrangements had a principal
purpose of obtaining such relief), the competent authority is required to
consult with the competent authority of that company`s country of
residence. [Article 10, subparagraph 3c)]
Exemption for dividends derived by Governments or a central bank
1.138 Dividends which are beneficially owned by a State, or political
subdivision or a local authority (including a government investment fund)
will be exempt from tax in the source country if the recipient holds
directly no more than 10 per cent of the voting power (in the case of
Australia) or capital (in the case of Switzerland) in the company paying
the dividends. The exemption is also applicable where the beneficial
owner in the company paying the dividends is a central bank. These
exemptions complement those provided in respect of interest derived by
States, their political subdivisions and local authorities (including
government investment funds) or a bank performing central banking
functions under Article 11 (Interest). In the course of negotiations, the
two delegations agreed:
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...that dividends and interest will be regarded as being derived by a
Contracting State, political subdivision, local authority or government
investment fund where the investment is made by the Government and
the funds are and remain government monies.
The delegations also agreed that this would include dividends and
interest paid to, in the case of Australia, the Future Fund, the Building
Australia Fund, the Education Fund and the Health and Hospitals
Fund, as well as any similar fund the purpose of which is to pre-fund
future government liabilities.`
[Article 10, subparagraphs 4a) - b)]
Exemption for dividends derived by superannuation entities or pension
schemes
1.139 Subject to satisfying the 10 per cent or less ownership
requirements, the exemption that applies to dividends derived by the two
Governments, government bodies or a central bank also applies to
dividends which are beneficially owned by an Australian resident deriving
such dividends from the carrying on of complying superannuation
activities or, in the case of Switzerland, a tax exempt Swiss pension
scheme. The exemption for Australian residents carrying complying
superannuation activities only applies to dividends derived in the course
of carrying on those complying superannuation activities. For example,
the exemption would only apply to an Australian life insurance company
which derives the dividend as part of its complying superannuation
business and would not apply to dividends derived by that life insurance
company from its other business activities. [Article 10, subparagraphs 4c) - d)]
Swiss dividends derived Australian pension schemes
1.140 An Australian pension scheme will be regarded as the beneficial
owner of dividends arising in Switzerland if the dividends are treated as
income of that pension scheme for the purposes of Australian tax.
[Protocol, subparagraphs 8a)]
Swiss dividends derived by or through discretionary trusts
1.141 The trustee of a discretionary trust by or through which
dividends arising in Switzerland are derived will not be regarded as the
beneficial owner of those dividends if the trustee subsequently distributes
the dividends to a beneficiary that is not a resident of Australia. However,
if the dividends are subject to tax in Australia in the hands of the trustee
and the Australian tax paid by the trustee is not subsequently refunded to
that beneficiary, the trustee will generally be regarded as the beneficial
owner of those dividends. [Protocol, subparagraphs 8b)]
1.142 During negotiations, the delegations noted:
... a provision was inserted that is intended to ensure that a trustee
will not be regarded as the beneficial owner of dividend, interest or
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The Australia-Switzerland Convention
royalty income derived from Switzerland if any Australian tax paid on
that income in the hands of the trustee is subsequently refunded to a
beneficiary who is not a resident of Australia. It was understood that
the Competent Authorities will settle by mutual agreement the
procedures and forms regarding the application of this provision`.
Definition of dividends
1.143 The term dividends in this Article means:
· income from shares, jouissance shares or jouissance
rights, mining shares, founders` shares or other rights
participating in profits and are not debt-claims; and
· other amounts which are subject to the same taxation
treatment as income from shares in the country of which the
distributing company is resident for the purposes of its tax.
1.144 The phrase for the purposes of its tax`, which appears in
paragraph 6 of Article 10, refers to the case where a person is a resident of
a country under its domestic tax law, even if the person is deemed to be a
resident only of the other country for the purposes of the Swiss
Convention by virtue of paragraph 3 of Article 4 (Resident). [Article 10,
paragraph 6]
1.145 In the case of Australia, the definition is consistent with
subsection 3(2A) of the Agreements Act 1953 which clarifies that a
reference to income from shares, or to income from other rights
participating in profits, does not include a reference to a return on a debt
interest as defined in Subdivision 974-B of the ITAA 1997.
Dividends effectively treated as either business profits or income from
independent personal services
1.146 Limitations on the tax of the country in which the dividend is
sourced do not apply to dividends derived by a resident of the other
country who has a permanent establishment or fixed base in the source
country from which the dividends are derived, if the holding giving rise to
the dividends is effectively connected with such permanent establishment
or fixed base.
1.147 Where the holding is effectively connected with such permanent
establishment or fixed base, the dividends are to be treated as business
profits or income from independent personal services respectively, and
therefore subject to the full rate of tax applicable in the country in which
the dividend is sourced in accordance with the provisions of Articles 7
(Business profits) and 14 (Independent personal services).
1.148 Franked and unfranked dividends paid by an Australian
company will be included in the assessable income of a Swiss company or
individual where the dividends are attributable to a permanent
establishment or fixed base of that Swiss resident situated in Australia.
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Expenses incurred in deriving the dividend income are allowable as a
deduction from that income when calculating the taxable income of the
Swiss resident. Further, a Swiss company or individual may be entitled to
tax offsets in respect of any franked dividends received under Australia`s
domestic law. [Article 10, paragraph 7]
Extra-territorial application precluded
1.149 The extra-territorial application by either country of taxing
rights over dividend income is precluded. Broadly, one country (the first
country) will not tax dividends paid by a company resident solely in the
other country, unless:
· the person deriving the dividends is a resident of the first
country; or
· the shareholding giving rise to the dividends is effectively
connected with a permanent establishment in the first
country.
[Article 10, paragraph 8]
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The Australia-Switzerland Convention
Diagram 1.1
Australian
resident
company 1
PE of Aust.
dividend resident
shareholding
Australian
resident profits
company 2
Australia Chile
Switzerland
In the diagram above, paragraph 8 would, but for the exception, preclude
Switzerland from taxing the dividend paid by Australian resident
company 2 to Australian resident company 1 out of profits derived from
Swiss sources. However, as the dividends relate to the Australian
shareholder`s permanent establishment in Switzerland with which the
holding is effectively connected, Switzerland may tax the dividends.
[Article 10, paragraph 8]
Dividends paid by dual resident companies
1.150 The restrictions of paragraph 8 do not apply when the company
paying the dividends is a dual resident that is deemed to be a resident of
Australia or Switzerland on the basis of its place of effective management.
In such cases, the dividends paid by the dual resident company may be
taxed in the country in which those profits arise in accordance with the
domestic law of that country. However, where the dividends are
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beneficially owned by a resident of the other country, the limits provided
for in paragraphs 2 apply as if the company were a resident solely of the
country in which the profits out of which the dividends are paid arise.
[Article 10, paragraph 9]
1.151 This provision does not limit taxation in the country of which
the dual resident company is deemed to be a resident for treaty purposes
in accordance with paragraph 3 of Article 4 (Resident) in the case of
dividends paid by the company out of profits from sources outside that
country. Paragraph 2 will apply where those dividends are beneficially
owned by a resident of the other country.
Article 11 - Interest
1.152 This Article allocates taxing rights in respect of interest flows
between Australia and Switzerland. Article 11 provides that:
· an exemption from source country tax applies to certain
cross-border interest flows to:
- government bodies (including government investment
funds) or central banks;
- financial institutions in certain circumstances; and
- Australian complying superannuation funds (or other
Australian resident carrying on complying superannuation
activities) or tax exempt Swiss pension schemes;
· a maximum 10 per cent rate of source country tax may be
applied on all other interest income;
· interest paid on a debt-claim which is effectively connected
with a permanent establishment or fixed base shall be subject
to Articles 7 (Business profits) and 14 (Independent personal
services) respectively;
· interest payments are deemed to have an Australian source
(and may therefore be taxed in Australia) where:
- the interest is paid by an Australian resident to a Swiss
resident other than where the indebtedness in respect of
which the interest is paid is effectively connected with a
permanent establishment or fixed base situated in
Switzerland or a third country; or
- the interest is paid by a non-resident to a Swiss resident
and is an expense of the payer in carrying on business in
Australia through a permanent establishment or fixed
base; and
· relief will be restricted to the gross amount of interest which
would be expected to be paid on an arm`s-length dealing
between independent parties.
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The Australia-Switzerland Convention
1.153 The tax treatment of dividends provided in the Swiss
Convention fulfils Australia`s most favoured nation` obligation contained
in the Protocol to the existing Swiss Agreement, to enter into negotiations
to reduce its interest withholding tax rate to that agreed to by Australia in
a subsequent treaty with another member state of the OECD. In this
regard, the interest withholding tax rates in the Swiss Convention are
generally aligned to the rates set out in Australia`s tax treaty with the
United States.
Permissible rate of source country taxation
Ten percent rate limit
1.154 This Article provides for interest income to be taxed by both
countries but requires the country in which the interest arises to generally
limit its tax to 10 per cent of the gross amount of the interest where a
resident of the other country is the beneficial owner of the interest.
[Article 11, paragraphs 1 and 2]
Exemptions for interest paid to Governments and central banks
1.155 The exemption for interest paid to the government of a country
will apply to interest derived by the Australian or Swiss governments, or
by any political subdivision or local authority (including government
investment funds) in either Australia or Switzerland. As is the case in
relation to dividends, this ensures that interest derived by Australia`s
Future Fund (and other Funds) from sources in Switzerland will be
exempt from Swiss tax.
1.156 The exemption also applies to interest derived by banks
performing central banking functions in Australia and Switzerland.
[Article 11, subparagraph 3a)]
Exemptions for interest paid to financial institutions
1.157 Source country taxation is not applicable to the gross amount of
interest derived by a financial institution which is unrelated to and deals
wholly independently with the payer, provided the financial institution is a
resident of the other country and is the beneficial owner of the interest.
1.158 The exemption for interest paid to financial institutions
recognises that the 10 per cent source country tax rate on gross interest
can be excessive given their cost of their funds.
1.159 The term financial institution means a bank or other enterprise
substantially deriving its profits by raising debt finance in the financial
markets or by taking deposits at interest and using those funds in carrying
on a business of providing finance. This does not include a corporate
treasury or a member of a group that performs the financing services of
the group. [Article 11, subparagraph 3b)]
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1.160 The exemption is not available for interest paid as part of an
arrangement involving back-to-back loans or other arrangement that is
economically equivalent and intended to have a similar effect. The denial
of the exemption for these back-to-back loan type arrangements is
directed at preventing related party and other debt from being structured
through financial institutions to gain access to such relief. The exemption
will only be denied for interest paid on the component of a loan that is
considered to be back-to-back. In such cases, the 10 per cent rate limit
will apply. [Article 11, paragraph 4a)]
1.161 An example of a back-to-back arrangement would include, for
instance, a transaction or series of transactions structured in such a way
that:
· a Swiss financial institution receives or is credited with an
item of interest arising in Australia; and
· the financial institution pays or credits, directly or indirectly,
all or substantially all of that interest (at any time or in any
form, including commensurate benefits) to another person
who, if it received the interest directly from Australia, would
not be entitled to similar benefits with respect to that interest.
1.162 However, a back-to-back arrangement would generally not
include a loan guarantee provided by a related party to a Swiss financial
institution.
Exemption for interest derived by superannuation entities or pension
schemes
1.163 The exemption from source country taxation that applies to
interest derived by the Australian and Swiss Governments, government
bodies, central banks and financial institutions also apply to interest
beneficially owned by Australian residents deriving such dividends from
the carrying on of complying compliant superannuation activities and tax
exempt Swiss pension schemes. The exemption for Australian residents
carrying on complying superannuation activities only applies to interest
derived in the course of carrying on those complying superannuation
activities. For example, the exemption would only apply to an Australian
life insurance company which derives the interest as part of its complying
superannuation business and would not apply to interest derived by that
life insurance company from its other business activities. [Article 11,
subparagraphs 3c) - d)]
1.164 The exemptions, otherwise available in relation to interest
derived by the two Governments, government bodies, central banks,
superannuation entities or pension schemes, will not be available if the
beneficial owner of the interest participates directly or indirectly in the
management, control or capital, or has an existing or contingent right to
participate in the financial, operating or policy decisions, of the issuer of
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the debt-claim. This is intended to ensure that these exemptions will only
apply where the beneficial owner of the interest holds a portfolio-like
interest in the issuer of the debt-claim. They will not apply where the
beneficial owner is associated with, or in a position to control or influence
the key decision-making of, the issuer of the debt-claim. [Article 11,
subparagraph 4b); Protocol, paragraph 9]
Swiss interest derived by Australian pension schemes
1.165 An Australian pension scheme will be regarded as the beneficial
owner of interest arising in Switzerland if the interest is treated as income
of that pension scheme for the purposes of Australian tax. [Protocol,
subparagraphs 8a)]
Swiss interest derived by or through discretionary trusts
1.166 The trustee of a discretionary trust by or through which interest
arising in Switzerland is derived will not be regarded as the beneficial
owner of that interest if the trustee subsequently distributes the interest to
a beneficiary that is not a resident of Australia. However, if the interest is
subject to tax in Australia in the hands of the trustee and the Australian tax
paid by the trustee is not subsequently refunded to that beneficiary, the
trustee will generally be regarded as the beneficial owner of that interest.
[Protocol, subparagraphs 8b)]
Definition of interest
1.167 The term interest is defined for the purposes of this Article to
include:
· income from debt-claims of every kind (whether or not
secured by a mortgage or carrying a right to participate in the
debtor`s profits);
· interest from government securities;
· income from bonds and debentures; and
· income which is subjected to the same taxation treatment as
income from money lent by the law of the source country.
[Article 11, paragraph 5]
Interest effectively treated as business profits or profits derived from
independent personal services
1.168 Interest derived by a resident of one country which is paid in
respect of a debt-claim which is effectively connected with a permanent
establishment or fixed base of that person in the other country, will form
part of the profits of that permanent establishment or fixed base and be
subject to the provisions of Articles 7 (Business profits) and
14 (Independent personal services) respectively. Accordingly, the rate
limitations on source taxation provided in paragraphs 2 and 4 and
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subparagraph 3b) of this article do not apply to such interest in the country
in which the interest arises. [Article 11, paragraph 6]
Deemed source rules
1.169 The source rules which determine where interest arises for the
purposes of this Article are set out in paragraph 7. They operate to allow
Australia to tax interest paid by a resident of Australia to a resident of
Switzerland who is the beneficial owner of that interest. Australia may
also tax interest paid by a non-resident, being interest which is
beneficially owned by a resident of Switzerland, if it is an expense
incurred by the payer of the interest in connection with a permanent
establishment or a fixed base situated in Australia.
1.170 However, consistent with Australia`s interest withholding tax
provisions, an Australian source is not deemed in respect of interest that is
an expense incurred by an Australian resident in carrying on a business
through a permanent establishment or fixed base outside both Australia
and Switzerland (that is, the permanent establishment or fixed base is in a
third country). In that case, the interest is deemed to arise in the country in
which the permanent establishment or fixed base is situated. [Article 11,
paragraph 7]
Related persons
1.171 This Article includes a general safeguard against payments of
excessive interest where a special relationship exists between the persons
associated with a loan transaction - by restricting the amount on which the
10 per cent source country tax rate limitation applies to an amount of
interest which might have been expected to have been agreed upon if the
parties to the loan agreement were dealing with one another at arm`s
length. Any excess part of the interest remains taxable according to the
domestic law of each country but subject to the other articles of the Swiss
Convention. [Article 11, paragraph 8]
1.172 Examples of cases where a special relationship might exist
include payments to a person (either individual or legal):
· who controls the payer (whether directly or indirectly);
· who is controlled by the payer; or
· who is subordinate to a group having common interests with
the payer.
1.173 A special relationship also covers relationships of blood or
marriage and, in general, any community of interests.
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The Australia-Switzerland Convention
Article 12 - Royalties
1.174 This Article allocates taxing rights in respect of royalties paid or
credited between Australia and Switzerland. The Article provides that:
· a maximum 5 per cent rate of source country tax may be
levied on the gross amount of the royalties;
· royalties paid in respect of a right or property which is
effectively connected with a permanent establishment or
fixed base are subject to Articles 7 (Business profits) and
14 (Independent personal services) respectively;
· royalties are deemed to have an Australian source (and may
therefore be taxed in Australia) where:
- the royalties are paid to a Swiss resident by a person who
is an Australian resident, other than a payment made in
respect of a right or property which is effectively
connected with a permanent establishment or fixed base
situated in Switzerland or a third country; or
- the royalties are paid by a non-resident to a Swiss resident
and are an expense of the payer in connection with a
permanent establishment or fixed base situated in
Australia;
· relief will be restricted to the gross amount of royalties which
would be expected to be paid on an arm`s-length dealing
between independent parties;
1.175 The tax treatment of royalties provided in the Swiss Convention
fulfils Australia`s most favoured nation` obligation contained in the
Protocol to the existing Swiss Agreement, to enter into negotiations to
reduce its royalty withholding tax rate to that agreed to by Australia in a
subsequent treaty with another member state of the OECD. In this regard,
the maximum royalty withholding tax rate in the Swiss Convention is
aligned to the corresponding rate set out in Australia`s tax treaty with the
United States.
Permissible rate of source country taxation
1.176 This Article in general allows both countries to tax royalties but
limits such tax in the case of the source country to 5 per cent of the gross
amount of royalties beneficially owned by residents of the other country.
[Article 12, paragraphs 1 and 2]
1.177 In the absence of a tax treaty, Australia taxes royalties paid to
non-residents at 30 per cent of the gross amount of the royalties.
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Swiss royalties derived by or through discretionary trusts
1.178 The trustee of a discretionary trust by or through which royalties
arising in Switzerland are derived will not be regarded as the beneficial
owner of those royalties if the trustee subsequently distributes the
royalties to a beneficiary that is not a resident of Australia. However, if
the royalties are subject to tax in Australia in the hands of the trustee and
the Australian tax paid by the trustee is not subsequently refunded to that
beneficiary, the trustee will generally be regarded as the beneficial owner
of those royalties. [Protocol, subparagraphs 8b)]
Definition of royalties
1.179 The definition of royalties in this article reflects most elements
of the definition in Australia`s domestic income tax law. The definition
encompasses payments or credits for the use of, or the right to use, any
copyright, patent, design or model, plan, secret formula or process,
trademark or other like property or right. It also encompasses the supply
of any related ancillary and subsidiary assistance aimed at facilitating the
enjoyment of the foregoing.
1.180 The definition includes payments for the supply of scientific,
technical, industrial or commercial knowledge or information, but not
payments for services rendered, except for those that are ancillary as
provided in subparagraph c) of paragraph 3. [Article 12, paragraph 3]
1.181 The royalties` definition includes payments made for the use of,
or the right to use, motion picture films. It also covers payments for the
use of, or the right to use, images or sounds, however reproduced or
transmitted, for use in connection with broadcasting. Such images or
sounds may be reproduced on any form of media, such as film, tape, CD
or DVD, or transmitted electronically, such as by satellite, cable or
Internet. Where the images or sounds are for use in connection with any
form of broadcasting, such as television, radio or web-casting, the
payments will constitute a royalty. [Article 12, subparagraph 3d)]
1.182 Payments for the use of, or the right to use, industrial,
commercial or scientific equipment are not included in the definition of
royalties under the Swiss Convention. Such payments will instead be
treated as business profits under Articles 7 (Business profits), as profits
from transport operations (for certain leases of ships, aircraft and
containers) under Article 8 (Shipping and air transport) or as income
from independent personal services under Article 14 (Independent
personal services). [Protocol, paragraph 7]
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The Australia-Switzerland Convention
Forbearance
1.183 This Article expressly treats as a royalty, amounts paid or
credited in respect of forbearance to grant to third persons, rights to use
property covered by this Article. This provision ensures that such
payments are subject to tax as a royalty payment under the terms of the
Royalties article. [Article 12, subparagraph 3e)]
Other royalties effectively treated as business profits
1.184 Royalties paid in respect of a right or property which is
effectively connected with a permanent establishment or fixed base are
subject to Article 7 (Business profits) or 14 (Independent personal
services) respectively. [Article 12, paragraph 4]
Deemed Source Rules
1.185 The source rules which determine where royalties arise for the
purposes of this Article are set out in paragraph 5. This provision broadly
mirrors the source rule for interest income in Article 11 (Interest).
[Article 12, paragraph 5]
1.186 The Article allows Australia to tax royalties paid by a resident of
Australia to a resident of Switzerland who is the beneficial owner of those
royalties. Australia may also tax royalties paid by a non-resident being
royalties which are beneficially owned by a Swiss resident if the royalties
are an expense incurred by the payer in carrying on a business in Australia
through a permanent establishment.
1.187 The source rules which determine where royalties arise for the
purposes of this Article correspond in Australian law to section 6C of the
ITAA 1936, which deems a royalty paid by an Australian resident to a
non-resident to have an Australian source.
1.188 Royalty payments that are an expense incurred by an Australian
resident carrying on a business through a permanent establishment or
fixed base in a third state will not be subject to tax in Australia. Those
royalties are deemed to be sourced in the country in which the permanent
establishment or fixed base is situated. [Article 12, paragraph 5]
Related Persons
1.189 Where a special relationship exists between the payer and the
beneficial owner of the royalties, the 5 per cent source country tax rate
limitation will apply only to the extent that the royalties are not excessive.
Any excess part of the royalties remains taxable according the domestic
law of each country but subject to the other Articles of the Swiss
Convention. [Article 12, paragraph 6]
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1.190 Special relationships may include where:
· There is a payment to a person who directly or indirectly
controls the payer;
· There is a payment to a person who is controlled by the
payer;
· There is a payment to a person who is subordinate to a group
having common interests with the payer; or
· There is a community of interests, familial or marriage
relationships.
Article 13 - Alienation of property
Taxing rights
1.191 This Article allocates between the respective countries` taxing
rights in relation to income, profits or gains arising from the alienation of
immovable property and other items of property.
1.192 The reference to income, profits or gains` in this Article is
designed to put beyond doubt that a gain from the alienation of property,
which in Australia may be income or a profit under ordinary concepts,
will be taxed in accordance with this Article, rather than Article 7
(Business profits), together with relevant capital gains.
Immovable property
1.193 Income, profits or gains from the alienation of immovable
property may be taxed by the country in which the property is situated.
[Article 13, paragraph 1]
1.194 For the purpose of this Article, the term immovable property`
has the same meaning as it has under paragraph 2 of Article 6. Where the
property is situated is clarified under paragraph 3 of Article 6 (Income
from immovable property).
Permanent establishment or fixed base
1.195 Paragraph 2 deals with income, profits or gains arising from the
alienation of movable property forming part of the business assets of a
permanent establishment of an enterprise or pertaining to a fixed base for
the performance of independent personal services. It also applies where
the permanent establishment or fixed base are themselves (alone or with
the whole enterprise) alienated. Such income, profits or gains may be
taxed in the country in which the permanent establishment or fixed base is
situated. This corresponds to the rules for the taxation of business profits
contained in Article 7 (Business profits) and income from independent
personal services in Article 14 (Independent personal services). [Article 13,
paragraph 2]
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The Australia-Switzerland Convention
1.196 Consistent with the interpretation contained in paragraph 24 of
the Commentary on Article 13 of the OECD Model, the term movable
property` means all property other than immovable property dealt with in
paragraph 1 of this article.
Disposal of ships or aircraft
1.197 Income, profits or gains derived by a resident of a country from
the disposal of ships or aircraft operated by that resident in international
traffic, or from the disposal of movable property pertaining to the
operation of such ships or aircraft, are taxable only in that country. This
rule corresponds to the operation of Article 8 (Shipping and air transport)
in relation to profits derived from the international operation of ships or
aircraft. [Article 13, paragraph 3]
1.198 For the purposes of this Article, the term international traffic`
does not include any transportation which commences at a place in the
other country and returns to the same or another place in that country,
even if it travels through international airspace or waters (for example,
so-called voyages to nowhere` by cruise ships). [Article 3, subparagraph 1f)]
Shares and other interests in land-rich entities
1.199 Paragraph 4 applies to situations involving the alienation, by a
resident of one country, of shares or comparable interests that derive more
than 50 per cent of their value directly or indirectly from immovable
property situated in the other country. Income, profits or gains from the
alienation of such shares or comparable interests may be taxed in the
country in which the immovable property is situated. Paragraph 4
complements paragraph 1 of this Article and is designed to cover
arrangements involving the effective alienation of incorporated
immovable property, or like arrangements.
1.200 This provision ensures that capital or revenue gains on disposal
of a foreign resident`s indirect, as well as direct, interests in certain
targeted assets are taxable by Australia. Such treatment applies whether
the immovable property is held directly or indirectly through a chain of
interposed entities. [Article 13, paragraph 4]
Resident country sweep-up provision
1.201 Paragraph 5 contains a sweep-up provision which reserves the
right to tax any capital gains from the alienation of other types of property
(that is, property not otherwise covered by the Article) to the country of
which the person deriving the gains is a resident. Such gains derived by
Australian residents will be taxable only in Australia, regardless of where
the property is situated, and will not be taxed in Switzerland. The liability
of the Australian resident to taxation on such capital gains will be
determined in accordance with Australia`s domestic law. [Article 13,
paragraph 5]
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Australian residents - residence during a four year period prior to
alienation of property
1.202 The Swiss Convention protects Australia`s taxing rights in
respect of income, profits or gains from the alienation of any property of a
person who is, or has been, a resident of Australia during the year in
which the property is alienated or during the four years immediately
preceding that year. [Protocol, paragraph 10]
1.203 Under Australia`s capital gains tax (CGT) regime, ceasing to be
an Australian resident can trigger a CGT event (CGT Event I1).
However, an individual can elect to disregard any capital gain or capital
loss from CGT assets covered by this event. Where this election is made
the relevant assets of the individual are deemed to be taxable Australian
property and accordingly are subject to tax in Australia when the
individual disposes of the asset or again becomes an Australian resident.
1.204 In the absence of this paragraph, the Swiss Convention would
not allow Australia to tax the gain that arises from the subsequent disposal
of the asset, as the person would no longer be an Australian resident. As
Switzerland does not have a comprehensive federal CGT regime, there
may be cases where ceasing to be an Australian resident will result in no
tax being payable on gains from CGT events arising from the disposal of
taxable Australian property in either Australia or Switzerland.
Double tax relief
1.205 In the event that the operation of Article 13 results in an item of
income or gain being subjected to tax in both States, the country of which
the person deriving the income or gain is a resident (as determined in
accordance with Article 4 (Resident)) would be obliged by Article 22
(Elimination of double taxation) to provide double tax relief for the tax
imposed by the other country.
Article 14 - Independent personal services
1.206 Article 14 deals with the provision of professional services or
other activities of an independent character.
1.207 Under this Article, income derived by an individual in respect of
professional services or other activities of an independent character will
be subject to tax in the country in which the services or activities are
performed, if the individual has a fixed base regularly available to him or
her in that country for the purpose of performing those activities. If this
condition is met, the country in which the services or activities are
performed will have the right to tax so much of the income that is
attributable to that fixed base (that is, the activities performed through that
fixed base). [Article 14, paragraph 1]
1.208 If the above condition is not met, the income will be taxed only
in the country of residence of the individual.
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The Australia-Switzerland Convention
1.209 The term professional services includes independent scientific,
literary, artistic, educational or teaching activities as well as the
independent activities of physicians, lawyers, engineers, architects,
dentists and accountants. [Article 14, paragraph 2]
1.210 Remuneration derived as an employee and income derived by
entertainers and sportspersons are the subject of other Articles of the
Swiss Convention and are not covered by this Article. However,
payments received as a consideration for the use of, or the right to use
industrial, commercial or scientific equipment, insofar as they relate to
professional services, would constitute income covered by this Article.
[Protocol, paragraph 7]
Article 15 - Dependent personal services
Basis of taxation
1.211 This Article generally provides the basis upon which the
remuneration of visiting employees is to be taxed. However, the Article
does not apply in respect of income dealt with separately in:
· Article 16 (Directors' fees);
· Article 17 (Entertainers and sportspersons);
· Article 18 (Pensions); and
· Article 19 (Government service).
1.212 Generally, salaries, wages and similar remuneration derived by a
resident of one country from an employment exercised in the other
country may be taxed in that other country. However, subject to specified
conditions, the Article provides for an exemption from tax in the country
being visited in respect of short-term employment visits. [Article 15,
paragraphs 1 and 2]
Short-term visit exemption
1.213 The conditions for this exemption are that:
· the period of the visit or visits does not exceed, in the
aggregate, 183 days in the fiscal year concerned;
· the remuneration is paid by, or on behalf of, an employer
who is not a resident of the visited country; and
· the remuneration is not borne by a permanent establishment
or a fixed base which the employer has in the country being
visited.
1.214 Where all of these conditions are met, the remuneration so
derived will be liable to tax only in the country of residence of the
recipient. [Article 15, paragraph 2]
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Where the short-term visit exemption does not apply
1.215 Where a short-term visit exemption is not applicable,
remuneration derived by a resident of Australia from employment in
Switzerland may be taxed in Switzerland (and vice versa in the case of
remuneration derived by a Swiss resident from employment in Australia).
However, this Article does not allocate sole taxing rights to Switzerland
(or Australia) in that situation.
1.216 Accordingly, Australia would also be entitled to tax that
remuneration, in accordance with the general rule of the ITAA 1997 that a
resident of Australia remains subject to tax on worldwide income.
However, in accordance with Article 22 (Elimination of double taxation)
Australia would be required in this situation to relieve any resulting
double taxation.
Employment on a ship or aircraft
1.217 Income derived by crew members from employment exercised
aboard a ship or aircraft operated in international traffic may be taxable in
the country of which the enterprise operating the ship or aircraft is a
resident. Thus, for example, an Australian resident pilot employed by a
Swiss resident airline would be taxable in Switzerland on his or her
remuneration in respect of services rendered on international flights, and
would be entitled to a tax credit in Australia for the Swiss tax paid under
Article 22 (Elimination of double taxation). [Article 15, paragraph 3]
Fringe benefits
1.218 Both Australia and Switzerland impose taxation on certain
fringe` or employee benefits. In Australia, the relevant law is the
Fringe Benefits Tax Assessment Act 1986 (FBTAA 1986). Under the
FBTAA 1986, an employer who provides a fringe benefit to an employee
or to an associate of an employee (which includes a family member) may
have a fringe benefits tax liability. Such a liability is separate from
income tax and is calculated on the grossed-up taxable value of the fringe
benefits provided. Switzerland taxes fringe benefits as part of the
employee`s employment income, but it is calculated on its market value at
the employee`s relevant effective cantonal tax rate.
1.219 Paragraph 4 of this Article deals with fringe benefits. In the
absence of this paragraph, such benefits may be taxable in both Australia
and Switzerland without the possibility of relief. This paragraph ensures
that fringe benefits will only be taxable in one country, by providing that
the country that would have the sole or primary taxing right if the benefit
were ordinary employment income will have the sole taxing right in
relation to the fringe benefit. The sole or primary taxing right over the
relevant employment income would ordinarily be determined in
accordance with paragraphs 1, 2 or 3 of this Article. [Article 15, paragraph 4]
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The Australia-Switzerland Convention
Definition of primary taxing right
1.220 The Article provides that the primary taxing right lies with the
country that may impose tax on the relevant employment income, being
tax in respect of which the other country is required to provide relief
under Article 22 (Elimination of double taxation). [Article 15, paragraph 4]
Example 1.3
Emilie, a Swiss resident employee of a Swiss company is sent to work
in Australia. She is present in Australia for more than 183 days, and
receives both employment income and fringe benefits. Under
paragraph 2 of Article 15 (Dependent personal services), Australia has
the right to tax the employment income. Switzerland may also tax but,
under Article 22 (Elimination of double taxation), would be obliged to
give credit for the Australian tax paid on the fringe benefit if it was
ordinary employment income. Therefore, Australia has the primary
right to tax in these circumstances.
Definition of fringe benefit
1.221 During negotiations, the delegations concluded that:
...it was not necessary to insert a treaty meaning of the term fringe
benefit` and that term would therefore take its ordinary domestic law
meaning`.
1.222 In Australia, the statutory definition of fringe benefit is set out
in subsection 136(1) of the FBTAA 1986.
Article 16 - Directors' fees
1.223 This Article relates to remuneration received by a resident of
one country in the person`s capacity as a member of a board of directors
of a company which is a resident of the other country. To avoid the
difficulties in such cases of ascertaining the country in which a director`s
services are performed, and consequently where the remuneration is to be
taxed, the Article provides that directors` fees may be taxed in the country
of residence of the company. [Article 16]
Article 17 - Entertainers and sportspersons
Personal activities
1.224 Income derived by visiting entertainers and sportspersons from
their personal activities as such may be taxed in the country in which the
activities are exercised, irrespective of the duration of the visit. The term
entertainer` is intended to have a broad meaning and would include, for
example, actors and musicians as well as other performers whose
activities have an entertainment character, such as comedians, talk show
hosts and participants in chess tournaments. The Article may also apply
to income received from activities which involve a political, social,
religious or charitable nature, if an entertainment character is present.
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1.225 In relation to sportspersons, it is understood that the term is not
restricted to participants in traditional athletic events. It also covers, for
example, golfers, jockeys, footballers, cricketers and tennis players as
well as racing drivers.
1.226 The application of this Article also extends to income derived
indirectly by an individual entertainer or sportsperson. For example,
amounts generated from promotional and associated kinds of activities
engaged in by the entertainer or sportsperson while present in the visited
country. [Article 17, paragraph 1]
Safeguard
1.227 Income in respect of personal activities exercised by an
entertainer or sportsperson, where derived by another person (for
example, a separate enterprise which formally enters into the contractual
arrangements relating to the provision of the entertainer`s or
sportsperson`s services), may be taxed in the country in which the
entertainer or sportsperson performs, whether or not that other person has
a permanent establishment or fixed base in that country. [Article 17,
paragraph 2]
1.228 Reflecting Switzerland`s reservation on Article 17 of the OECD
Model, source country taxation of income derived by such a separate
person shall not apply if neither the entertainer or the sportsperson, or
persons related to the entertainer or sportsperson, participated directly or
indirectly in the profits of that separate person.
Exception for activities supported wholly or substantially from public
funds
1.229 Income derived by an entertainer or sportsperson from their
personal activities, which would be ordinarily taxable in the country of
performance under paragraph 1 and 2 of this Article, will be taxable only
in the entertainer or sportsperson`s country of residence where the
activities are supported wholly or substantially from public funds of the
country of residence, including any of its political subdivisions or local
authorities. This would apply, for example, to State-funded cultural
activities performed by visiting entertainers. [Article 17, paragraph 3]
Article 18 - Pensions
General scope
1.230 Pensions, social security payments and annuities will be taxed
only in the country of residence of the recipient.
1.231 This is subject to the condition, however, that the recipient is
liable to tax on such income in their country of residence. If the recipient
is not so liable, the country from which the relevant payments were made
may tax the income. [Article 18, paragraph 1]
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1.232 The application of this Article extends to pensions and annuities
made to dependants, for example, a widow, widower or children of the
person in respect of whom the pension, annuity or periodic remuneration
entitlement accrued where, upon that person`s death, such entitlement has
passed to that person`s dependants.
1.233 This Article will not apply to pensions and similar remuneration
paid by government bodies, or paid from public funds, to individuals in
respect of past government services. Such payments are dealt with under
Article 19 (Government service). [Article 18, paragraph 1]
1.234 Lump sums paid under a pension scheme, or in consequence of
retirement, invalidity, disability or death, or by way of compensation for
injuries, may be taxed in the country in which the lump sums arose (in
addition to the country of residence of the recipient). [Article 18,
paragraph 2]
1.235 The term annuity means a stated sum payable periodically at
stated times during life or during a specified or ascertainable period of
time under an obligation to make the payments in return for adequate and
full consideration in money or money`s worth. [Article 18, paragraph 3]
1.236 The term pension scheme is defined in Article 3 of the Swiss
Convention. For the purposes of paragraph 2 of Article 18, in respect of
payments arising in Australia, a pension scheme includes a retirement
savings account, and a payment by the Commissioner of Taxation under
the Superannuation (Unclaimed Money and Lost Members) Act 1999 shall
be treated as a lump sum paid under a pension scheme. [Protocol,
paragraph 11]
Article 19 - Government service
Salary and wage income
1.237 Salary, wages and other remuneration income, other than
government service pensions and other similar remuneration, paid to an
individual for services rendered to a government (including a political
subdivision or local authority) of one of the countries, will be taxed only
in that country. However, such remuneration will be taxable only in the
other country if the services are rendered in that other country and;
· the recipient is a resident of, and a national of, that other
country; or
· the recipient is a resident of that other country and did not
become a resident of that other country solely for the purpose
of rendering the services (for example, if the recipient was a
permanent resident of that other country prior to rendering
the services).
[Article 19, paragraph 1]
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Pensions and other similar remuneration
1.238 Pensions or similar remuneration paid by one of the countries, or
out of funds created by that country, to an individual in respect of
government services rendered to it will be taxable only in that country (the
source country), unless the recipient is a resident of, and a national of, the
other country and is not a national of the source country. If the recipient
is a resident of, and a national of the other country (the residence country),
and is not a national of the source country, the income will be taxable
exclusively in the residence country. [Article 19, subparagraphs 2a) and b)]
1.239 The term pensions and other similar remuneration includes
both periodic payments and lump sum payments. [Protocol, paragraph 12]
Business income
1.240 Remuneration paid in respect of services rendered in connection
with a business carried on by any governmental authority referred to in
paragraph 1 of this Article is excluded from the scope of the Article. Such
remuneration will remain subject to the provisions of Article 15
(Dependent personal services), Article 16 (Directors' fees), Article 17
(Entertainers and sportspersons) or Article 18 (Pensions). [Article 19,
paragraph 3]
Article 20 - Students
Exemption from tax
1.241 This Article applies to students or business apprentices who are
temporarily present in one of the countries solely for the purpose of their
education or training if they are, or immediately before the visit were, a
resident of the other country. In these circumstances, payments from
abroad received by the students or business apprentices solely for their
maintenance, education or training will be exempt from tax in the country
visited. This will apply even though the student or business apprentice
may qualify as a resident of that country during the period of their visit.
1.242 The exemption from tax provided by the visited country extends
to maintenance payments received by the student or apprentice that are
made for maintenance of dependent family members who have
accompanied the student or apprentice to the visited country. [Article 20]
Employment income
1.243 Where a Swiss student visiting Australia solely for educational
purposes undertakes any employment in Australia, for example:
· some part-time work with a local employer; or
· during a semester break undertakes work with a local
employer,
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the income earned by that student as a consequence of that employment
may, as provided for in Article 15 (Dependent personal services), be
subject to tax in Australia.
1.244 For business apprentices, this Article only applies where the
apprentice`s remuneration consists solely of subsistence payments to
cover training or maintenance. Remuneration for service, that is, salary
equivalents, fall for consideration under Article 15 (Dependent personal
services), as will any income derived from employment with a local
employer.
1.245 In the case of a Swiss business apprentice visiting Australia
solely for training purposes, it may therefore be necessary to distinguish
between remuneration for services and a payment for the apprentice`s
maintenance, education or training. The quantum of the payment will be
relevant in such cases.
1.246 A payment for maintenance, education or training would not be
expected to exceed the level of expenses likely to be incurred to ensure
the student or business apprentice`s maintenance, education or training
(that is, a subsistence payment). On the other hand, if the remuneration is
similar to the amounts paid to persons who provide similar services that
are not business apprentices (that is, a salary equivalent), this would
generally indicate that the payments constitute income from employment
that would fall for consideration under Article 15 (Dependent personal
services). Likewise, if that business apprentice undertakes any other
employment in Australia, the income earned from that employment may
be subject to tax in Australia in accordance with Article 15.
1.247 In these situations, the payments received from abroad for the
student or business apprentice`s maintenance, education or training will
not be taken into account in determining the tax payable on the
employment income that is subject to tax in Australia. No Australian tax
would be payable on the employment income if the student qualifies as a
resident of Australia during the visit and the taxable income of the student
does not exceed the tax-free threshold applicable to Australian residents
for income tax purposes.
Other income
1.248 Unlike Australia`s other modern tax treaties, the Swiss
Convention does not include an Other Income Article to deal with items
of income not dealt with by the remaining Articles in the Convention.
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1.249 During negotiations, the delegations agreed that:
... by omitting the article on other income (Article 21 of the OECD
Model Tax Convention on Income and on Capital) from the revised
treaty arrangement, Australia and Switzerland may tax items of other
income` in accordance with their domestic laws. The mitigation of
any double taxation would therefore be dealt with under those
domestic laws`.
Article 21 - Source of income
1.250 Consistent with Australia`s treaty practice, this Article
effectively deems income, profits or gains derived by a resident of a
country which, in accordance with the Swiss Convention, may be taxed in
the other country, to have a source in that other country for the purposes
of the law of that other country. It therefore avoids any difficulties arising
under domestic law source rules in respect of the exercise by Australia of
the taxing rights allocated to Australia by the Swiss Convention over
income derived by residents of Switzerland.
CHAPTER IV - RELIEF FROM DOUBLE TAXATION
Article 22 - Elimination of double taxation
1.251 Double taxation does not arise in respect of income flowing
between Australia and Switzerland:
· Where the terms of the Swiss Convention provide for the
income to be taxed in only one country; or
· Where the domestic taxation law of one of the countries
exempts the income from its tax.
1.252 It is necessary, however, to prescribe a method for relieving
double taxation for other classes of income, profits or gains which, under
the terms of the Swiss Convention, remain subject to tax in both countries.
In accordance with international practice, Australia`s tax treaties provide
for double tax relief to be provided by a taxpayer`s country of residence
by way of an exemption of the foreign income, or a credit or deduction
against its tax for tax paid in the source country. This Article also reflects
that approach.
Australian method of relief
1.253 This Article requires Australia to provide Australian residents
with a credit against their Australian tax liability for Swiss tax paid under
Swiss laws and in accordance with the Swiss Convention, on income
which is also taxable in Australia. The term income` in this context is
intended to have a broad meaning and includes items of profit or gains
which are dealt with under the income tax law. [Article 22, paragraph 1]
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1.254 Australia`s general foreign income tax offset rules, together with
the terms of this Article and of the Swiss Convention generally, will form
the basis of Australia`s arrangements for relieving an Australian resident
from double taxation on income, profits or gains that are also taxed in
Switzerland.
1.255 Accordingly, effect is to be given to the tax credit relief
obligation imposed on Australia by paragraph 1 of this Article by
application of the general foreign income tax offset provisions
(Division 770 of the ITAA 1997).
1.256 Dividends and branch profits derived in Switzerland by an
Australian resident company that are exempt from Australian tax under
the foreign source income measures (for example, sections 23AH or 23AJ
of the ITAA 1936) will continue to qualify for exemption from Australian
tax under those provisions. As double taxation does not arise in these
cases, the credit form of relief will not be relevant.
Swiss method of relief
1.257 In order to maintain consistency with Switzerland`s domestic
relief provisions, paragraph 2 of this Article is divided into multiple forms
of relief (exemption, credit and deduction).
1.258 Generally, where a resident of Switzerland derives income
which may be taxed in Australia, Switzerland will exempt the income
from Swiss tax (subject to the provisions of subparagraph b) of paragraph
2 of this Article which applies to taxes paid on dividends, interest and
royalties). However, Switzerland will only exempt gains referred to in
paragraph 4 of Article 13 (Alienation of property), being gains on the
alienation of shares and other interests in land-rich entities, if actual
Australian taxation of the gains is demonstrated. [Article 22,
subparagraph 2a)]
1.259 Switzerland, having exempted the income from tax as described
above under subparagraph a) of paragraph 2, may apply the rate of tax that
would have applied if the income had not been exempted in calculating
the tax on the remaining income of the Swiss resident. [Article 22,
subparagraph 2a)]
1.260 In situations where a Swiss resident derives dividends, interest
or royalties which may be taxed in Australia, Switzerland will provide
relief, on request, to that resident. Such relief may consist of a:
· deduction from the tax on the income of that resident of an
amount equal to the tax levied in Australia in accordance
with Articles 10 (Dividends), 11 (Interest) or 12 (Royalties)
but the deduction cannot exceed the amount of Swiss tax
appropriate to that income;
· lump sum reduction of the Swiss tax; or
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· a partial exemption of such income from Swiss tax,
consisting at least of the deduction of the tax levied in
Australia from the gross amount of the dividends, interest or
royalties.
[Article 22, sub-subparagraphs 2b)(i) - (iii)]
1.261 Switzerland shall determine the type of relief to be afforded to
Swiss residents, and regulate such relief, in accordance with its domestic
provisions. [Article 22, subparagraph 2b)]
1.262 A Swiss resident company that receives dividends from an
Australian resident company will be entitled to the same relief from Swiss
tax that would apply if the company paying the dividends were a resident
of Switzerland. [Article 22, paragraph 3]
CHAPTER V - SPECIAL PROVISIONS
Article 23 - Non-discrimination
1.263 The Swiss Convention includes rules to prevent tax
discrimination.
1.264 This article does not apply to provisions of the laws of Australia
and Switzerland, which are intended to prevent tax abuse, address thin
capitalisation or to ensure effective tax collection or recovery. [Protocol,
paragraph 13]
Discrimination based on nationality
1.265 This Article ensures that nationals of one country are not treated
less favourably than nationals of the other country in the same
circumstances. This principle applies to both the taxation itself and any
requirement connected with such taxation. Accordingly, discrimination in
the administration of the tax law of a country is also generally precluded.
[Article 23, paragraph 1]
1.266 The term national is defined in Article 3 (General definitions)
of the Swiss Convention and covers both an individual who is a citizen or
national of one country or the other, and any legal person, company,
partnership or association deriving its status as such from the laws of that
country. Accordingly, a company incorporated in Australia would be a
national of Australia while a company incorporated in Switzerland would
be a national of Switzerland for the purposes of this paragraph. [Article 3,
subparagraph 1h)]
The meaning of `in the same circumstances' and `in particular with
respect to residence'
1.267 The expression in the same circumstances` refers to persons
who, from the point of the application of the ordinary taxation laws, are in
substantially similar circumstances both in law and in fact.
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1.268 Where a person operates in an industry that is subject to
government regulation such as prudential oversight, another person
operating in the same industry but not subject to the same oversight,
would not be considered to be in the same circumstances.
1.269 The clarification in particular with respect to residence` makes
clear that the residence of the taxpayer is one of the factors that are
relevant in determining whether taxpayers are placed in similar
circumstances. This means, different treatment accorded to a Swiss
resident compared to an Australian resident will not constitute
discrimination for the purposes of this Article. A potential breach of
paragraph 1 will only occur if two persons who are residents of the same
country are treated differently solely by reason of one being a national of
Australia and the other a national of Switzerland, or vice versa.
The meaning of `other or more burdensome'
1.270 More burdensome` taxation refers to the quantum of taxation
while other` taxation may refer to some form of income tax other than the
form of tax to which a national of the country is subject (Woodend Rubber
Co. v Commissioner of Inland Revenue [1971] A.C. 321 at 332).
1.271 The phrase other or more burdensome` taxation is also
applicable to the administrative or compliance requirements that a
taxpayer may be called upon to meet where those requirements differ
based on nationality.
Non-residents of Australia and Switzerland
1.272 Consistent with paragraph 1 of Article 24 (Non-discrimination)
of the OECD Model, paragraph 1 of this Article applies to persons who
are neither residents of Australia nor Switzerland. Consequently,
residents of third countries who are nationals of either Australia or
Switzerland are able to seek the benefits of this provision. Paragraph 1
does not, however, extend to residents of either country who are not
nationals` (as defined in subparagraph h) of paragraph 1 of Article 3
(General definitions)) of either country.
Non-discrimination and permanent establishments
1.273 The tax on permanent establishments of the other country will
not be levied less favourably than on the country`s own enterprises
carrying on the same activities. This applies to all residents of a treaty
country, irrespective of their nationality, who have a permanent
establishment in the other country. [Article 23, paragraph 2]
1.274 Permanent establishments of non-resident enterprises may be
treated differently from resident enterprises as long as the treatment does
not result in more burdensome taxation for the former as opposed to the
latter. That is, a different mode of taxation may be adopted with respect
to non-resident enterprises, to take account of the fact that they often
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operate in different conditions to resident enterprises. The provision
would not affect, for example, domestic law provisions that tax a non-
resident by withholding, provided that calculation of the tax payable is not
greater than that applying to a resident taxpayer.
1.275 In determining whether taxation has been less favourably levied,
regard would be had only to the rules applicable to the taxation of the
permanent establishment`s own activities, and how those rules compare
with those applicable to the taxation of similar activities carried on by a
local enterprise. As noted in paragraph 41 of the Commentary on
Article 24 (Non-discrimination) of the OECD Model, the equal treatment
principle in this paragraph does not extend to rules that take account of
the relationship between an enterprise and other enterprises (for example,
rules that allow consolidation, transfer of losses or tax-free transfers of
property between companies under common ownership), since the latter
rules do not focus on the taxation of an enterprise`s own business
activities similar to those of the permanent establishment`. Accordingly,
this paragraph does not affect Australia`s roll-over rules for capital gains,
consolidation rules or loss transfer rules. Nor does it affect rules
concerning the allowance of rebates or credits in relation to dividends,
since these do not relate to the business activities of the permanent
establishment.
Non-resident individuals
1.276 The non-discrimination article as it applies to permanent
establishments should not be construed as obliging a country to provide
residents of the other country any personal allowances, reliefs and
reductions for taxation purposes on account of civil status or family
responsibilities which it grants to its own residents.
1.277 That is, non-resident individuals do not have to be granted the
personal allowances, reliefs or reductions available to residents of the two
countries. This treatment means, for example, that Australia can grant
certain tax offsets only to resident individuals, such as the tax offset for
dependents contained in Division 13 of the ITAA 1997. It also extends to
the tax-free threshold which may be considered not to be based either on
civil status or family responsibilities. [Article 23, paragraph 2]
Deductions for payments to foreign residents
1.278 The two countries must allow the same deductions for interest,
royalties and other disbursements paid to residents of the other country as
they do for payments to their own residents. However, the two countries
are allowed to reallocate profits between associated enterprises on an
arm`s-length basis under Article 9 (Associated enterprises), and to limit
deductions in accordance with paragraph 8 or Article 11 (Interest) and
paragraph 6 of Article 12 (Royalties). [Article 23, paragraph 3]
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Enterprises owned or controlled abroad
1.279 A country cannot give less favourable treatment to an enterprise,
the capital of which is owned or controlled, wholly or partly, directly or
indirectly by one or more residents of the other country. That is
Australian companies owned or controlled by Swiss residents may not be
given other or more burdensome treatment than similar locally owned or
controlled Australian enterprises. [Article 23, paragraph 4]
1.280 Differential tax treatment based on residency is not affected by
this paragraph. Nor does the paragraph require the same treatment of
non-resident shareholders in a company as resident shareholders.
Accordingly, there is no obligation under this Article to allow imputation
credits to non-resident shareholders.
Taxes to which this Article applies
1.281 This Article applies to taxes of every kind and description
imposed in either country. It is intended that this Article extend to any
identical or substantially similar taxes which are subsequently imposed by
either country in addition to, or in place of, these taxes. For Australia, the
relevant taxes include the income tax (including tax on capital gains), the
fringe benefits tax and the GST. The provisions of this Article also apply
to taxes imposed by the Australian states and territories.
Exclusions
1.282 Certain provisions of the law of both countries are not restricted
in their application by this Article. The specific exclusion of these
provisions will ensure that they can continue to operate for their intended
purpose. The provisions which are not restricted by the application of this
Article are those that:
· are intended to prevent tax abuse. In the case of Australia,
these laws include dividend stripping, transfer pricing,
controlled foreign companies and transferor trust provisions.
Australia`s thin capitalisation rules are also explicitly
excluded from the scope of the Article. Although it is
commonly accepted by most OECD member countries that
such provisions do not contravene Non-discrimination
Articles, this outcome is specifically provided for in the
Swiss Convention.
· ensure that taxes can be effectively collected or recovered.
This preserves the rules relating to the enforcement and
operation of the various aspects of the withholding tax
provisions relating to non-residents. For example,
section 26-25 (Interest or royalty) of the ITAA 1997 broadly
provides that if an entity fails to withhold tax in respect of
interest or royalties paid to a person or address overseas, the
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interest or royalty expense cannot be claimed as a deduction
by that entity.
[Protocol, paragraph 13]
More favourable treatment
1.283 Nothing in this Article prevents either country from treating
residents of the other country more favourably than its own residents.
Article 24 - Mutual agreement procedure
1.284 This Article provides for a procedure for resolving difficulties
and disputes arising from the application of the Swiss Convention.
Consultation on specific cases
1.285 This Article provides for consultation between the competent
authorities of the two countries with a view to reaching a solution in cases
where a person is able to demonstrate actual or potential imposition of
taxation contrary to the provisions of the Swiss Convention. [Article 24,
paragraph 1]
1.286 In the case of Australia, the competent authority is the
Commissioner of Taxation or an authorised representative of the
Commissioner. [Article 3, sub-subparagraph 1g)i)]
1.287 A person wishing to use this procedure may present a case to the
competent authority of the country of which the person is a resident. If
the case comes under paragraph 1 of Article 23 (Non-discrimination) of
the Swiss Convention, the person may present the case to the competent
authority of the country of which they are a national.
1.288 Presentation of the case to a competent authority must be made
within three years of the first notification of the action which the person
considers gives rise to taxation not in accordance with the Swiss
Convention. Presentation of a case does not deprive the person of access
to, or affect their rights in relation to, other legal remedies available under
the domestic laws of the two countries. [Article 24, paragraph 1]
1.289 If the person`s claim seems to the competent authority to which
the case has been presented to be justified, and that competent authority is
not itself able to solve the problem, then the competent authority is
required to seek to resolve the case by mutual agreement with the
competent authority of the other country, with a view to avoiding taxation
not in accordance with the Swiss Convention. [Article 24, paragraph 2]
1.290 If, after consideration by the competent authorities, a solution is
reached, it must be implemented in accordance with the provisions of the
Article.
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Consultation on general problems
1.291 This Article also authorises consultation between the competent
authorities of the two countries for the purpose of resolving any
difficulties that arise regarding the interpretation or application of the
Swiss Convention. This may allow, for example, the competent
authorities to agree to apply an agreed solution to a broader range of
taxpayers, notwithstanding that the original uncertainty may have arisen in
connection with an individual case that comes under the procedure
outlined in paragraphs 1 and 2 of this Article. [Article 24, paragraph 3]
Methods of communication between competent authorities
1.292 The competent authorities are permitted to communicate
directly with each other without having to go through diplomatic
channels. This may be done by electronic means (for example, e-mail or
web conferencing), letter, telephone, direct meetings or any other
convenient means. [Article 24, paragraph 4]
General Agreement on Trade in Services dispute resolution process
1.293 This Article also deals with disputes that may be brought before
the World Trade Organisation Council for Trade in Services under the
dispute resolution processes of the General Agreement on Trade in
Services (GATS). [Article 25, paragraph 7]
1.294 Australia and Switzerland are both parties to the GATS.
Article XVII (National Treatment) of the GATS requires a party to accord
the same treatment to services and service suppliers of other parties as it
accords to its own like services and service suppliers.
1.295 Articles XXII (Consultation) and XXII (Dispute Settlement and
Enforcement) of the GATS provide for discussion and resolution of
disputes. Where a measure of another party falls within the scope of a tax
treaty, paragraph 3 of Article XXII (Consultation) provides that the other
party to the tax treaty may not invoke Article XVII (National Treatment).
However, if there is a dispute as to whether a measure actually falls within
the scope of a tax treaty, either country may take the matter to the Council
on Trade in Services for referral to binding arbitration.
1.296 This provision is based, in all essential respects, on an OECD
Model Commentary recommendation, and is common in recent
international tax treaty practice.
Arbitration
1.297 In some instances, the competent authorities may not reach
agreement on a solution to a particular case. Paragraph 5 of this Article
provides for arbitration to be used to assist in resolving those cases.
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1.298 Only those cases presented under paragraph 1 of this Article
(that is, where a person contends that the actions of either Australia or
Switzerland will result in taxation not in accordance with the Swiss
Convention) are eligible. Cases which arise under paragraph 3 of this
Article, for example a case involving a general difficulty in interpreting or
applying the Convention, are not eligible to be resolved through this
arbitration mechanism.
1.299 Cases arising under paragraph 1 can only access the arbitration
mechanism if the competent authorities are unable to reach agreement
within three years from when the case was first presented by the
competent authority of one country to the competent authority of the other
country. If the case remains unresolved after that time, the person may
request that the arbitration mechanism be used. Access to arbitration in
such cases is automatic; it is not subject to the specific agreement of the
competent authorities.
1.300 It is not intended that the arbitration mechanism be an
alternative to the mutual agreement procedure. Where the competent
authorities have reached an agreement that does not leave any issues
unresolved in the case, that case is not eligible for arbitration even if the
taxpayer does not agree with the solution reached. However, if any issue
remains outstanding so that taxation contrary to the Swiss Convention
remains, the competent authorities cannot consider (either alone or
together) the case resolved and refuse the person access to the arbitration
mechanism.
1.301 Unlike the mutual agreement procedure, which may be invoked
where a taxpayer considers that taxation not in accordance with the treaty
has resulted or will result, the arbitration mechanism is only available in
respect of actual taxation contrary to the Convention which has resulted
from the actions of Australia or Switzerland or both. This would include
instances where an assessment or determination of tax has been made or
otherwise where the taxpayer has been officially notified by the revenue
authorities of Australia or Switzerland that they will be taxed on an item
of income. [Article 25, paragraph 5]
1.302 Further, unresolved issues cannot be submitted for arbitration if
a decision on those issues has already been rendered by a court or
administrative tribunal of either Australia or Switzerland. This means
where a court or administrative tribunal of one of the countries has already
rendered a decision that deals with those issues and applies to that person.
However it is not intended that a person would be prevented from having
unresolved factual issues arising in their case submitted for arbitration
merely because another person is pursuing appeals through the domestic
courts on similar issues.
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1.303 Paragraph 5 provides that unless a person directly affected by
the case rejects the arbitration decision, or the competent authorities and
that person agree on a different solution within six months of the
notification of the arbitration decision, the arbitration decision is binding
on both Australia and Switzerland. Further, the two countries are obliged
to implement the decision notwithstanding any time limits contained in
their respective domestic laws. [Article 24, paragraph 5]
1.304 The operational rules and procedures of the arbitration
mechanism will be agreed by the competent authorities of Australia and
Switzerland. [Article 24, paragraph 5]
1.305 Paragraph 6 of this Article authorises Australia and Switzerland
to release any information to the arbitration board that is necessary for
carrying out the arbitration procedure. The confidentiality rules contained
in Article 25 (Exchange of information) will apply to that information and
to the arbitration board. [Article 24, paragraph 6]
Article 25 - Exchange of information
General scope
1.306 The Swiss Convention allows for the competent authorities to
exchange information on a wide range of taxes and irrespective of
whether the country from which the information was requested has a
domestic tax interest in the information sought. The information that may
be exchanged does not have to concern a resident of either Australia or
Switzerland.
1.307 Article 25 authorises and limits the exchange of information by
the competent authorities to information that is foreseeably relevant to
carrying out the provisions of the Conventions or to the administration
and enforcement of the two countries` domestic tax laws. [Article 25,
paragraph 1]
1.308 During negotiations, the delegations agreed:
...consistent with Switzerland`s treaty practice, not to make reference
to the prevention of fiscal evasion in the title or preamble [of the Swiss
Convention]. However, both delegations noted that omission of this
reference would not restrict the application of the Convention in other
respects including exchange of tax information in fiscal evasion cases`.
1.309 It is also understood that an exchange of information will only
be requested once the requesting country has pursued all reasonable
means under its domestic taxation procedures to obtain the information.
[Protocol, subparagraph 14a)]
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Foreseeably relevant information
1.310 The standard of foreseeable relevance is intended to ensure that
information may be exchanged to the widest possible extent. However,
the competent authorities are not entitled to request information from the
other country which is unlikely to be relevant to the tax affairs of a
taxpayer, or the administration and enforcement of tax laws, or which
would allow the requesting country to engage in fishing expeditions`.
[Article 25, paragraph 1; Protocol, subparagraph 14 b)]
1.311 During negotiations, the delegations noted that paragraph 14 of
the Protocol:
...draws on the language of the 2002 Model Agreement on Exchange
of Information on Tax Matters, as well as the Commentary on Article
26 of the OECD Model Tax Convention on Income and on Capital. In
this regard, the Commentary on the 2002 Model Agreement would
also provide interpretative assistance as to the meaning of text drawn
from that Model Agreement`.
Taxes to which this Article applies
1.312 Under the Swiss Convention, the competent authorities can
request and obtain information concerning taxes of every kind and
description imposed on behalf of Australia or Switzerland (or their
political subdivisions or local authorities). [Article 25, paragraph 1]
1.313 It is intended that the Article extend to any identical or
substantially similar taxes which are subsequently imposed by either
country in addition to, or in place of, these taxes.
Use of exchanged information
1.314 The purposes for which the exchanged information may be used
and the persons to whom it may be disclosed are restricted in a manner
which is consistent with the approach taken in the OECD Model. This
includes the use of information for other (that is, non-tax) purposes when
such use is permitted under both countries` domestic law and is authorised
by the competent authority of the supplying country.
1.315 Any information received by a country must be treated as a
secret in the same manner as information obtained under the domestic law
of that country, and can only be disclosed to the persons identified in
paragraph 2 of the Article. [Article 25, paragraph 2]
No domestic tax interest required
1.316 When requested, a country is required to obtain information in
the same manner as if it were administering its domestic tax system,
notwithstanding that the country may not require the information for its
own tax purposes. Australia would recognise this obligation to obtain
relevant information for its treaty partners even in the absence of a
specific provision to this effect. [Article 25, paragraph 4]
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The Australia-Switzerland Convention
Limitations
1.317 The country requested to provide information under this Article
is not obliged to do so where:
· it would be required to carry out administrative measures at
variance with the laws and administrative practice of
Australia or Switzerland;
· such information is not obtainable under the domestic law or
in the normal course of administration of Australia or
Switzerland;
· the disclosure of the information would disclose any trade,
business, industrial, commercial or professional secret or
trade process; or
· the disclosure of the information would be contrary to public
policy.
[Article 25, subparagraphs 3a), b) and c)]
Information held by banks and other financial institutions or nominees
1.318 Paragraph 5 of this Article ensures that the limitations to
information exchange contained in paragraph 3 cannot be used to prevent
the supply of information solely because the information is held by a
bank, other financial institution, a nominee or a person acting in a
fiduciary capacity, or because it relates to ownership interests in a person.
This is consistent with Article 26 (Exchange of Information) of the OECD
Model. [Article 26, paragraph 5]
1.319 In order to obtain the requested information, the competent
authority of the requested country is given the power to enforce the
disclosure of the information covered by paragraph 5 of this Article,
notwithstanding paragraph 3 of this Article or any contrary provisions in
the requested country`s domestic laws. [Article 26, paragraph 5]
1.320 In making a request for information, the competent authority of
the requesting country will be required to provide certain information to
the other competent authority. This includes the identity of the person
under examination or investigation, the time period for which the
information is requested, a statement as to the information sought and the
form in which the requesting country wishes to receive the information,
the tax purpose for which the information is sought, and details (if known)
of any persons believed to possess the information. While the
requirement for the requesting country to provide this information is
intended to ensure that fishing expeditions` do not occur, these
requirements need to be interpreted with a view not to frustrate effective
exchange of information. [Protocol, subparagraph 14b)]
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International Tax Agreements Amendment Bill 2014
1.321 The Swiss Convention does not restrict the possible methods of
exchanging information, but it does not require the two countries to
exchange information on an automatic or spontaneous basis. [Protocol
subparagraph 14c)].
1.322 In addition, any domestic procedures or rights afforded to
taxpayers under the laws of a country, for example a right of a person to
be notified about an information request, will continue to apply as long as
they are not used to prevent or unduly delay the exchange of information
process. [Protocol, subparagraph 14d)]
Article 26 - Members of diplomatic missions and consular posts
1.0 The purpose of this Article is to ensure that the provisions of the
Swiss Convention do not result in members of diplomatic missions or
consular posts receiving less favourable treatment than that to which they
are entitled in accordance with international conventions. Such persons
are entitled, for example, to certain fiscal privileges under the Diplomatic
Privileges and Immunities Act 1967 and the Consular Privileges and
Immunities Act 1972 which reflect Australia`s international diplomatic
and consular obligations. [Article 26, paragraph 1]
1.1 Under this Article, an individual who is a member of a
diplomatic mission, consular post or permanent mission of a country that
is situated in the other country will be deemed to be a resident of the
sending country if:
· in accordance with international law the individual is not
liable to tax in the receiving country in respect of income
sourced outside that country; and
· the individual has the same obligations in the sending
country, with regard to tax on their total income, as residents
of that country. [Article 26, paragraph 2]
1.2 The Swiss Convention will not apply to international
organisations or their organs or officials, or to members of a diplomatic
mission, consular post or permanent mission of a third country, that are
present in Australia or Switzerland and which are not treated as residents
of Australia or Switzerland. [Article 26, paragraph 3]
CHAPTER VI - FINAL PROVISIONS
Article 27 - Entry into force
1.3 This Article provides for the entry into force of the Swiss
Convention. The Convention will enter into force on the last date on
which diplomatic notices are exchanged notifying that the relevant legal
procedures in the respective countries have been completed. [Article 27,
paragraph 1]
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The Australia-Switzerland Convention
1.4 In Australia, enactment of the legislation giving the force of law
in Australia to the Swiss Convention, along with tabling the Convention
in Parliament, are prerequisites to the exchange of diplomatic notes.
Date of Application for Australian Taxes
Fringe benefits tax
1.5 The Swiss Convention will apply in Australia in respect of
fringe benefits provided on or after 1 April next following the date on
which the Convention enters into force. [Article 27, sub-subparagraph 2 a)(i)]
Withholding tax
1.6 The Swiss Convention will apply in Australia in respect of
withholding tax on income that is derived by a resident of Switzerland, in
relation to income derived on or after 1 January following the date on
which the Convention enters into force. [Article 27, sub-subparagraph 2a)(ii)]
Other Australian taxes
1.7 The Swiss Convention will apply to other Australian taxes in
respect of any year of income beginning on or after 1 July following the
date on which the Convention enters into force. [Article 27,
sub-subparagraph 2 a)(iii)]
Date of Application for Swiss Taxes
Withholding tax
1.8 The Swiss Convention will apply to tax withheld at source on
amounts paid or credited on or after 1 January following the entry into
force of the Convention. [Article 27, sub-subparagraph 2 b)(i)]
Other Swiss taxes
1.9 The Swiss Convention will apply to other Swiss taxes for
taxation years beginning on or after 1 January following the entry into
force of the Convention. [Article 27, sub-subparagraph 2b)ii)]
Exchange of information
1.10 With regard to Article 25 (Exchange of information), the Swiss
Convention will apply to information relating to taxation or business years
in course on, or beginning on or after, 1 January following the entry into
force of the Convention. [Article 27, subparagraph 2c)]
Meaning of `taxation years' and `taxable years'
1.11 In the case of Australia, the references to taxation years` in
subparagraph c) of paragraph 2 and to taxable years` in paragraph 3 of
this Article refer to income years` or fringe benefits tax years` as
required. [Protocol, paragraph 15]
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International Tax Agreements Amendment Bill 2014
Preceding Convention
Termination of the Agreement between Australia and Switzerland for the
avoidance of double taxation with respect to taxes on income, with
Protocol, of 1980
1.12 The existing tax treaty between Australia and Switzerland and
its Protocol (which were signed in1980) will terminate upon entry into
force of the Swiss Convention. The provisions of the existing treaty will,
however, continue to have effect for taxable years and periods which
expired prior to time at which the provisions of the Swiss Convention
become effective. [Article 27, paragraph 3]
Article 28 - Termination
1.13 The Swiss Convention will continue in effect until terminated.
Either country may terminate the Convention by giving notice of
termination at least six months before the end of any calendar year.
Termination is by notice through the diplomatic channel.
Cessation
1.14 In the event of termination of the Swiss Convention, it would
cease to be effective in respect of withholding taxes paid after 1 January
following the notice of termination. [Article 28, paragraph a)]
1.15 In the event of termination, the Swiss Convention would cease
to be effective in respect of other taxes for taxation years beginning on or
after 1 January following the notice of termination. [Article 28, paragraph b)]
Denial of benefits
1.16 A general integrity rule will apply to deny treaty benefits in
cases involving treaty abuse. Unlike corresponding rules in other
Australian treaties, this rule will apply generally and is not limited to
specific articles such as Articles 10 (Dividends), 11 (Interest) or 12
(Royalties).
1.17 The benefits of the Swiss Convention will not apply if it was one
of the principal purposes of any person concerned with the creation or
assignment of the property or right in respect of which the income is paid,
or if a person has become a resident of a country, to take advantage of the
provisions of the Convention by means of such creation, assignment or
residence. [Protocol, paragraph 1]
1.18 The inclusion of this rule will ensure that effect is given to the
principle contained in paragraph 9.5 of the Commentary on Article 1
(Persons Covered) of the OECD Model; namely that the benefits of a
double tax convention should not be available where a main purpose for
entering into certain transactions or arrangements was to secure a more
favourable tax position and obtaining that more favourable treatment in
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The Australia-Switzerland Convention
these circumstances would be contrary to the object and purpose of the
relevant provisions.
1.19 The integrity rule contained in the Swiss Convention will assist
Australia in addressing such cases of improper abuse.
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Amendments to the International Tax
Agreements Act 1953
Part 1: Amendments in relation to the Swiss Convention
2.0 Part 1 of Schedule 1 of this Bill amends the International Tax
Agreements Act 1953 (Agreements Act 1953) to give the force of law in
Australia to the Convention between Australia and the Swiss
Confederation for the Avoidance of Double Taxation with Respect to
Taxes on Income, and Protocol (Swiss Convention), which was signed in
Sydney on 30 July 2013.
2.1 Part 1 of Schedule 1 prescribes the Swiss Convention as an
agreement that is to have the force of law according to its terms.
[Schedule 1, item 4, Agreements Act 1953 subsection 5(1)]
2.2 Part 1 also provides that the Agreement between Australia and
Switzerland for the Avoidance of Double Taxation with respect to Taxes
on Income, and Protocol (Swiss 1980 Agreement), which entered into
force on 13 February 1981, continue to have the force of law for
transitional purposes (see paragraph 1.335). [Schedule 1, items 6 and 7,
Agreements Act 1953 section 11E]
Consequential amendments
2.3 New definitions are created to refer to the Swiss Convention and
the Swiss 1980 Agreement. [Schedule 1, items 2 and 3, Agreements Act 1953
subsections 3AAA(1) and 3AAB(1)]
2.4 The current definition for the Swiss 1980 Agreement, the Swiss
agreement`, is repealed. [Schedule 1, item 1, Agreements Act 1953
subsection 3AAA(1)]
2.5 A minor amendment is also made to include a note to
section 5A. Section 5A provides that a number of past agreements
continue to have the force of law. The note informs the reader that some
earlier agreements may continue to have force of law because of other
provisions of the Act, i.e. the Swiss 1980 agreement under section 11E.
[Schedule 1, item 5, Agreements Act 1953 subsection 3AAA(1)]
Part 2: Minor Amendments to the Agreements Act 1953
2.6 Part 2 of Schedule 1 makes a number of minor amendments to
the Agreements Act 1953.
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International Tax Agreements Amendment Bill 2014
2.7 An amendment is made to clarify that any reference, in an
international agreement, to the concept of immovable property` having its
Australian domestic law meaning, includes a reference to real property.
[Schedule 1, item 8, Agreements Act 1953 subsection 3(5)]
2.8 This amendment will apply to the reference to immovable
property in Article 6 of the Swiss Convention (see paragraph 1.87). It is
also intended that the amendment will apply to any future agreements that
use the same concept.
2.9 None of Australia`s current international agreements use the
term immovable property` exclusively.
2.10 Part 2 of Schedule 1 also makes a number of minor amendments
to add notes containing the Australian Treaty Series citations for a number
of recently enacted agreements. [Schedule 1, items 9 to 12, Agreements Act 1953
subsection 3AAA(1)]
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Statement of Compatibility with Human
Rights
Prepared in accordance with Part 3 of the Human Rights
(Parliamentary Scrutiny) Act 2011
International Tax Agreements Amendment Bill 2014
3.0 This Bill is compatible with the human rights and freedoms
recognised or declared in the international instruments listed in section 3
of the Human Rights (Parliamentary Scrutiny) Act 2011.
Overview
3.1 The International Tax Agreements Amendment Bill 2014 (Bill)
fulfils Australia`s commitments under the Convention between Australia
and the Swiss Confederation for the Avoidance of Double Taxation with
Respect to Taxes on Income and Protocol (Swiss Convention).
3.2 The Bill will give effect to the revised obligations under the
Swiss Convention in Australia. The Swiss Convention updates the
existing agreement with Switzerland, the Agreement between Australia
and Switzerland for the Avoidance of Double Taxation with respect to
Taxes on Income and its Protocol which entered into force on 13 February
1981. The Bill proposes amending the International Tax Agreements
Act 1953 to give the Swiss Convention the force of law in Australia by
adding them to the list of agreements currently contained in that Act.
3.3 Negotiations to update the existing treaty were announced by the
former Government, in a media release of the then Assistant Treasurer of
9 February 2011. Signature of the treaty and its details were announced in
a media release of the then Assistant Treasurer`s media releases of
12 May 2013 and 30 July 2013.
3.4 The Swiss Convention modernises the bilateral tax arrangements
between Australia and Switzerland for the purpose of eliminating double
taxation. It also seeks to prevent fiscal evasion, specifically by enabling
the respective tax authorities to exchange taxpayer information on request.
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International Tax Agreements Amendment Bill 2014
Human rights implications
3.5 The Bill engages the following human rights:
· the right to protection from arbitrary or unlawful interference
with privacy under Article 17 of the International Covenant
on Civil and Political Rights (ICCPR); and
· the right to protection from discrimination under Articles
2(1) and 26 of the ICCPR and Article 2(1) of the
International Convention on the Elimination of All Forms of
Racial Discrimination (ICERD).
Protection from arbitrary or unlawful interference with privacy
3.6 The Bill engages the right to privacy in Article 17 of the ICCPR,
as the international agreement which it seeks to give effect to, that is, the
Swiss Convention obliges the revenue authorities of Australia and
Switzerland to provide personal taxpayer information to each other in
certain circumstances. This requirement is contained in Article 25
(Exchange of information) of the Swiss Convention.
Protection from discrimination
3.7 The Bill engages the right to equal protection of the law and
non-discrimination contained in the ICCPR and ICERD. It is to be noted
that discrimination under the ICCPR and ICERD comprises differential
treatment (a distinction, exclusion or restriction) on the basis of a
prohibited ground, which nullifies or impairs the enjoyment of human
rights.
3.8 The Swiss Convention contains a number of provisions affecting
the tax liability of different groups of people, in particular nationals` of
the contracting States. Article 23 of the Swiss Convention guarantees
non-discrimination in the taxation of Australian and Switzerland nationals
as defined in the treaty, and Article 22 provides for relief from double
taxation of certain income derived by residents of Australia and
Switzerland.
3.9 Thus, in relation to this Bill, the relevant issue is whether
differentiation on the basis of residency or nationality constitutes
discrimination on prohibited grounds.
3.10 Article 1(2) of the ICERD provides that, This Convention shall
not apply to distinctions, exclusions, restrictions or preferences made by a
State Party to this Convention between citizens and non-citizens.` On its
face, it would appear that a distinction between citizens and non-citizens
would not amount to discrimination for the purposes of the ICERD.
3.11 However, the Committee on the Elimination of Racial
Discrimination (ICERD Committee) in its General Recommendation
No. 30, stated its view that, differential treatment based on citizenship or
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Statement of Compatibility with Human Rights
immigration status will constitute discrimination if the criteria for such
differentiation, judged in the light of the objectives and purposes of the
Convention, are not applied pursuant to a legitimate aim, and are not
proportional to the achievement of this aim.`1
3.12 In other words, differential treatment would not amount to
discrimination under international human rights law if the different
treatment meets the proportionate test for legitimate differential treatment.
Compatibility with human rights
Legitimate objective
3.13 This Bill`s engagement with the right to privacy and the right to
protection from discrimination is in the furtherance of a legitimate
objective.
3.14 The objective of the Swiss Convention is to avoid double
taxation and prevent fiscal evasion.
Double taxation
3.15 Most countries tax income on both a source` and residence`
basis. That is, a resident person is usually taxed on income from both
domestic and foreign sources, whilst non-residents are only taxed on
domestic source income.
3.16 Double taxation is generally due to residence-source
jurisdictional conflicts. This occurs when a person who is a resident in
one country derives income from another. Consider the example of a
business which has a branch office in another country. The residence
country (the country where the business is resident) exercises a residence
jurisdiction and taxes the foreign branch income. The source country
(where the branch is carrying on business) exercises its source jurisdiction
and also taxes the branch income.
3.17 Double taxation can also occur where both countries classify a
person as their own resident, consider income is sourced in their
jurisdiction, or consider the same income is derived by different taxable
entities.
Preventing fiscal evasion and improving international tax compliance
3.18 Consistent with bilateral tax treaties, another objective of the
Swiss Convention is to create a framework for exchange of information
and cooperation between the respective tax administrations (that is,
Australia and Switzerland) as a means of combating international tax
avoidance and evasion.
1
ICERD Committee, General Recommendation No.30: Discrimination Against Non-Citizens,
1 October 2004, para 4.
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International Tax Agreements Amendment Bill 2014
3.19 In this regard, while the Bill is necessary to ensure that the
appropriate persons benefit from the Swiss Convention, it is also
necessary to ensure effective cooperation between the two countries for
tax compliance purposes.
How the Bill facilitates avoidance of double taxation and prevention of
fiscal evasion
3.20 Under the Swiss Convention, Australia and Switzerland agree to
restrict their respective taxing rights to avoid double taxation. Taxing
rights are 'allocated' over different categories of income including
business profits, dividends, interest, royalties and pensions.
3.21 Further, the Swiss Convention provides for relief from double
taxation where both countries have a right to tax the income. It also
establishes arrangements for the exchange of information between tax
authorities, and provides for resolution of disputes where the two
countries attempt to tax the same income.
3.22 In doing so, the Swiss Convention establishes greater legal and
fiscal certainty within which cross-border trade and investment (between
Australia and Switzerland) can be carried on and promoted.
3.23 Australia is a long-standing supporter of international
cooperation to prevent tax evasion. This Bill reinforces Australia`s
support for international tax transparency and cooperation between
revenue authorities to help prevent tax evasion and improve global tax
compliance. This is consistent with ongoing international efforts,
supported by the G20, to improve tax system integrity.
Reasonable and necessary
3.24 The Bill`s engagement of the right to privacy and that of
protection from discrimination constitutes a reasonable and necessary
measure in pursuit of the Bill`s legitimate objective.
3.25 In order to be reasonable and necessary, a sufficient connection
must be established between the objectives of the Swiss Convention and
the engagement of the rights to privacy and protection from
discrimination.
3.26 An objective of the Swiss Convention is to ensure that resident
and non-resident persons (being individuals or entities) of Australia and
Switzerland are not taxed by both countries on the same income (double
taxation).
3.27 In relation to protection against discrimination, given that
double taxation is generally due to residence-source jurisdictional
conflicts, the differential treatment of residents and non-residents is a
necessary ingredient in ensuring that the same item of income of a person
is not taxed by both countries.
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Statement of Compatibility with Human Rights
3.28 In relation to privacy, the exchange of personal information
between the respective tax administrations (that is, Australia and
Switzerland) is necessary to combat international tax avoidance and
evasion. The scope of personal information to be exchanged also extends
to persons who are not residents of either country.
Proportionate means of achieving a legitimate objective
3.29 The Bill`s engagement of the right to privacy and the right to
protection from discrimination is a proportionate means of achieving the
Bill`s legitimate objective.
Safeguards and protection of taxpayer privacy
3.30 In relation to privacy, the provision of information must be
foreseeably relevant` to the administration of taxation (Article 25).
3.31 Further, the information exchanges envisaged in the Swiss
Convention are subject to strict treaty confidentiality rules. That is, any
information provided by the Commissioner of Taxation can only be used
by Swiss revenue authorities for the purposes permitted by the Swiss
Convention. In general, this means that the information can only be used
for tax administration purposes and may only be disclosed to persons
(including courts and administrative bodies) concerned with the
assessment, collection, administration or enforcement of, or with litigation
with respect to, the taxes covered by the treaty.
3.32 The disclosure of taxpayer information by the Commissioner of
Taxation is allowed by section 355-50 of Schedule 1 to the
Tax Administration Act 1953, which provides an exception to the general
prohibition on the disclosure of taxpayer information by ATO officers.
3.33 Further, the right to privacy in Australia is protected by the
Privacy Act 1988. The Privacy Act enables an individual to make a
complaint about the handling of their information, including tax
information, by both specified Australian government agencies and
private sector organisations.
3.34 The Office of the Australian Information Commissioner is also
available to investigate and enforce Australia`s privacy law where a
person alleges that an agency or organisation is non-compliant. Depending
on the particular complaint, some possible resolutions could include
compensation for financial or non-financial loss, or change to the
respondent`s practices.2
3.35 In relation to the protection against discrimination, the
differential treatment on the basis of a person`s residence or nationality is
2
For further information, please refer to the Office of the Australian Information
Commissioner`s website at http://www.oaic.gov.au/.
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International Tax Agreements Amendment Bill 2014
a proportionate means of achieving the Bill`s legitimate objective, as this
approach follows the Organisation for Economic Cooperation and
Development (OECD) Model Tax Convention on Income and on Capital,
which has been largely adopted, with variations, by most countries.
3.36 Lastly, the Swiss Convention (Article 23) enhances the
non-discrimination principle by ensuring that Australia and Switzerland
are not able to treat residents of either country differently in similar
situations, except where legitimate and objective justifications exist.
Conclusion
3.37 This Bill is consistent with Article 17 of the ICCPR on the basis
that its engagement of the right to privacy will neither be unlawful
(including by virtue of Australia`s privacy laws) nor arbitrary. To this
extent, the Bill complies with the provisions, aims and objectives of the
ICCPR.
3.38 In addition, this Bill meets the test for legitimate differential
treatment, and does not contravene international human rights law
protections against discrimination on the basis of a person`s nationality or
citizenship.
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