The Minister for Revenue and Assistant Treasurer, Peter Dutton MP and the Norwegian Ambassador to Australia, Lars Wensell, today signed a new tax treaty (the new Treaty) between Australia and the Kingdom of Norway replacing the existing outdated Agreement.
“While the existing tax treaty has provided a good measure of protection against double taxation and prevention of fiscal evasion since coming into force, it has become outdated (no coverage of capital gains tax, for example) and no longer adequately reflects current tax treaty policies and practices of either Australia or Norway”, Mr Dutton said.
“The new Treaty will enhance the already robust investment relationship between Australia and Norway and will further assist trade and investment flows between the two countries. It 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.”
The new Treaty will also update the taxation arrangements between Australia and Norway in a number of other areas. In particular, it will clarify and align the capital gains tax treatment more closely with Organisation for Economic Co-operation and Development practice, include rules to prevent tax discrimination against Australian nationals and businesses operating in Norway and provide improved integrity measures.
Mr Dutton said that 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 ageing 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 at: www.treasury.gov.au.
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 Norway.
The new Treaty replaces the existing Australia-Norway taxation Convention (signed in 1982).
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.
Dividends
Under the new Treaty, an exemption in the source country will apply on intercorporate non-portfolio dividends where the recipient holds directly at least 80 per cent of the voting power of the company paying the dividend, subject to certain conditions. A 5 per cent rate limit applies on all other non-portfolio inter-corporate dividends where the recipient holds directly at least 10 per cent of the voting power of the company paying the dividend. A general limit of 15 per cent continues to apply for all other dividends.
Interest
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:
the government of the other country from the investment of official reserve assets (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 are subject to certain safeguards.
Royalties
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.
Other features
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;
revised thresholds for the source country taxation of business profits, including updated offshore activities provisions;
comprehensive alienation of property provisions which align the capital gains tax treatment more closely with the Organisation for Economic Co-operation and Development’s practice while preserving Australia’s taxing rights over Australian assets with a physical connection with Australia, such as mining rights and other interests related to Australian real property;
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
new rules to prevent tax discrimination against nationals and Australian businesses operating in Norway and vice versa.
The new Treaty will enter into force when the Australian and Norwegian 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.