The new double tax agreement between Australia and Germany has
now entered into force.
This is the first treaty in Australia which reflects the
OECD's Base Erosion and Profit Sharing (generally known as
'BEPS') Project recommendations for tax
treaties. Changes introduced by this treaty will impact current
structures and future deals involving German entities. Also, this
is likely to be a template for Australia's treaties into the
Features which implement BEPS Project recommendations
The definition of 'permanent establishment' has been
substantially expanded, with the result that it will be harder for
German businesses to carry on activities in Australia without being
taxed in Australia. For example, activities of closely related
enterprises are to be aggregated in determining whether, together,
they constitute a permanent establishment in Australia.
A 'Limitation of benefits' article has been included,
to prevent treaty shopping. It is designed to prevent structures
which use a German (or Australian) entity in order to take
advantage of the terms of the treaty. It does this, broadly, by
denying the benefit of the treaty where using the treaty is one of
the 'principal purposes' of the arrangement or
Interest: Germany joins the list of countries
for which there is exemption from Australian interest withholding
tax for financial institutions and government entities (making 10
countries in total, including the US and the UK). That is, German
banks can lend directly to Australian borrowers without interest
withholding tax applying.
Dividends: Germany joins the list of countries
for which there is a participation exemption from Australian
dividend withholding tax. That is, German parent companies can
receive dividends from Australian subsidiaries free of withholding
tax (subject to various conditions, including that the parent must
have at least an 80 per cent voting interest). There is also a new
5 per cent dividend withholding tax rate for shareholders with at
least a 10 per cent voting interest, and the 15 per cent rate
provided for in the current treaty with Germany continues to apply
to other German shareholders.
Royalties: The withholding tax rate on royalty
payments made between Australia and Germany has been reduced to 5
The withholding tax amendments apply for payments made from
January 1, 2017. Amendments in respect of fringe
benefits tax apply for fringe benefits provided on or after
April 1, 2017. Amendments affecting income tax
will have effect from July 1, 2017.
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Exemptions or concessions on stamp duty could apply when contemplating the purchase or transfer of NSW real estate.
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