Today in Sydney the Minister for Trade, the Hon. Mark Vaile MP and Malaysia’s Minister for International Trade and Industry, YB Dato’ Seri Rafidah Aziz signed a Protocol amending the comprehensive taxation agreement between Australia and Malaysia.
The Protocol will clarify the taxation position of fees for technical services and certain other categories of income and will assist in the strengthening of our already close trade and investment links with Malaysia.
I am confident that it will be well received by the business communities in both countries.
The Protocol will enter into force only after the Australian and Malaysian Governments have exchanged notes advising each other that the last of the necessary procedures to give the Protocol the force of law in both countries, has been completed.
Copies of the Protocol 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.
MELBOURNE
2 August 1999
Media contacts:
Matthew Guy
Assistant Treasurer’s Office
(03) 9650 7274
Ken Allen
Australian Taxation Office
(02) 6216 1155
ATTACHMENT
The Protocol will amend the agreement in a number of important respects.
It will overcome the double taxation situation currently facing Australian residents who are in receipt of fees for technical services paid by Malaysian residents. Malaysia has accepted Australia's position that the business profits article of the agreement should apply to the taxation of fees for the furnishing of services, including consultancy services. Accordingly, under the Protocol taxing rights in relation to such income are allocated to the country in which the services are utilised only where the services are furnished in that country and the provider of the services has a "fixed presence" in that country of more than three months within any twelve-month period.
Another measure is the extension until the 1991/92 year of income of the "tax sparing" relief provisions of the existing agreement, which apply in relation to certain income derived by Australian residents that Malaysia exempts or taxes at a reduced rate under special incentive measures to promote economic development in Malaysia. The existing agreement provides for such relief by treating as paid for tax credit purposes the tax forgone by Malaysia under specified development incentive provisions of its law up to the end of the 1983/84 year of income. An Exchange of Letters under the existing agreement to extend the operation of these provisions until the end of the 1986/87 year of income is expected to be signed shortly. Thereafter the amendments contained in the Protocol will operate to provide new tax sparing arrangements in relation to certain designated Malaysian development incentives for an additional five year period.
To accommodate the recent decision in Lamesa Holdings BV v Federal Commissioner of Taxation, the Protocol includes an anti-avoidance provision which applies where shares or partnership or trust interests, the value of which is principally attributable to land, are alienated.
Other amendments to be made by the Protocol will update the existing agreement in a number of respect to bring it into line with Australia's current law and treaty policies and practices.
The Protocol will enter into force only after the Australian and Malaysian Governments have exchanged notes advising each other that the last of the necessary procedures to give the Protocol the force of law in the respective countries has been completed. Reflecting the Government’s commitment to open and accountable treaty making, the Protocol 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 Protocol 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 Protocol will generally have effect in Australia in relation to the tax sparing provisions for any year of income beginning on or after 1 July 1985 or 1 July 1987 (depending on the nature of the development incentives). In respect of fees for technical services, the Protocol will have effect in Australia for any year of income beginning on or after 1 July 1993. In all other cases the Protocol will have effect in Australia for any year of income beginning on or after 1 July in the calendar year next following that in which the Protocol enters into force.
Upon entry into force, the Protocol will have effect in Malaysia in relation to the tax sparing provisions for any year of assessment beginning on or after 1 January 1988. In relation to fees for technical services, the Protocol will have effect in Malaysia for any year of assessment beginning on or after 1 January 1994. In all other cases the Protocol will have effect in Malaysia for any year of assessment beginning on or after 1 January in the second calendar year following the calendar year in which the Protocol enters into force.