The Assistant Treasurer, Senator Nick Sherry, today announced that Australia and Chile have signed a new income tax treaty - the first between the two countries.

"The new income tax treaty between Australia and Chile will provide certainty and stability of tax treatment for Australian and Chilean cross-border investors and reduce tax-related barriers so the economic relationship between our countries can continue to grow," the Assistant Treasurer said.

The treaty signing had been delayed due to the tragic earthquake that struck Chile on 27 February.

"Both I and the entire Australian Government have sent our condolences to the people and Government of Chile, and we have also pledged $1 million in emergency assistance and an initial contribution of $4 million in reconstruction assistance," said the Assistant Treasurer.

"I thank my Chilean Ministerial counterpart and relevant officials for being able to bring this agreement to conclusion in very difficult circumstances."

"This is a comprehensive new tax treaty for Australia - and our second with a South American country."

"Chile is a major destination for Australian investment, especially in the mining sector. The signing of this historic tax treaty is a great step forward for Australian businesses."

"It will help maintain the integrity of Australia's tax base by allowing the exchange of taxpayer information, including bank information, between Australian and Chilean tax administrators."

"Tax evasion is a serious problem for all countries. Being able to obtain information under tax treaties, particularly information held by banks, is a key tool in combating this evasion."

Legislation to give the new treaty the force of law will be introduced into the Parliament as soon as practicable. After entry into force, the provisions of the new tax treaty will take effect in Australia in four stages, namely:

• in respect of withholding tax, on income derived on or after the first day of the second month following entry into force;
• in respect of fringe benefits tax, on fringe benefits derived on or after 1 April in the year following entry into force;
• in respect of other tax, on income derived in the year beginning 1 July following entry into force; and
• in respect of administrative provisions, upon entry into force.

Attachment

Provisions of the new tax treaty with Chile include:

• Reductions in source-country withholding taxes on certain cross-border payments of dividends, interest and royalties;
• Rules to determine when an enterprise or an individual of one country may be taxed on its activities abroad;
• An agreed basis for determining the allocation of profits within a multinational company to reflect the pricing that would be adopted by independent parties. These rules are an important tool in dealing with international profit shifting through transfer pricing;
• Rules that ensure that profits derived from the operation of ships and aircraft in international traffic are generally taxed only in the country of residence of the operator. Also, income derived by crew members from employment exercised aboard an aircraft operated in international traffic is only taxable in the cabin crews' country of residence;
• Rules for the taxation of income, profits or gains from the alienation of property;
• Provisions that ensure that pension and retirement annuities are taxed only in the country of residence of the recipient;
• A general obligation for both countries to relieve double taxation on cross-border income by permitting tax paid under the other country's laws, and in accordance with the proposed Treaty, to be allowed as a credit against tax payable under their own laws;
• Mechanisms through which the Australian and Chilean administrators may by mutual agreement resolve tax disputes and relieve double taxation;
• Rules to protect nationals and companies of one country from tax discrimination in the other country;
• A framework to provide for the full exchange of taxpayer information; and
• Special rules to preserve the application of existing tax arrangements between Chile and Australian companies under the provisions of the Chilean legislation DL 600 (Foreign Investment Statute). This is of particular importance to Australian mining companies with investments in Chile.