Australia-Germany tax treaty enters into force

A tax treaty signed between Australia and Germany entered into force on December 7, Australia’s Treasury has announced.

The treaty, signed November 12, 2015, replaces a 1972 treaty between the countries.

The new agreement implements OECD/G20 base erosion profit shifting (BEPS) Action 6 minimum standards on tax treaty abuse, adopting a principal purpose test. It also provides for updated rules on permanent establishments consistent with BEPS outcomes, adding provisions on preparatory or auxiliary activities and an antifragmentation rule.

The treaty also updates provisions on commissionaire arrangements, dual residency and arbitration.

Withholding tax is reduced to zero on intercorporate dividends paid to publicly listed companies, or subsidiaries thereof, and to some unlisted companies if the company holds 80 percent or more of the paying company for at least 12 months.

If a company holds at least 10 percent of the paying company for six months, withholding tax on dividends is set at five percent. In other cases, withholding tax on dividends 15 percent.

Withholding tax on interest derived by goverment bodies, central banks, and unrelated financial institutions is set at zero, and is 10 percent in other cases. Royalties are taxed at source up to 5 percent of the gross royalty.