superannuation and tax exempt Swiss pension schemes. Article 12 will limit source country taxation of cross-border royalties to 5 per cent. The definition of ‘royalties’ excludes payments for the right to use industrial, commercial or scientific equipment. The existing treaty prescribes a source country tax rate limit on outbound royalties of 10 per cent. The definition of ‘royalties’ includes such payments. Income, profits or from the alienation of immovable property may be taxed in the country where the property is situated. Income profits or gains from the alienation of interests in land-rich entities will be taxable in the country where the underlying land is situated. Residual capital gains will be taxable only in the country of residence of the alienator. Australia may continue to tax its former resident individuals on the capital if they alienate property within four years of ceasing to be a resident. No substantive change (the existing treaty applies to income or gains made from the alienation of real property). No substantive change. No equivalent. No equivalent. Taxing rights over fringe benefits provided to employees will be allocated exclusively to the country that has the sole or primary taxing right over the underlying employment income to which the benefit relates. No equivalent. Pensions and similar payments will be taxable only in the recipient’s country of residence, provided the recipient is taxable on those payments in that country. If not, the other country may also tax the income. Lump sum payments in respect of retirement, invalidity, disability, or injury may also be taxed in the source (paying) country. The existing treaty allocates exclusive taxing rights over pensions to the country of residence of the recipient, without regard to whether such income is taxable in that country. No equivalent. Government pensions paid in respect of past government service will be taxable only in the source country, subject to certain conditions. Government pensions paid in respect of past government service are taxable in the country of residence of the recipient.
a mine, an oil or gas well, a quarry or any other place of extraction of natural resources; and an agricultural, pastoral or forestry property. [Article 5, paragraph 2] As paragraph 2 of this article is subordinate to paragraph 1, the examples listed in paragraph 2 will only constitute a permanent establishment if the primary definition in paragraph 1 is satisfied. The principles contained in paragraphs 1 through 8 of Article 5 will be applied in determining whether an enterprise can be regarded as a permanent establishment in one of the contracting states. [Article 5, paragraph 9] Building site or installation A building site, construction or installation project will constitute a permanent establishment if it lasts for longer than 12 months. [Article 5, paragraph 3] The phrase ‘building site or construction or installation project’ includes not only places used for the construction of buildings but also for the construction of roads, bridges or canals, the renovation (involving more than mere maintenance or redecoration) of buildings, roads, bridges or canals, the laying of pipelines and excavating and dredging. Planning and supervision are considered part of the building site if carried out by the construction contractor. However, planning and supervision carried out by an un-associated enterprise will not be considered in determining whether the construction contractor has a permanent establishment in Australia. Agricultural, pastoral or forestry property Most of Australia’s tax treaties include as a permanent establishment an agricultural, pastoral or forestry property. This reflects Australia’s usual practice of providing for taxation of profits from the exploitation of Australian land for the purposes of primary production under Article 7 (Business Profits). the Swiss Convention, profits from agriculture or forestry property are dealt with under Article 6 (Income from Immovable Property). This is reflected in the phrase ‘including income from agriculture or forestry’ in paragraph 1 of that article. A fixed place of business used for primary production purposes, such as a farm or forestry property, will constitute a permanent establishment. This has significance for the application of articles where the concept of permanent establishment is relevant, for example in
income is attributable to a fixed base available to that resident in the country. Article 7 – Business profits This Article is concerned with the taxation by one country of business profits derived by an enterprise carried on by a resident of the other country. The taxing of these profits depends on whether they are attributable to the carrying on of a business through a permanent establishment in that country. If a resident of one country carries on business through a permanent establishment (as defined in Article 5 (Permanent Establishment)) in the other country, the country in which the permanent establishment is situated may tax the profits of the enterprise that are attributable to that permanent establishment. [Article 7, paragraph 1] If an enterprise which is a resident of one country derives business profits in the other country that are not attributable to a permanent establishment in that other country, the general principle of this Article is that the enterprise will not be liable to tax in the other country on such profits. Determination of business profits Profits of a permanent establishment are to be determined for the purposes of this Article on the of arm's length dealings. The provisions in the Swiss Convention correspond to international practice and corresponding provisions in Australia’s other tax treaties. [Article 7, paragraphs 2 and 3] No deductions are allowed in respect of expenses which would not be deductible if the permanent establishment were an independent enterprise which incurred the expense. [Article 7, paragraph 3] No profits are to be attributed to a permanent establishment merely because it purchases goods or merchandise for the enterprise. Accordingly, profits of a permanent establishment will not be increased by any profits attributable to the purchasing activities undertaken for the head office. It follows, of course, that any expenses incurred by the permanent establishment in respect of those purchasing activities will not be deductible in determining the taxable profits of the permanent establishment. [Article 7, paragraph 4] In determining what constitutes business profits, payments received as a consideration for the use of, or the right to use industrial, commercial or scientific equipment would be covered by this Article and, in the case of Australia, be taxed on a net basis. [Protocol, paragraph 7] Subparagraph 5a) of the Protocol excludes the application of Article 7 to profits that are derived from an enterprise carrying on any form of insurance business, other than life insurance. Therefore, each