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Australia And Japan Agree New Tax Treaty

by Mary Swire,, Hong Kong

06 August 2007

Australian Treasurer Peter Costello and Japanese Finance Minister Koji Omi confirmed at their meeting on Friday that Australia and Japan had reached agreement in principle on a new income tax treaty.

The new treaty will replace the existing Agreement between Australia and Japan for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income, signed on 20 March, 1969.

The countries have had a series of negotiations since January 2007, having recognized that the existing treaty might no longer adequately reflect the current economic relationship between the two countries.

The proposed new treaty, based on the OECD Model Tax Convention, will comprehensively revise the existing Agreement and substantially reduce the withholding taxes imposed on dividends, interest and royalties paid between the two countries. In particular, it will eliminate withholding taxes on certain inter-company dividends, and certain types of interest.

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

These measures stipulated in the proposed new treaty are expected to enhance the already robust investment relationship between Australia and Japan and facilitate trade and investment flows between the two countries, while minimizing opportunities for tax avoidance.

After the governments of the two countries have completed the necessary procedures, the proposed new treaty will be signed and become ready for submission to the respective parliaments. The new treaty will enter into force after it has been approved by the respective parliaments and an official exchange of notes has taken place.

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