Commonwealth Numbered Regulations

1991 No. 20 INCOME TAX REGULATIONS (AMENDMENT) - REG 3

  3.1   After Part 8, insert:

                          "PART 8A-FOREIGN INCOME
Interpretation

"152A. (1) In this Part, unless the contrary intention appears, words and
phrases have the same meanings as they have in Part X of the Act.

"(2) In this Part, unless the contrary intention appears: 'asset' has the same
meaning as in section 160A of the Act; 'compulsory acquisition', in relation
to an asset, means the compulsory acquisition of that asset by:

   (a)  the government of a country, whether a federal, State or municipal
        government (however described); or

   (b)  an authority of such a government. 'concessional rate of tax', in
        relation to a listed country, means a rate of tax that is less than
        the country's normal company rate of tax imposed under the tax law of
        the listed country that applies to income derived from sources in that
        country by a company that is a resident of that country; 'interest
        income', in relation to an entity, means:

   (a)  interest or payments in the nature of interest; and

   (b)  any amount that, if the entity were a taxpayer and a resident of
        Australia, would be included in its assessable income under Division
        16E of Part III of the Act; 'normal company tax rate' means:

   (a)  in relation to a listed country other than Switzerland-the country's
        normal company rate of tax imposed under the tax law of the listed
        country that applies to income derived from sources in that country by
        a company that is a resident of that country; and

   (b)  in the case of Switzerland-the normal company rate of tax determined
        by the addition of:

        (i)    the normal company rate of tax imposed by the federal tax law
               that applies to income derived from sources in Switzerland by a
               company that is a resident of Switzerland; and

        (ii)   the cantonal normal company rate of tax that applies to that
               income; 'offshore banking business', in relation to a listed
               country, means any banking business carried on with, for, or on
               behalf of a person (either directly or indirectly) who is not a
               resident of the listed country; 'offshore financial business',
               in relation to a listed country, means a business of lending
               money to a person who is not a resident of that country, to the
               extent that the money lent is provided (either directly or
               indirectly) by a person who is not a resident of that country;
               'offshore income' means income or profits derived by an entity
               from carrying on:

   (a)  an offshore banking business; or

   (b)  an offshore financial business; or

   (c)  an offshore reinsurance business; or

   (d)  an offshore insurance business; or

   (e)  an offshore investment business; whether or not that business is the
        sole or principal business of that entity; 'offshore insurance
        business', in relation to a listed country, means insurance business
        of any kind involving the insurance against any risk or event outside
        that listed country; 'offshore investment business', in relation to a
        listed country, means a business consisting, in whole or in part, of
        the management of the investment of funds for, or on behalf of, a
        person (either directly or indirectly) who is not a resident of that
        listed country; 'offshore reinsurance business', in relation to a
        listed country, means reinsurance business of any kind in which:

   (a)  the original policy is issued:

        (i)    by a person who is not a resident of that listed country; or

        (ii)   by a foreign permanent establishment of a person resident in
               that listed country; and

   (b)  the risk or event is reinsured where the risk is, or the event occurs,
        outside that listed country; 'permanent establishment', in relation to
        an entity that carries on business in a listed country:

   (a)  if there is a double tax agreement in relation to the country and
        section 23AH of the Act applies to the entity has the same meaning as
        in the agreement; or

   (b)  in any other case-has the meaning given by subsection 6 (1) of the
        Act; 'relevant listed country', in relation to an entity, means:

   (a)  if the entity is a CFC that is a resident of a listed country at the
        end of a statutory accounting period-that listed country; or

   (b)  if the entity, whether or not it is a CFC to which paragraph (a)
        applies, derives a capital gain, offshore income, interest income,
        shipping income or royalty, from any source in a relevant period, in
        connection with a permanent establishment of the entity in a listed
        country the country in which the permanent establishment is located.
        'relevant period':

   (a)  in relation to a CFC that is a resident of a listed country at the end
        of a statutory accounting period-means a statutory accounting period
        for that CFC; and

   (b)  in relation to a company referred to in section 377 of the Act-means
        an accounting period for that company; and

   (c)  in relation to a CFC referred to in section 403 of the Act means a
        statutory accounting period for that CFC; and

   (d)  in relation to a company referred to in section 436 of the Act-means a
        statutory accounting period for that company; and

   (e)  in relation to any other entity-means a year of income; 'relevant tax
        accounting period', in relation to an entity, means a tax accounting
        period within the meaning of section 317 of the Act that ends before
        the end of, or commences during, the relevant period in relation to
        that entity; 'shipping income means':

   (a)  rent in respect of a lease of:

        (i)    a ship; or

        (ii)   a cargo container designed or intended for use on a ship as
               part of a containerised cargo handling system; or

        (iii)  plant or equipment designed or intended for use on board a
               ship; or

   (b)  an amount that is paid or is payable in respect of the carrying on of
        a business of transporting passengers, mail, livestock or goods by
        ship.

"(3) Subject to subregulation (4), for the purposes of the definitions of:

   (a)  'offshore banking business'; and

   (b)  'offshore financial business'; and

   (c)  'offshore investment business'; and

   (d)  'offshore reinsurance business'; a person is a resident of a listed
        country at a particular time if, and only if, the person is, at that
        time, treated as a resident of the listed country for the purposes of
        the tax law of the listed country.

"(4) If the tax law of a listed country adopts a criterion other than
treatment as a resident as the criterion for applying to a person a worldwide
source tax base (within the meaning of section 331 of the Act), subregulation
(3) has effect, in relation to that tax law, as if that criterion were the
same as treatment as a resident of the listed country for the purposes of that
tax law. What are capital gains?

"152B. (1) Subject to subregulation (3), in this Part (other than in
regulation 152F), 'capital gains', in relation to a CFC that is a resident of
a listed country at the end of a statutory accounting period, means gains or
profits of a capital nature that arise from the sale or disposal of all or
part of an asset that is sold or disposed of by the CFC during that accounting
period.

"(2) For the purposes of subregulation (1), 'capital gains', in relation to a
CFC that is resident of a listed country at the end of a statutory accounting
period, includes gains or profits that arise from the sale or disposal of all
or part of:

   (a)  an interest in a partnership asset of a partnership in which the CFC
        is a partner; or

   (b)  a beneficial interest in a trust asset of a trust estate in which the
        CFC is a beneficiary; where the interest has been sold or disposed of
        during the period referred to in subregulation (1).

"(3) In this Part (other than in regulation 152F), 'capital gains', in
relation to a permanent establishment in relation to an entity, means gains or
profits of a capital nature that arise from the sale or disposal of all or
part of an asset:

   (a)  that has been used by the entity in carrying on business in a listed
        country at or through the permanent establishment of the entity in
        that country; or

   (b)  that was effectively connected with the permanent establishment of the
        entity in a listed country; where the asset has been sold or disposed
        of during a relevant period.

"(4) For the purposes of this Part (other than regulation 152F), capital gains
are taken to be derived by an entity from the sale or disposal of all or part
of an asset, or an interest in an asset, in the same relevant period as the
relevant period in which the sale or disposal occurred. When are income or
profits subject to a reduction of tax?

"152C. (1) Subject to subregulation (2), in this Part, income or profits
derived by an entity in a relevant period are regarded as being 'subject to a
reduction of tax' in a listed country in a particular tax accounting period
if:

   (a)  a law of that country; or

   (b)  a decree, proclamation, instrument or direction (however described)
        issued by a competent authority in that country; or

   (c)  an administrative arrangement in that country; provides that the
        income or profits are, in the tax accounting period:

   (d)  exempt from tax under a tax law of the listed country; or

   (e)  subject to a concessional rate of tax; or

   (f)  not required to be used as the basis for:

        (i)    determining the amount of taxable income, taxable profits or
               tax base, as the case may be; or

        (ii)   establishing the tax liability;
of the entity under a tax law of the listed country; or

   (g)  subject to subregulation (3), reduced for the purposes of:

        (i)    determining the amount of taxable income, taxable profits or
               tax base, as the case may be; or

        (ii)   establishing the tax liability; of the entity under a tax law
               of the listed country; or

   (h)  subject to any other form of tax benefit that has the effect of
        reducing the amount of tax that would otherwise be payable by the
        entity under a tax law of the listed country.

"(2) Income or profits derived by an entity in a relevant period are not to be
regarded as subject to a reduction of tax in any tax accounting period if the
income or profits are not subject to a reduction of tax in any of the relevant
tax accounting periods that relate to the relevant period.

"(3) Paragraph (1) (g) does not apply to the reduction under the tax law of
the listed country of income or profits by losses or outgoings to the extent
to which the losses or outgoings are:

   (a)  incurred by the entity in gaining or producing the income or profits;
        or

   (b)  necessarily incurred by the entity in carrying on a business for the
        purpose of gaining or producing the income or profits.

"(4) Income or profits in relation to Switzerland are taken to be subject to a
concessional rate of tax if the income or profits are subject to a
concessional rate of tax:

   (a)  under the law that imposes the federal foreign tax; or

   (b)  under the law that imposes the tax that is, in accordance with
        regulation 152K, to be treated as if it were an additional federal
        foreign tax.

"(5) For the purposes of paragraph (1) (h), 'tax benefit' in relation to a
listed country, includes a credit, rebate or other tax concession provided in
respect of income or profits, other than a credit or rebate for foreign tax
payable under a law of another foreign country or tax payable under a law of
Australia. Income or profits as designated concession income

"152D. (1) For the purposes of the definition of 'designated concession
income' in section 317 of the Act, the following kinds of income or profits
are specified:

   (a)  in relation to each listed country-capital gains derived by an entity
        during a relevant period, if it is a feature in relation to foreign
        tax imposed by a tax law of a relevant listed country that the capital
        gains derived by the entity in the relevant period are exempt from tax
        in the relevant listed country in a tax accounting period;

   (b)  in relation to each listed country-offshore income, interest income,
        royalties or shipping income derived by an entity during a relevant
        period, if that income or those royalties are derived:

        (i)    by a CFC that is a resident of a relevant listed country at the
               end of that relevant period-from any source; and

        (ii)   by any entity-from any source, in carrying on business in a
               relevant listed country at or through a permanent establishment
               of the entity in that country; and it is a feature in relation
               to foreign tax imposed by a tax law of the relevant listed
               country that the income or royalties derived by the entity in
               the relevant period are subject to a reduction of tax in the
               relevant listed country in a tax accounting period;

   (c)  in relation to a listed country referred to in Column 2 of an item in
        Part 2 of Schedule 9-income or profits derived in a relevant period,
        from any source, by an entity referred to in Column 3 of that item, if
        it is a feature in relation to foreign tax imposed by a tax law of
        that listed country that the income or profits derived by the entity
        in the relevant period are subject to a reduction of tax in the listed
        country in a tax accounting period.

"(2) For the purposes of subparagraph (1) (b) (i), income or royalties derived
by a CFC includes income or royalties consisting of:

   (a)  the CFC s interest in the income or royalties of a partnership in
        which the CFC is a partner; or

   (b)  the CFC s beneficial interest in the income or royalties of a trust
        estate in which the CFC is a beneficiary; where the income or
        royalties of the partnership or trust estate are derived during the
        relevant period referred to in paragraph (1) (b).

"(3) For the purposes of paragraph (1) (b), interest income that would be
included in an entity s assessable income under Division 16E of Part III of
the Act in a relevant period:

   (a)  if the entity were a taxpayer and a resident of Australia; and

   (b)  if references to year of income in that Division were read as
        references to relevant period; is to be taken to be derived by the
        entity in that relevant period.

"(4) In spite of paragraph (1) (b), interest income or royalties are not to be
regarded as designated concession income if, in relation to a relevant listed
country:

   (a)  an entity derives that income or those royalties in a relevant period;
        and

   (b)  an amount of tax paid, or payable, under a tax law of the relevant
        listed country (before the grant of a credit or rebate:

        (i)    for any foreign tax payable under a law of another foreign
               country; or

        (ii)   for any Australian tax);
on that income or those royalties in respect of a relevant tax accounting
period that relates to the relevant period is not less than an amount
calculated in accordance with the formula:
G x NCR
where:
'G' is the amount of the gross income or gross royalties derived by the
entity;
'NCR' is the normal company tax rate of the relevant listed country.

"(5) In spite of paragraph (1) (b), interest income or royalties are not to be
regarded as designated concession income if, in relation to a relevant listed
country:

   (a)  an entity derives that income or those royalties in a relevant period
        from sources in another listed country (in this subregulation, called
        the 'source listed country'); and

   (b)  an amount of tax paid, or payable, under a tax law of the source
        listed country on that income or those royalties in respect of a
        relevant tax accounting period that relates to the relevant period is
        not less than an amount calculated in accordance with the formula:
G x NCRS
where:
'G' is the amount of the gross income or gross royalties derived by the
entity;
'NCRS' is the normal company tax rate of the source listed country.

"(6) In spite of paragraph (1) (b), shipping income is not to be regarded as
designated concession income if, in relation to a relevant listed country:

   (a)  an entity derives shipping income in a relevant period; and

   (b)  the shipping income is derived from sources in a foreign country other
        than the relevant listed country; and

   (c)  an amount of tax paid, or payable, under a tax law of the foreign
        country on the shipping income in respect of a relevant tax accounting
        period that relates to the relevant period is not less than 5% of the
        amount of the gross shipping income. When are capital gains exempt
        from tax?

"152E. (1) For the purposes of paragraph 152D (1) (a), capital gains are taken
to be exempt from tax in relation to a relevant listed country if foreign tax
imposed by a tax law of the country is not payable in a particular tax
accounting period in respect of the capital gains because:

   (a)  a law of that country; or

   (b)  a decree, proclamation, instrument or direction (however described)
        issued by a competent authority in that country; or

   (c)  an administrative arrangement in that country; exempts the capital
        gains from tax or has the effect that the capital gains are not taxed
        under the tax law of the country in the tax accounting period.

"(2) If:

   (a)  in spite of subregulation (1); and

   (b)  apart from the deferral of tax liability; foreign tax in respect of
        capital gains would have been payable:

   (c)  under the tax law of the relevant listed country; and

   (d)  in the tax accounting period; because the capital gains would not have
        been exempt from tax, capital gains in relation to that country are
        not taken to be exempt from tax in that tax accounting period only
        because the tax law of that country provides for a deferral of tax
        liability in that country in respect of the capital gains in any of
        the circumstances referred to in subregulations 152G (1) and (2).

"(3) In spite of subregulation (1), capital gains derived by an entity in a
relevant period are not regarded as exempt from tax in a relevant listed
country in a tax accounting period if:

   (a)  tax is not paid on the capital gains by the entity in the tax
        accounting period because of a provision of a law of that country; and

   (b)  the tax is regarded as having been paid in respect of the capital
        gains under a double tax agreement or under regulations made for the
        purposes of section 160AFF of the Act. Certain capital gains regarded
        as subject to tax

"152F. (1) For the purposes of section 23AH, Division 6AAA of Part III and
Part X of the Act, if:

   (a)  capital gains that accrue to, or are derived by, an entity are not
        subject to tax in a listed country in a particular tax accounting
        period; and

   (b)  apart from the feature of roll-over relief, the capital gains would
        have been subject to tax in the listed country in the tax accounting
        period; the capital gains are to be treated as if they were subject to
        tax in the listed country in the tax accounting period.

"(2) In this regulation, a reference to 'roll-over relief', in relation to a
particular tax accounting period in relation to a listed country, is a
reference to the deferral of tax liability in the tax accounting period under
a tax law of the listed country:

   (a)  in relation to section 23AH and Part X of the Act-because of a
        circumstance referred to in subregulations 152G (1) and (2); and

   (b)  in relation to Division 6AAA of Part III of the Act because of a
        circumstance referred to in subregulation 152G (1) and paragraphs 152G
        (2) (b) and (c); if, apart from the deferral of tax liability, foreign
        tax would have been payable under the tax law in the tax accounting
        period in respect of the capital gains because the capital gains would
        have been included in the tax base of that law for the tax accounting
        period.

"(3) In this regulation, a reference to 'capital gains' is a reference to a
gain or profit or other amount of a capital nature. Circumstances specified
for purposes of regulations 152E and 152F

"152G. (1) The following circumstance is specified for the purposes of
subregulations 152E (2) and 152F (2):

   (a)  that an entity is taken to have disposed of all or part of an asset
        because of an act, transaction or event as a result of which the
        entity has received an amount of money or a replacement asset:

        (i)    by way of compensation for the compulsory acquisition, or for
               the loss or destruction, of the original asset; or

        (ii)   under a policy of insurance against the risk of loss or
               destruction of the original asset; and

   (b)  when the entity has received an amount of money referred to in
        paragraph (a)-the entity is required, to achieve a deferral of tax
        liability under the tax law of the listed country, to incur
        expenditure in acquiring an asset in place of the original asset or to
        incur expenditure of a capital nature in repairing or restoring the
        original asset.

"(2) Each of the following circumstances is specified for the purposes of
subregulation 152E (2) and subregulation 152F (2):

   (a)  that a company disposes of an asset to another company and the
        transferee is a group company in relation to the transferor;

   (b)  that:

        (i)    a company redeems or cancels all of the shares of a particular
               class in the company; and

        (ii)   an entity holds shares of that class in the company; and

        (iii)  the company issues to the entity other shares in the company in
               substitution for the first-mentioned shares; and

        (iv)   the market value of the new shares immediately after they were
               issued is not less than the market value of the first-mentioned
               shares immediately before the redemption or cancellation; and

        (v)    the entity did not receive any consideration (other than the
               new shares) in respect of that redemption or cancellation;

   (c)  that:

        (i)    an entity owns:

                (A)  rights issued by a company to acquire shares in the
                     company or to acquire an option to acquire shares in the
                     company; or

                (B)  an option to acquire shares in the company; and

        (ii)   in relation to any of the shares referred to in subparagraph
               (i):

                (A)  the shares are consolidated and divided into new shares
                     of a larger amount; or

                (B)  the shares are subdivided into shares of smaller amount;
                     and

        (iii)  as a consequence of the consolidation or subdivision:

                (A)  the original rights are cancelled; or

                (B)  the original option is cancelled; and

        (iv)   the company issues to the entity:

                (A)  other rights relating to the new shares, in substitution
                     for the original rights; or

                (B)  another option relating to the new shares, in
                     substitution for the original option; and

        (v)    the market value of the new rights or the new option
               immediately after it was issued is not less than the market
               value of the original rights or option immediately before its
               cancellation; and

        (vi)   the entity did not receive any consideration in respect of the
               cancellation other than the new rights or option.

"(3) In subregulation (2), 'group company' has the meaning that it would have
in subsections 160ZZO (3) to (8B) of the Act (inclusive) if, in those
subsections, references to year of income were read as references to tax
accounting period. Tax sparing

"152H. (1) For the purposes of paragraph 152D (1) (b), in relation to a
relevant listed country, offshore income, interest income, royalties or
shipping income derived by an entity in a relevant period are not taken to be
subject to a reduction of tax in a tax accounting period that relates to the
relevant period if:

   (a)  tax is not paid on the income or royalties by the entity in the tax
        accounting period because of a provision of a law of the relevant
        listed country; and

   (b)  but for the provision of the law of the relevant listed country, the
        income or royalties would not have been subject to a reduction of tax
        in the relevant listed country in the tax accounting period; and

   (c)  the tax is regarded as having been paid in respect of the income or
        royalties under a double tax agreement or by regulations made for the
        purposes of section 160AFF of the Act.

"(2) For the purposes of subregulations 152D (4), (5) and (6), in relation to
a relevant listed country, if interest income, royalties or shipping income
are derived by an entity in a relevant period, tax is regarded as having been
paid or payable in respect of a relevant tax accounting period if:

   (a)  tax is not paid, or is not payable, on the income or royalties by the
        entity in respect of the relevant tax accounting period because of a
        provision of a law of the relevant listed country; and

   (b)  the tax is regarded as having been paid in respect of the income or
        royalties under a double tax agreement or by regulations made for the
        purposes of section 160AFF of the Act. Features relating to taxation
        in listed countries

"152I. For the purposes of the definition of 'designated concession income' in
section 317 of the Act, features of a kind referred to in subregulation 152D
(1) are features in relation to foreign tax imposed by a tax law of a listed
country. What are listed countries ?

"152J. Each foreign country or part of a foreign country specified in Schedule
10 is declared to be a listed country for the purposes of Part X of the Act.
State foreign taxes that are treated as federal foreign taxes

"152K. For the purposes of Part X of the Act, a foreign tax imposed in
Switzerland that is a cantonal tax on income referred to in paragraph 1 (b) of
Article 2 of the Swiss agreement within the meaning of the Income Tax
(International Agreements) Act 1953 is to be treated as if it were an
additional federal foreign tax of Switzerland.".