U.S. GOVERNMENT PRINTING OFFICE

WASHINGTON : 

1

19–118

" SENATE ! 107TH CONGRESS

2d Session 

TREATY DOC. 

2002

107–20

PROTOCOL AMENDING CONVENTION WITH AUSTRALIA 

REGARDING DOUBLE TAXATION AND PREVENTION 

OF FISCAL EVASION

MESSAGE

FROM

THE PRESIDENT OF THE UNITED STATES

TRANSMITTING

PROTOCOL AMENDING THE CONVENTION BETWEEN THE GOVERNMENT OF THE UNITED STATES OF AMERICA AND THE GOVERNMENT OF AUSTRALIA FOR THE AVOIDANCE OF DOUBLE TAXATION AND THE PREVENTION OF FISCAL EVASION WITH RESPECT TO TAXES ON INCOME, SIGNED AT CANBERRA ON SEPTEMBER 27, 2001 (THE ‘‘PROTOCOL’’)

NOVEMBER 14, 2002.—Protocol was read the first time, and together with 

the accompanying papers, referred to the Committee on Foreign Relations and ordered to be printed for the use of the Senate 


E:\Seals\Congress.#13
(III)

LETTER OF TRANSMITTAL 

THE WHITE HOUSE, November 14, 2002. 

To the Senate of the United States: 

I transmit herewith, for Senate advice and consent to ratification, a Protocol Amending the Convention Between the Government of the United States and the Government of Australia for the 

Avoidance of Double Taxation and the Prevention of Fiscal Evasion 

with Respect to Taxes on Income, signed at Canberra on September 

27, 2001 (the ‘‘Protocol’’). I also transmit, for the information of the 

Senate, the report of the Department of State concerning the Protocol. 

The Convention, as amended by the Protocol, would be similar to 

recent tax treaties between the United States and other developed 

nations. It provides maximum rates of tax to be applied to various 

types of income and protection from double taxation of income. The 

Convention, as amended by the Protocol, also provides for resolution of disputes and sets forth rules making its benefits unavailable 

to residents that are engaged in treaty shopping. 

I recommend that the Senate give early and favorable consideration to this Protocol, and that the Senate give its advice and consent to ratification.

GEORGE W. BUSH. 

(V)

LETTER OF SUBMITTAL 

THE SECRETARY OF STATE, Washington, DC, November 5, 2002. 

The PRESIDENT, The White House. 

THE PRESIDENT: I have the honor to submit to you, with a view 

to its transmission to the Senate for advice and consent to ratification, the Protocol Amending the Convention Between the Government of the United States of America and the Government of Australia for the Avoidance of Double Taxation and the Prevention of 

Fiscal Evasion with Respect to Taxes on Income, signed at Canberra on September 27, 2001 (‘‘the Protocol’’). 

The proposed Protocol to the Income Tax Convention with Australia was negotiated to bring the existing Convention, concluded 

in 1982, up to date and in closer conformity with the 1996 U.S. 

Model Income Tax Convention, while also incorporating some provisions found in the Australian Model Income Tax Convention. The 

Convention, as amended by the Protocol, would continue to provide 

for maximum rates of tax to be applied to various types of income, 

protection from double taxation of income, and exchange of information, along with more detailed rules making its benefits unavailable to persons that are engaged in treaty shopping. The withholding tax rates on investment income in the proposed Protocol 

are the same or lower than those in the existing Convention. 

New withholding rates are applicable to certain dividends, pursuant to Article 6 of the proposed Protocol, which replaces Article 10 

of the existing Convention. Whereas the existing Convention allows 

for taxation at source of a maximum rate of 15 percent on all dividends, the proposed Protocol provides for a maximum withholding 

tax rate of 5 percent on direct dividends meeting a 10-percent ownership threshold (consistent with the U.S. Model Convention) and 

a maximum withholding tax rate of zero on dividends from certain 

80-percent owned corporate subsidiaries. Portfolio dividends will 

continue to be subject to a maximum withholding tax rate of 15 

percent. 

The withholding tax on interest payments would be eliminated 

in two key cases, under Article 7 of the proposed Protocol, which 

replaces Article 11 of the existing Convention. Interest that is derived by a financial institution which is unrelated to and dealing 

wholly independently with the payor and interest paid to governmental entities will be exempt from withholding tax at source. All 

other types of interest (including interest received by financial institutions in back-to-back loans or their economic equivalent) will 

continue to be subject to withholding tax at a maximum rate of 10 

percent as prescribed in the existing Convention.

VI

The proposed Protocol (Article 8) also reduces the maximum level 

of withholding tax on royalty payments from the 10-percent rate in 

the existing Convention to a 5-percent rate. Consistent with the 

U.S. Model Convention, the proposed Protocol also modifies the existing Convention so that payments for the use of or the right to 

use any industrial, commercial or scientific equipment will be taxed 

as business profits which are not subject to withholding tax. The 

existing Convention treats this type of rental income as a royalty 

subject to a maximum 10-percent withholding tax rate. 

The reduced withholding rates described above do not apply if 

the beneficial owner of the income is a resident of one Contracting 

State who carries on business in the other Contracting State and 

the income is attributable to a permanent establishment or fixed 

base situated in that other State. If the income is attributable to 

a permanent establishment, it will be taxed as business profits, 

and, if the income is attributable to a fixed base, it will be taxed 

as a payment for independent personal services. 

The maximum rates of withholding tax described in the preceding paragraphs will be subject to the standard anti-abuse rules 

for certain classes of investment income found in other U.S. tax 

treaties and agreements. 

Articles 5 and 9 of the proposed Protocol bring the existing Convention’s treatment of income from the operation of ships, aircraft 

and containers in international traffic closer to that of the U.S. 

Model Convention. The proposed Protocol provides for exclusive 

residence-country taxation of profits from the rental of ships and 

aircraft on a bareboat basis when the income is incidental to the 

international operation of ships or aircraft by the lessor. All income 

from the use, maintenance or rental of containers used in international traffic likewise is exempt from source-country taxation 

under the proposed Protocol. 

The proposed Protocol (Article 2) resolves a case of potential double taxation that has arisen under the existing Convention by clarifying that Australia’s tax on capital gains is a covered tax for purposes of the Convention. As a result, the income re-sourcing rules 

of Article 27 (Miscellaneous) of the Convention will apply to capital 

gains taxed by Australia. In most other cases, the proposed Protocol preserves the existing Convention’s tax treatment of capital 

gains, while incorporating some aspects of Australia’s domestic law 

regarding expatriation. The proposed Protocol (Article 9) provides 

rules that coordinate both countries’ tax systems with respect to 

these expatriation rules. 

The existing Convention preserves the U.S. right to tax former 

citizens whose loss of citizenship had, as one of its principal purposes, the avoidance of tax. The proposed Protocol (Article 1) expands this right to include former long-term residents whose loss 

of such status had, as one of its principal purposes, the avoidance 

of tax. Therefore, the United States may fully apply section 877 of 

the Internal Revenue Code as amended in 1996. 

Article 10 of the proposed Protocol replaces Article 16 of the existing Convention with significant new anti-treaty-shopping rules, 

making the benefits of the amended Convention unavailable to persons engaged in treaty shopping. 

VII

The Protocol is subject to ratification. In accordance with Article 

13, it will enter into force when the instruments of ratification are 

exchanged. It will have effect, with respect to taxes withheld at 

source, on the later of the first day of the second month next following the exchange of instruments, or July 1, 2003. The effective 

date for other types of Australian taxes is for years of income beginning on or after the first day of July in the calendar year next 

following the exchange of instruments. The effective date for other 

types of U.S. taxes is for taxable periods beginning on or after the 

first day of January in the calendar year next following the exchange of instruments. 

The Department of the Treasury and the Department of State cooperated in the negotiation of the Protocol. It has the full approval 

of both Departments. 

Respectfully submitted, 

COLIN L. POWELL. 

(1)


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