On November 12, 2015 Germany and Australia concluded a new agreement for the elimination of double taxation with respect to taxes on income and on capital and the prevention of fiscal evasion and avoidance (Hereafter: the DTA). When entering into force this new DTA will replace the existing Double Taxation Agreement (stemming from 1972) that currently is in place between Germany and Australia.
Although the new DTA has been signed, it has not yet entered into force. For the DTA to enter into force, the respective ratification procedures have to have been finalized in both countries.
Below we will discuss a selection of provisions included in the DTA of which we think they might interest our readers.
Taxes covered
According to Article 2, Paragraph 3 of the DTA (“Taxes Covered”) the existing taxes to which this Agreement shall apply are in particular:
a) in Australia: the income tax, the fringe benefits tax and resource rent taxes imposed under the federal law of Australia;
b) in the Federal Republic of Germany:
i) the income tax (Einkommensteuer);
ii) the corporate income tax (Körperschaftsteuer);
iii) the trade tax (Gewerbesteuer); and
iv) the capital tax (Vermögensteuer);
including the supplements levied thereon
Paragraph 4 of Article 2 of the DTA subsequently arranges that the DTA shall apply also to any identical or substantially similar taxes which are imposed under the federal law of Australia or the law of the Federal Republic of Germany after the date of signature of this Agreement in addition to, or in place of, the existing taxes.
Permanent establishment
Paragraph 3 of Article 5 of the DTA (“Permanent Establishment”) arranges that a building site or construction or installation project constitutes a permanent establishment only if it lasts more than nine months.
Paragraph 4 of Article 5 of the DTA subsequently arranges that notwithstanding the preceding provisions of Article 5 of the DTA, where an enterprise of a Contracting State:
a) carries on supervisory or consultancy activities in the other State for more than nine months in connection with a building site, or a construction or installation project, which is being undertaken in that other State;
b) carries on activities (including the operation of substantial equipment) in the other State in the exploration for or exploitation of natural resources situated in that other State for a period or periods exceeding in the aggregate 90 days in any 12 month period; or
c) operates substantial equipment in the other State (including as provided in subparagraph b)) for a period or periods exceeding in the aggregate 183 days in any 12 month period,
such activities shall be deemed to be carried on through a permanent establishment that the enterprise has in that other State, unless the activities are limited to those mentioned in paragraph 6 and are, in relation to the enterprise, of a preparatory or auxiliary character.
Paragraph 5 of Article 5 of the DTA reads as follows: “Where an enterprise of a Contracting State carries on any of the activities referred to in paragraphs 3 and 4 in the other Contracting State, any connected activities carried on in that other Contracting State during different periods of time, each exceeding 30 days, by one or more enterprises closely related to the first-mentioned enterprise will be added to the period of time during which the first-mentioned enterprise has carried on the activities for the purpose of determining whether the periods referred to in paragraphs 3 and 4 have been exceeded.”
Paragraph 7 of Article 5 of the DTA arranges that Paragraph 6 of article 5 (the paragraph on preparatory or auxiliary activities) shall not apply to a fixed place of business that is used or maintained by an enterprise if the same enterprise or a closely related enterprise carries on business activities at the same place or at another place in the same Contracting State and
a) that place or other place constitutes a permanent establishment for the enterprise or the closely related enterprise under the provisions of this Article, or
b) the overall activity resulting from the combination of the activities carried on by the two enterprises at the same place, or by the same enterprise or closely related enterprises at the two places, is not of a preparatory or auxiliary character,
provided that the business activities carried on by the two enterprises at the same place, or by the same enterprise or closely related enterprises at the two places, constitute complementary functions that are part of a cohesive business operation.
Paragraph 8 of Article 5 of the DTA is also interesting and it read as follows:
“Notwithstanding the provisions of paragraphs 1 and 2 but subject to the provisions of paragraph 9, where a person is acting in a Contracting State on behalf of an enterprise and
a) in doing so, habitually concludes contracts, or habitually plays the principal role leading to the conclusion of contracts that are routinely concluded without material modification by the enterprise, and these contracts are
i) in the name of the enterprise, or
ii) for the transfer of the ownership of, or for the granting of the right to use, property owned by that enterprise or that the enterprise has the right to use, or
iii) for the provision of services by that enterprise, or
b) manufactures or processes in a Contracting State for the enterprise goods or merchandise belonging to the enterprise,
that enterprise shall be deemed to have a permanent establishment in that State in respect of any activities which that person undertakes for the enterprise, unless the activities of such person are limited to those mentioned in paragraph 6 which, if exercised through a fixed place of business, would not make this fixed place of business a permanent establishment under the provisions of that paragraph.”
Paragraph 10 of Article 5 of the DTA defines the term closely related to and reads as follows: “For the purpose of this Article, a person is closely related to an enterprise if, based on all the relevant facts and circumstances, one has control of the other or both are under the control of the same persons or enterprises. In any case, a person shall be considered to be closely related to an enterprise if one possesses directly or indirectly more than 50 per cent of the beneficial interests in the other (or, in the case of a company, more than 50 per cent of the aggregate vote and value of the company's shares or of the beneficial equity interest in the company) or if another person possesses directly or indirectly more than 50 per cent of the beneficial interest (or, in the case of a company, more than 50 per cent of the aggregate vote and value of the company's shares or of the beneficial equity interest in the company) in the person and the enterprise.”
Paragraph 8 of Article 7 of the DTA (“Business Profits”) contains a statute of limitations clause with respect to the possibilities for a Contracting State to make adjustments the profits that are attributable to a permanent establishment of an enterprise and reads as follows: “A Contracting State shall make no adjustment to the profits that are attributable to a permanent establishment of an enterprise of one of the Contracting States after the expiration of 10 years from the end of the taxable year in which the profits would have been attributable to the permanent establishment. The provisions of this paragraph shall not apply in the case of fraud, wilful default or, in the case of Australia, gross negligence, or, in the case of the Federal Republic of Germany, negligence, or where, within that period of 10 years, an audit into the profits of the enterprise has been initiated by either State.”
Associated enterprises
Paragraph 2 of Article 9 of the DTA (“Associated Enterprises”) contains a so-called appropriate adjustment clause.
Paragraph 3 of Article 9 of the DTA also contains a statute of limitations clause and reads as follows: “A Contracting State shall not include in the profits of an enterprise, and tax accordingly, profits that would have accrued to the enterprise but by reason of the conditions referred to in paragraph 1 have not so accrued, after the expiration of 10 years from the end of the taxable year in which the profits would have accrued to the enterprise. The provisions of this paragraph shall not apply in the case of fraud, wilful default or, in the case of Australia, gross negligence, or, in the case of the Federal Republic of Germany, negligence, or where, within that period of 10 years, an audit into the profits of an enterprise has been initiated by either State.”
Dividends
Paragraph 2 of Article 10 of the DTA (“Dividends”) maximizes the dividend withholding tax that a Source State is allowed to withhold over dividend distributions to:
a) 5 per cent of the gross amount of the dividends, if the beneficial owner of the dividends is a company (other than a partnership) which holds directly at least 10 per - 23 - cent of the voting power of the company paying the dividends throughout a 6 month period that includes the day of payment of the dividend;
b) 15 per cent of the gross amount of the dividends in all other cases.
(In the case of dividends paid by a German Real Estate Aktiengesellschaft with listed share capital, only subparagraph b) applies.)
Paragraph 3 of Article 10 of the DTA subsequently arranges that when certain conditions are met a Source State is not allowed to withhold withholding taxes over dividend distributions. Article 10, Paragraph 3 of the DTA reads as follows: “Notwithstanding the provisions of paragraph 2, dividends shall not be taxed in the Contracting State of which the company paying the dividends is a resident if the beneficial owner of the dividends is a company (other than a partnership) that is a resident of the other Contracting State that has held directly shares representing 80 per cent or more of the voting power of the company paying the dividends for a 12 month period ending on the date the dividend is declared and the company that is the beneficial owner of the dividends:
a) has its principal class of shares listed on a recognised stock exchange specified in sub-subparagraph 1(m)i) or ii) of Article 3 and regularly traded on one or more recognised stock exchanges;
b) is owned directly or indirectly by one or more companies (provided that where the beneficial owner company is so owned indirectly, each intermediate company is a resident of a Contracting State or a company referred to in sub-subparagraph ii)):
i) whose principal class of shares is listed on a recognised stock exchange specified in sub-subparagraph 1(m)i) or ii) of Article 3 and regularly traded on one or more recognised stock exchanges; or
ii) each of which, if it directly held the shares in respect of which the dividends are paid, would be entitled to equivalent benefits in respect of such dividends under a tax treaty between the State of which that company is a resident and the Contracting State of which the company paying the dividends is a resident; or
c) does not meet the requirements of subparagraphs a) or b) of this paragraph but the competent authority of the first-mentioned Contracting State determines that the conditions of paragraph 2 of Article 23 are not met. The competent authority of the first-mentioned Contracting State shall consult the competent authority of the other Contracting State before refusing to grant benefits of this Agreement under this subparagraph.”
Interest
Paragraph 2 of Article 11 of the DTA (“Interest”) maximizes the withholding tax that a Source State is allowed to withhold over interest payments to 10 per cent of the gross amount of the interest if the beneficial owner of the interest is a resident of the other Contracting State.
Paragraph 3 of Article 11 of the DTA subsequently arranges a.o. that the Source State is not allowed to withhold withholding taxes over interest arising in that State and beneficially owned by a resident of the other Contracting State, if the interest is derived by a financial institution which is unrelated to and dealing wholly independently with the payer. For the purposes of this Article, the term "financial institution" means a bank or other enterprise substantially deriving its profits by raising debt finance in the financial markets or by taking deposits at interest and using those funds in carrying on a business of providing finance. Paragraph 4 however subsequently arranges that notwithstanding paragraph 3, such interest may be taxed in the State in which it arises at a rate not exceeding 10 per cent of the gross amount of the interest if the interest is paid as part of an arrangement involving back-toback loans or other arrangement that is economically equivalent and intended to have a similar effect to back-to-back loans.
Royalties
Paragraph 2 of Article 12 of the DTA (“Royalties”) maximizes the withholding tax that a Source State is allowed to withhold over royalty payments to 5 per cent of the gross amount of the royalties if the beneficial owner of the royalties is a resident of the other Contracting State.
Alienation of Property
With respect to capital gains Paragraph 1 of Article 13 of the DTA (“Alienation of Property”) arranges that income, profits or gains derived by a resident of a Contracting State from the alienation of immovable property referred to in Article 6 and situated in the other Contracting State may be taxed in that other State.
Paragraph 4 of Article 13 subsequently arranges that income, profits or gains derived by a resident of a Contracting State from the alienation of shares or comparable interests may be taxed in the other Contracting State if, at any time during the 365 days preceding the alienation, these shares or comparable interests derived more than 50 per cent of their value directly or indirectly from immovable property, as defined in Article 6, situated in that other State.
Other
The DTA furthermore includes articles containing provision regarding Limitation of Benefits (Article 23 of the DTA), the Mutual Agreement Procedure (Article 25 of the DTA), the Exchange of Information (Article 26 of the DTA) and an article on the Assistance in the Collection of Taxes (Article 27 of the DTA).
Click here to be forwarded to the DTA (in both the English and the German language) as available on the website of the German Bundesministerium der Finanzen or here to be forwarded to the DTA as available on the website of the Australian Treasury.
Are you looking for an other DTA? Then check our section DTAs & TIEAs, a very efficient way to locate numerous DTAs.
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