Australia And Norway Update Tax Treaty

by Mary Swire, Tax-News.com, Hong Kong

17 August 2006

Australia's Minister for Revenue and Assistant Treasurer, Peter Dutton, and the Norwegian Ambassador to Australia, Lars Wensell, have signed a new tax treaty between Australia and the Kingdom of Norway replacing the existing outdated Agreement.

According to Dutton, while the existing treaty has provided a good level of protection against double taxation and tax evasion, it has become outdated and no longer adequately reflects the current tax treaty policies of either country.

“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," explained Dutton.

“This will provide long term benefits for business, making it cheaper for Australian business enterprises to obtain intellectual property, equity and finance for expansion," he added.

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% of the voting power of the company paying the dividend, subject to certain conditions. A 5% rate limit applies on all other non-portfolio inter-corporate dividends where the recipient holds directly at least 10% of the voting power of the company paying the dividend. A general limit of 15% continues to apply for all other dividends.

Source country tax on interest will continue to be limited to 10%. 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 or a financial institution resident in the other country.

The general limit for royalties will be reduced from 10% to 5%. 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.

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. Dutton said that legislation giving effect to the new treaty will be introduced "as soon as practicable".

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