The Ambassador of the Embassy of Romania, Her Excellency, Mrs Manuela Vulpe and the Assistant Treasurer Senator Rod Kemp today signed in Canberra a comprehensive taxation agreement between Australia and Romania for the avoidance of double taxation and the prevention of fiscal evasion.
"I believe the agreement will be well received by the business communities in both countries and that it will prove timely for those Australian companies contemplating entering this important Central European market," Senator Kemp said.
Romania is already Australia’s largest export market in that region, with exports mainly comprising mineral ores but increasingly services, equipment and food. Investor interest as well as an interest by Australian companies in servicing the wider region from Romania was also evident at the Australia/Romania Mixed Commission held in Bucharest recently.
The Government is also now in a better position to assist companies interested in tapping into this market through its newly opened Consulate-General in Bucharest.
The new tax agreement will assist in the development of Australia's trade and investment links with Romania. The agreement prevents double taxation by allocating taxing rights between Australia and Romania 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. Attachment A provides further details of the agreement.
The new agreement will enter into force only after the Australian and Romanian 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.
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 Updates.
CANBERRA
2 February 2000
Contacts: Richard Allsop Assistant Treasurer's Office (02) 6277 7360
Ariane Pickering Australian Taxation Office (02) 6216 2611
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 income derived by entertainers and sportspersons. This agreement also contains 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, pensions and annuities 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. In the case of Romania, a dividend withholding tax rate limit of 5 per cent is to apply in all cases where dividends are paid to an Australian resident company which holds directly at least 10 per cent of the capital of the Romanian company paying the dividends and the dividends are paid out of profits that have been subject to the Romanian profits tax. In other cases, the Romanian dividend withholding tax will be reduced to 15 per cent.
In the case of Australia, the maximum dividend withholding tax rate which might apply is 5 per cent in all cases where dividends are paid to a Romanian resident company which holds directly at least 10 per cent of the capital of the Australian company paying the dividends to the extent that the outgoing dividends are fully franked.
In practice however, Australia’s domestic withholding tax exemption will continue to apply for franked dividends paid to residents of Romania, 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.
A source country tax rate limit of 10 per cent will generally apply for both countries in the case of interest and royalties.
Subject to specific rules in relation to gains from the alienation of real property, business assets, ships or aircraft, and some shares, capital gains are to be taxed in accordance with the respective domestic laws.
The new agreement will enter into force only after the Australian and Romanian Governments have exchanged diplomatic 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 relation to income derived by a resident of Romania on or after 1 January in the calendar year next 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 Romania in respect of all Romanian taxes covered by the agreement in respect of income assessable for any taxable period starting from 1 January in the calendar year next following that in which it enters into force.