24 October 2003

Australia-Malaysia Double Taxation Agreement Amended

Trade and investment relations between Australia and Malaysia will strengthen following amendments to the Australia-Malaysia Double Taxation Agreement, Minister for Revenue and Assistant Treasurer, Senator Helen Coonan announced today.

"The signing of the Second Protocol, which took place in Malaysia last year, further demonstrates the Government's commitment to modernising Australia's tax treaty network," Senator Coonan said.

"The changes made by the Protocol, which entered into force in July this year, will assist growing trade and investment flows between our two countries."

Malaysia is Australia's third largest trading partner in ASEAN and the nation's eleventh largest partner overall. Australia is Malaysia's twelfth largest export market for goods and a major provider of education services.

"The Second Protocol updates a number of Articles in the Double Taxation Agreement including those dealing with associated enterprises, dividends, royalties and other income," Senator Coonan said.

"It also protects the revenue by excluding persons from receiving treaty benefits, who benefit from the preferential tax treatment under the Labuan offshore business activity regime, and other substantially similar regimes."

The Second Protocol will update the tax sparing provisions in the Double Tax Agreement to reflect changes to the Malaysian tax incentives legislation and also extend the operation of the tax sparing provisions to 30 June 2003, at which time they will permanently expire.

Tax sparing refers to the situation where tax forgone (eg: in the form of tax holidays or tax reductions) by a foreign country on the income of an Australian resident taxpayer is deemed to have been paid (ie: the tax foregone is credited as if actually paid, under Australia's foreign tax credit system).

Following the exchange of diplomatic notes between the two countries, the Second Protocol will have effect in Australia in relation to the tax sparing provisions for any year of income beginning on or after 1 July 1992.

In all other cases the Protocol and the associated exchange of letters will have effect in Australia for any year of income beginning on or after 1 July 2004.

Details of the agreement were made public at the time of signature and are available on the Department of the Treasury's internet site at http://www.treasury.gov.au/content/tax_treaties.asp