Australia Publishes Joint Administrative Approach With New Zealand On Tie Breaker Rule

; posted on
June 11th, 2019

The Australian Taxation Office (ATO) has announced the publication of a joint administrative approach with New Zealand Inland Revenue (IR) on the application of the new treaty tie-breaker rule for non-individual taxpayers introduced by the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting ("Multilateral Instrument" or "MLI") that will swiftly implement a series of tax treaty measures to update international tax rules and lessen the opportunity for tax avoidance by multinational enterprises.

The administrative approach of Australia and New Zealand’s MLI

The rule for taxpayers was introduced by Article 4(1) of the Multilateral Convention that they who satisfy all of the eligibility criteria for the relevant year, the Australian Taxation Office (ATO) and New Zealand Inland Revenue (IR) jointly determine that:

  • Where an eligible taxpayer reasonably self-determines its place of effective management (PoEM) to be located in Australia, it will be deemed to be a resident of Australia for the purposes of the Convention between Australia and New Zealand for the avoidance of double taxation with respect to taxes on income and fringe benefits and the prevention of fiscal evasion (Australia-New Zealand treaty).
  • Where an eligible taxpayer reasonably self-determines its PoEM to be located in New Zealand, it will be deemed to be a resident of New Zealand for the purposes of the Australia-New Zealand treaty.

This approach is designed to reduce the compliance burden and costs for lower materiality taxpayers as they are able to assess their eligibility based on readily available information. It also allows the ATO and IR to focus compliance resources on arrangements that could have material revenue consequences and/or pose higher risk of non-compliance with the tax laws. The approach indeed skips the process of MAP recommended by OECD to solve the dual tax residence case, which requires long process to reach the agreement.

The administrative approach will only be valid if the taxpayer satisfies all of the following conditions on an on-going basis:

  1. Upon being notified by either the ATO or IR of a new compliance activity the taxpayer notifies the ATO or IR that it has been eligible for the dual resident administrative approach and the jurisdiction of residence for the purposes of the Australia-New Zealand treaty has been determined under this approach.
  2. The taxpayer or any member of the taxpayer group has not entered into, or carried out:
  • a tax avoidance scheme whose outcome depends, in whole or part, on the location of its residence,
  • arrangements to conceal ultimate beneficial or economic ownership
  • arrangements involving abuse of board processes (including backdating of documents) or the board not truly executing its functions, or
  • s under which any benefits under the treaty would be potentially denied under the conditions of the Principal Purpose Test in paragraph 1 of MLI Article 7.

Source: Australian Taxation Office

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