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Peter Costello


11 March 1996 - 3 December 2007

Media Release of 09/09/2002




The Treasurer Peter Costello has today signed with the Mexican Finance Secretary, Francisco Gil Díaz, a comprehensive taxation agreement between Australia and Mexico for the avoidance of double taxation and the prevention of fiscal evasion.

The agreement, which will help expand trade and investment links between the two countries, was signed in Mexico City. Bilateral trade between Australia and Mexico exceeded $A1 billion in 2001.

"I believe the new agreement will foster the development of trade and economic cooperation between our two countries and will add significantly to the substance of our bilateral relationship with Mexico. I am confident that it will be well received by the business communities in both countries," Mr Costello said.

The agreement prevents double taxation by allocating taxing rights between Australia and Mexico in respect of all forms of income flows between the two countries. The basis of allocating these rights is substantially similar to that adopted in Australia's other modern taxation agreements, including those with Russia, Argentina and Romania. Attachment A provides further details of the agreement.

The new agreement will enter into force only after the Australian and Mexican Governments have exchanged notes advising each other that the last of the necessary constitutional processes to give the agreement the force of law in both countries has been completed. This is expected to take place around the middle of 2003.

A copy of the agreement can be obtained via the Treasury's internet site at: under the heading What's New.

Mexico City, Mexico
9 September 2002


Paul McBride
(02) 6263 2854

Niki Savva
Treasurer's Office
(02) 6277 7340


The Agreement provides for certain types of income to be taxed in full by the country in which the income has its source. These include income from real property and alienation of real property, business profits attributable to a `permanent establishment', most income from employment, most government remuneration (excluding government service pensions), and income derived by entertainers and sportspersons.

This Agreement also contains specific rules concerning income, profits or gains arising from indirect alienation of real property following the Federal Court's decision in the Lamesa Holdings BV case.

Other types of income may be taxed only in the country of residence of the recipient. These include shipping or aircraft profits derived from international operations, pensions and annuities and, subject to certain exceptions, income derived by an individual from professional or other independent services.

Dividends, interest and royalties may be taxed by both countries, but there are limits on the tax that the country in which the dividend, interest or royalty is sourced may charge on such income flowing to residents of the other country who are beneficially entitled to that income.

A limitation of 15 per cent applies to dividends. However, where the dividends have been fully taxed at the corporate level and the dividend recipient is a company that holds directly at least 10 per cent of the voting power in the company paying the dividends, no tax may be imposed in the country of source.

In practice, however, Australia's domestic withholding tax exemption will continue to apply for all franked dividends paid to residents of Mexico, whilst the withholding tax applicable to outgoing unfranked dividends will generally be reduced from 30 per cent to 15 per cent in respect of such payments. Mexico does not currently apply dividend withholding tax domestically.

A source country tax rate limit of 10 per cent will generally apply for both countries in the case of royalties. In the case of interest, a 10 per cent limit will apply if certain conditions are met, including where the person beneficially entitled is a bank or an insurance company. In all other cases, a 15 per cent limit will apply.

Subject to specific rules in relation to gains from the alienation of real property, business assets, ships or aircraft, and some shares, capital gains are to be taxed in accordance with the respective domestic laws.

The Agreement will help prevent double taxation that may arise when an individual changes residence. Unrealised gains on certain assets are generally taxable under Australia's domestic law when a person ceases to be a resident of Australia. If a person elects to defer taxation of unrealised gains on departure, double taxation may arise if both Australia and Mexico subsequently seek to tax on realisation. The Agreement will provide relief from double taxation by providing an exemption from former residence country taxation for gains deferred by an individual on ceasing to be a resident of that country if the individual is a resident of the other country when the gains are crystallised.

The new Agreement will enter into force only after the Australian and Mexican Governments have exchanged diplomatic notes, advising each other that the last of the necessary constitutional processes to give the Agreement the force of law in their respective countries has been completed.

Reflecting the Government's commitment to open and accountable treaty making, the Agreement and a National Interest Analysis will be tabled in the Parliament for review by the Joint Standing Committee on Treaties. In Australia, legislation will also be necessary to give the Agreement the force of law and a Bill for that purpose will be introduced into the Parliament as soon as practicable.

Upon entry into force, the Agreement will have effect in respect of withholding taxes for amounts paid or credited on or after the first day of the second month next following the date on which this Agreement enters into force if the Agreement enters into force prior to 1 July of that year; otherwise, on 1 January of the year following the year this Agreement enters into force. In respect of other taxes, the Agreement will have effect in Australia, in relation to income, profits or gains of any year of income beginning on or after 1 July in the calendar year next following that in which this Agreement enters into force; and in Mexico, on or after 1 July in the calendar year next following that in which this Agreement enters into force.