Australia

Details

  • Service: Tax, Corporate Tax, Topics, Base Erosion and Profit Shifting
  • Type: Regulatory update
  • Date: 11/03/2014

Tax Insights

KPMG's analysis of tax issues and developments.

Simon Thorp

Simon Thorp
Partner, Tax

+61 2 9335 7973

sjthorp@kpmg.com.au

Read the fine print... comparing Australia’s double tax agreements 

by Simon Thorp, Corporate Tax Specialist

Much of the discussion regarding the debate on Base Erosion and Profit Shifting (BEPS) is in respect of the efficacy of principles underpinning existing double tax agreements (DTA) and the applicability of many of the concepts that are currently incorporated into the treaties. Changes to such agreements will still be a while away and, in the meantime, correctly interpreting the existing DTAs that Australia has remains a key element of understanding the tax consequences of cross border transactions and investments.

Australia’s existing DTAs incorporate many similar concepts such a 'permanent establishment' and have definitions of other terms also found in the Income Tax Assessment Act but that are specific to the relevant DTA. Many such definitions and indeed the composition of many articles in the DTAs are very similar and hence there can be a presumption that many DTAs apply to the same types of transactions in the same way. Often however the unwary can be caught out by subtle differences in DTA drafting that substantially alters the presumed outcome of a transaction.

 

The recent Federal court case of Task Technology Pty Ltd v Commissioner of Taxation [2014] FCA 38 has highlighted the relevance of such subtle differences. The case, which is being appealed, examines the application of Article 12(7) of the Australia/Canada DTA which, broadly stated, excludes a payment from being a royalty where it is in consideration for the right to use source code in a computer software program provided the right is limited to such use as is necessary to enable the effective operation of the computer program. This sub-article is specific to the DTA with Canada and a number of Australia’s DTAs have other specific sub-articles or definitions that can alter the outcome of what constitutes a royalty. Careful consideration of each DTA is always warranted.

 

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Corporate Tax

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