11 March 1996 - 3 December 2007
NEW AUSTRALIA-FRANCE TAXATION TREATY SIGNED
Australia and the Republic of France have signed a new tax treaty to replace the existing treaty which was signed in 1976.
The new treaty was signed by Minister for Foreign Affairs, the Hon. Alexander Downer, MP and the French Minister of Foreign Affairs, Philippe Douste-Blazy in Paris overnight.
The Treasurer said the new treaty will enhance the already robust investment relationship between Australia and France and will further assist trade and investment flows between the two countries.
The treaty will substantially reduce the withholding tax on certain dividend, interest and royalty payments to provide similar outcomes to Australia’s treaty arrangements with the United States and the United Kingdom.
This will provide long term benefits for business, making it cheaper for Australian business enterprises to obtain intellectual property, equity and finance for expansion.
It will also remove obstacles currently inhibiting Australian corporate expansion into France.
In addition, the new treaty will update the taxation arrangements between Australia and France in a number of other areas. In particular it will clarify and align the capital gains tax treatment more closely with Organisation for Economic Cooperation and Development (OECD) practice and provide for improved integrity measures.
The new treaty is consistent with the Government’s response to the Review of International Taxation Arrangements and updates an important part of Australia’s treaty network.
The new treaty will enter into force when both countries advise that they have completed their domestic requirements. Legislation for this purpose will be introduced in the Australian Parliament as soon as practicable.
Copies of the new treaty are available on the Treasury’s website http://www.treasury.gov.au.
21 June, 2006
Contact: Renae Stoikos
02 6277 7340
Appendix 1 – technical changes to the treaty
The new treaty is a comprehensive taxation convention and contains provisions for the avoidance of double taxation and the prevention of fiscal evasion in relation to income flowing between Australia and France.
It replaces the existing Australia-France taxation Agreement (signed in 1976 and amended by Protocol in 1989) and the Australia-France Airline Profits Agreement (signed in 1979).
The new treaty provides that dividends, interest and royalties paid from one country (the source country) to a person who is a resident in the other country will generally remain taxable in both countries, but with limits on the tax that the source country may charge on residents of the other country.
Under the new treaty, an exemption in the source country will apply on intercorporate non-portfolio dividends (10 per cent holding requirement) paid out of profits that have borne the normal rate of company tax. A 5 per cent rate limit applies on all other non-portfolio inter-corporate dividends. A general limit of 15 per cent continues to apply for all other dividends.
Source country tax on interest will continue to be limited to 10 per cent. However, no tax will be chargeable in the source country on interest derived by:
- a government or a political subdivision or local authority of the other country (including its money institutions or a bank performing central banking functions); or
- a financial institution resident in the other country.
The beneficial rate limit and exemptions available are subject to certain safeguards.
The general limit for royalties will be reduced from 10 to 5 per cent. The new treaty also provides that amounts derived from equipment leasing (including certain container leasing) will be excluded from the royalty definition. Such amounts would either be treated as profits from international transport operations or as business profits.
In modernising the tax treaty arrangements in line with Australia's current tax law and treaty policies and practice, the new treaty contains:
- a revised list of taxes covered;
- a new Article on Shipping and air transport to replace the Australia-France Airline Profits Agreement (signed in 1979), and Other Income;
- comprehensive provisions on the alienation of property, including a provision that would allow an exemption from taxation in the former country of residence on certain gains;
- improved integrity measures to provide for more effective exchange of information on a broader range of taxes, including goods and services tax, and to provide for reciprocal assistance in collection of taxes; and
- a new Article on Partnerships to ensure that Australian partners in a French partnership obtain treaty benefits.
The new treaty will enter into force when the Australian and French governments exchange diplomatic notes, advising that the constitutional processes required for entry into force have been completed.
In Australia, this process involves tabling the new treaty and a National Interest Analysis in the Parliament for review by the Joint Standing Committee on Treaties. Legislation will also be required to complete the necessary procedures for entry into force, and a Bill for that purpose will be introduced into Parliament as soon as practicable.
Upon entry into force, the new treaty will have effect according to the tenor of the entry into force provisions.