Private ruling: Interest Withholding Tax
Published: February 2012
Ruling period: 2010 Income Year | 2011 Income Year | 2012 Income Year
Date scheme commenced: May 2010

Ruling: Q1: Will withholding tax of 10% be applicable to all interest income arising in Australia from the Australian bonds where the interest income is beneficially owned by a foreign resident financial institution. | A1: No



Reasons for decision: Summary: The taxpayer is not a resident of Australia and for the purposes of the double tax agreement between Australia and the other Contracting State, the taxpayer is a resident of the other Contracting State. The interest received from the Australian bonds by the taxpayer is from Australian sources. In determining the liability to Australian tax on Australian sourced income received by a foreign resident, it is necessary to refer to Article 11 of the double tax agreement. Australia will have no taxing right under Article 11(2) of the double tax agreement in respect of the interest paid to the taxpayer where: · Pursuant to Article 11(3)(b), the taxpayer satisfies the definition of 'financial institution'; · Pursuant to Article 11(1), the taxpayer is beneficially entitled to, or beneficially owns the interest; · Pursuant to Article 11(3)(b), the taxpayer is unrelated to, and dealing wholly independently with the payer of the interest; · Pursuant to Article 11(4), the interest arising in Australia is not paid as part of an arrangement involving 'back-to-back' loans; and · Pursuant to Article 11(6), the interest arising in Australia is not effectively connected with a permanent establishment in Australia of the taxpayer. Taxation Ruling TR 2005/5 applies to this arrangement. Based on the information provided, the taxpayer satisfies each of the requirements listed above. Pursuant to Article 11(3)(b) of the double tax agreement, as discussed in TR 2005/5, withholding tax of 10% will not be applicable to the interest income arising in Australia from the Australian bonds derived beneficially by the taxpayer.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. If you have any concerns about this ruling you wish to discuss, you will find our contact details in the fact sheet. | Subject: Interest Withholding Tax: The arrangement involves a foreign resident financial institution (the taxpayer) investing in Australian bonds and receiving interest income from those Australian bonds. | The taxpayer beneficially owns the interest. It is unrelated to, and dealing wholly independently with the payer of the interest. The interest income is not paid as part of an arrangement involving back-to-back loans, and is also not effectively connected with a permanent establishment in Australia of the taxpayer.