Taxation Determination TD 2014/13
Date of effect: 4 June 2014

What this ruling is about: This publication (excluding appendixes) is a public ruling for the purposes of the Taxation Administration Act 1953. A public ruling is an expression of the Commissioner's opinion about the way in which a relevant provision applies, or would apply, to entities generally or to a class of entities in relation to a particular scheme or a class of schemes. If you rely on this ruling, the Commissioner must apply the law to you in the way set out in the ruling (unless the Commissioner is satisfied that the ruling is incorrect and disadvantages you, in which case the law may be applied to you in a way that is more favourable for you - provided the Commissioner is not prevented from doing so by a time limit imposed by the law). You will be protected from having to pay any underpaid tax, penalty or interest in respect of the matters covered by this ruling if it turns out that it does not correctly state how the relevant provision applies to you. Ruling 1. UK Co 'holds directly' at least 10 per cent of the voting power in Aus Co for the purposes of Article 10.2(a) of the United Kingdom Convention [1] (the Convention) where: Date of effect 2. This Determination applies to years of income commencing both before and after its date of issue. However, this Determination will not apply to taxpayers to the extent that it conflicts with the terms of a settlement of a dispute agreed to before the date of issue of this Determination (see paragraphs 75 and 76 of Taxation Ruling TR 2006/10). Commissioner of Taxation 4 June 2014




Appendix: 3. Under the terms of section 128B of the Income Tax Assessment Act 1936 (ITAA 1936), non-residents for Australian income taxation purposes may be liable for withholding tax on dividends paid by an Australian resident company. 4. Under the terms of section 7 of the Income Tax (Dividends, Interest and Royalties Withholding Tax) Act 1974, the relevant withholding tax rate is set at 30%. 5. However, subsection 17A(1) of the International Tax Agreements Act 1953 provides that where a provision of an international agreement limits the Australian tax payable in respect of a dividend, the withholding tax shall be reduced to the amount specified in the agreement. 6. In that regard, where a resident of the United Kingdom is the beneficial owner of dividends paid by an Australian resident company, Article 10 of the Convention relevantly provides: 7. Here, the Contracting State is Australia and the 'other' Contracting State or 'other' State is the United Kingdom. [2] 8. Key words in the Convention are defined in Article 3. However, the words 'holds directly' are not defined in Article 3 or any other provision of the Convention. Article 3.3 of the Convention which relates to interpreting its provisions, provides: 9. In McDermott Industries (Aust) Pty Ltd v. CoT [2005] FCAFC 67; (2005) 142 FCR 134; 2005 ATC 4398; 59 ATR 358 (McDermott), the Full Federal Court summarised the principles for interpreting the words and phrases of double tax agreements: 10. In this particular case, a nominee shareholder owns shares in Aus Co for the benefit of UK Co and must exercise all rights of voting attaching to the shares in such manner as UK Co shall direct or approve. In these circumstances, the Commissioner accepts, in accordance with the principles summarised in McDermott, that UK Co 'holds directly' at least 10 per cent of the voting power in Aus Co for the purposes of Article 10.2(a) of the Convention. © AUSTRALIAN TAXATION OFFICE FOR THE COMMONWEALTH OF AUSTRALIA You are free to copy, adapt, modify, transmit and distribute this material as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products). Previously issued in draft form as TD 2014/D9


As regards the application of this Convention at any time by a Contracting State, any term not defined therein shall, unless the context otherwise requires, have the meaning that it has at that time under the laws of that State for the purposes of the taxes to which this Convention applies, any meaning under the applicable tax laws of that State prevailing over a meaning given to the term under other laws of that State. | 37. Double tax treaties are bilateral treaties entered into between two states. As such they are to be interpreted in accordance with the requirements of the Vienna Convention on the Law of Treaties (23 May 1969, entered into force on 22 January 1974) (`the Convention') and in particular Article 31 of the Convention.


Related rulings: TR 2006/10
Legislative references: ITAA 1936 128B Income Tax (Dividends, Interest and Royalties Withholding Tax) Act 1974 7 International Tax Agreements Act 1953 17A(1) TAA 1953
Case references: McDermott Industries (Aust) Pty Ltd v CoT [2005] FCAFC 67 (2005) 142 FCR 134 2005 ATC 4398 59 ATR 358
Subject references: double tax agreements withholding taxes
Other references: The Convention between the Government of Australia and the Government of the United Kingdom of Great Britain and Northern Ireland for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income and on Capital Gains [2003] ATS 22 Article 10