Thursday, March 11, 2010
Australia’s Assistant Treasurer, Nick Sherry, has announced that Australia and Chile have signed a comprehensive bilateral double taxation agreement (DTA) – the second such agreement between Australia and a South American country.
The signing of the DTA had been delayed due to the earthquake in Chile on February 27, and the Australian government thanked the Chilean government and its officials for being able to bring the agreement to a conclusion in difficult circumstances.
"The new income tax treaty between Australia and Chile will provide certainty and stability of tax treatment for Australian and Chilean cross-border investors and reduce tax-related barriers so the economic relationship between our countries can continue to grow," Sherry said.
"Chile is a major destination for Australian investment, especially in the mining sector. The signing of this historic tax treaty is a great step forward for Australian businesses,” he continued. “It will help maintain the integrity of Australia's tax base by allowing the exchange of taxpayer information, including bank information, between Australian and Chilean tax administrators."
The provisions of the new DTA with Chile will also include reductions in source-country withholding taxes on certain cross-border payments of dividends, interest and royalties; and rules to determine when an enterprise or an individual of one country may be taxed on its activities abroad. There will be an agreed basis for determining the allocation of profits within a multinational company to reflect the transfer pricing that would be adopted by independent parties.
There will be a general obligation for both countries to relieve double taxation on cross-border income by permitting tax paid under the other country's laws, and in accordance with the DTA, to be allowed as a credit against tax payable under their own laws. Special rules will preserve the application of existing tax arrangements between Chile and Australian companies under the provisions of Chilean legislation. This is of particular importance to Australian mining companies with investments in Chile.
Legislation to give the new treaty the force of law will be introduced into the Australian and Chilean parliaments as soon as is practicable, Sherry informed.