South Africa's High Commissioner to Australia, Dr Bhadra Ranchod, and I signed in Canberra today a comprehensive taxation agreement between Australia and the Republic of South Africa, for the avoidance of double taxation and the prevention of fiscal evasion.
The new tax agreement, being Australia's first with an African country, will assist in the strengthening of our already close trade and investment links with South Africa.
I am confident that it will be well received by the business communities in both countries.
The agreement prevents double taxation by allocating taxing rights between Australia and South Africa 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, with some modifications to take into account South Africa's territorial system of taxation.
The new agreement will enter into force only after the Australian and South African 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.
See attachment A for details of the agreement.
Copies of the agreement will be available at offices of the Australian Taxation Office (ATO) and can also be accessed via the ATO's internet site at: http://www.ato.gov.au under the heading What's New.
CANBERRA
1 July 1999
Contacts:
Michael Lennard Australian Taxation Office (02) 6216 1417
Matthew Guy Assistant Treasurer’s Office (02) 6277 7360
ATTACHMENT A
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 and government service pensions, and income derived by entertainers and sportspersons. This agreement is the first of Australia's double tax agreements to contain 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, 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. Outgoing dividends will generally be subject to a source country tax rate limit of 15 per cent for both countries, but with the tax of the country of source being limited and the country of residence providing double tax relief. However, in the case of dividends flowing from subsidiary companies to parent companies in the other country, those dividends will not be subject to withholding tax if they are fully franked and if the parent holds at least 10 per cent of the capital of the subsidiary. A source country tax rate limit of 10 per cent will generally apply for both countries in the case of interest and royalties.
South Africa’s secondary tax on companies that is payable on the declaration of a dividend is included in the taxes covered by the agreement. This ensures that underlying tax credit will be given by Australia for that tax, where applicable, in respect of dividends derived by Australian companies from South African companies. The agreement also provides special rules for the taxation at source of dividends paid by non-resident companies and in respect of the imposition of branch profits taxes.
Australia's domestic withholding tax exemption will continue to apply for franked dividends paid to residents of South Africa, whilst the withholding tax applicable to outgoing unfranked dividends will generally be reduced from 30 to 15 per cent in respect of unfranked dividend payments.
Subject to specific rules in relation to real property, business assets, ships or aircraft, and some shares, capital gains are to be taxed in accordance with the respective domestic laws.
Government service pensions will generally be taxed only in the country from which they are paid. Other pensions and annuities will be subject to tax only in the country of residence of the recipient provided that such pensions and annuities are included in taxable income in that country. This will ensure that where the country of residence generally has sole taxing rights over such pensions but that country does not include such pensions and annuities in taxable income (as is presently the case for Australian pensions paid to South African residents), the agreement will not prevent the source (paying) country from taxing those pensions and annuities. However, an annuity paid to a former resident of a country which was purchased by way of a lump sum payment from an insurer in that country may be taxed by both countries, with the country of residence of the recipient providing double tax relief.
The new agreement will enter into force only after the Australian and South African Governments have exchanged 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 Australia for withholding tax purposes in respect of unfranked dividends, interest and royalties derived by a resident of South Africa on or after 1 January in the calendar year following that in which it enters into force. In respect of tax other than withholding tax, 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 it enters into force.
The agreement will have effect in South Africa for withholding tax purposes in respect of amounts paid or credited on or after 1 January in the calendar year following that in which it enters into force. For other South African taxes, it will have effect in respect of years of assessment beginning on or after 1 January next following that in which it enters into force.