ATO ID 2008/3: Assessability of dividends under Article 10.3 of the UK Convention: determination made under Article 10.3(c) of the UK Convention.
Date of decision: 12 December 2007
Year of income: Year ended 30 June 2007
Business line: Public Groups and International

Issue
Under Article 10.3 of the tax treaty between Australia and the United Kingdom of Great Britain and Northern Ireland contained in Schedule 1 to the International Tax Agreements Act 1953 (the UK Convention), are unfranked dividends paid by an Australian resident subsidiary to the taxpayer, a United Kingdom (UK) resident company, not taxed in Australia where the taxpayer has owned all the shares of the Australian resident subsidiary since 1990 and the Australian competent authority has made a determination under Article 10.3(c) of the UK Convention?

Decision
Yes. Unfranked dividends paid by the Australian resident subsidiary to the taxpayer are not taxed in Australia where the taxpayer has owned shares representing 80 per cent or more of the voting power of the Australian resident subsidiary for a 12 month period ending on the date of the dividend is declared, Article 10.3(a) or (b) of the UK Convention are not satisfied and the Australian competent authority has made a determination under Article 10.3(c) of the UK Convention.

Facts
The taxpayer is a UK resident company. One of the taxpayer's wholly-owned subsidiaries is an Australian resident. The taxpayer has held and continues to hold its investment in its Australian resident subsidiary since 1990. All the shares in the taxpayer were held by a UK resident company the shares of which have been listed on the London Stock Exchange since 1993. In 2000, another UK resident company that was a wholly owned subsidiary of a company, the shares of which are listed on Country A Stock Exchange acquired all the shares of the UK resident listed company The taxpayer continued to own all the shares in the Australian resident company. During the income year, the Australian resident company paid unfranked dividends to the taxpayer, which is the company that is beneficially entitled to and the beneficial owner of the dividends. The Australian competent authority has determined under Article 10.3(c) of the UK Convention and in accordance with Australian law, that the establishment, acquisition or maintenance of the taxpayer and the conduct of its operations did not have as one of its principal purposes the obtaining of benefits under the UK Convention.

Reasons for decision
Summary: Article 10.3(c) of the UK Convention provides that dividends paid by a company that is a resident of Australia shall not be taxed in Australia if: In the present case, the taxpayer: Furthermore, the Australian competent authority has made a determination under Article 10.3(c) of the UK Convention. Accordingly, the taxpayer satisfies the requirements of Article 10.3 of the UK Convention. The unfranked dividends paid by the Australian resident subsidiary to the taxpayer will not be subject to tax in Australia.

Legislative references: International Tax Agreements Act 1953 Schedule 1, Article 10.3 Schedule 1, Article 10.3(a) Schedule 1, Article 10.3(b) Schedule 1, Article 10.3(c)
Related ATO interpretative decisions: ATO ID 2008/4
Subject references: Double tax agreements International tax Non resident dividend withholding tax Unfranked dividends United Kingdom