UNITED STATES TREASURY DEPARTMENT TECHNICAL EXPLANATION OF THE CONVENTION BETWEEN THE GOVERNMENT OF THE UNITED STATES OF AMERICA AND THE GOVERNMENT OF AUSTRALIA FOR THE AVOIDANCE OF DOUBLE TAXATION AND THE PREVENTION OF FISCAL EVASION WITH RESPECT TO TAXES ON INCOME（三） ARTICLE 17 Entertainers 　　This Article provides certain exceptions to the rules otherwise governing income from personal services in the case of income derived by entertainers and athletes. Paragraph 1 provides that a Contracting State may tax income derived by a resident of the other State from the performance of personal services in the first State as an entertainer or athlete if the gross receipts for such services, including expenses reimbursed or paid on his behalf, exceeds $10,000 (or the equivalent in Australian dollars) for the income year or taxable year concerned. In that case the full amount may be taxed by the first State, subject to any deductions allowable under its laws. This rule overrides the provisions of Article 14 (Independent Personal Services) and 15 (Dependent Personal Services) by adding another basis for taxation at source. However, if the income does not exceed $10,000, whether the income may be taxed by the State where the services are performed is determined in accordance with Article 14 or 15, as the case may be. 　　Income derived from services rendered by producers, directors, technicians and others who are not artistes or athletes is taxable in accordance with Article 14 or 15, as appropriate. Paragraph 2 corresponds to the provisions in the U.S. Model. Where income for services performed by an entertainer or athlete accrues not to the entertainer or athlete but to another person, it may be taxed in the State where the activities are performed, without regard to the provisions of the Convention concerning business profits or income from personal services, unless it is established that neither the entertainer or athlete nor any related person participates in those profits in any manner. ARTICLE 18 Pensions, Annuities, Alimony and Child Support 　　This Article deals with the taxation of pensions, social security payments, annuities,alimony and child support derived by individuals who are residents of a Contracting State or citizens of the United States. 　　Paragraph 1 provides that pensions derived and beneficially owned by a resident of one of the Contracting States in consideration of past employment, other than pensions covered in Article 19 (Governmental Remuneration), shall be taxable only in that State. 　　Paragraph 2 provides that public pensions, such as social security benefits, paid by one Contracting State to a resident of the other State or to a citizen of the United States are taxable only in the paying State. The reference to U.S. citizens is to ensure that a social security payment by Australia to a U.S. citizen resident in Australia shall be taxable only in Australia and not in the United States. The exemption of such income provided by this paragraph is excepted from the saving clause under paragraph 4 of Article 1 (Personal Scope). 　　Paragraph 3 provides that annuities paid to a resident of a Contracting State shall be taxable only in that State. Paragraph 4 defines "pensions and similar remuneration" and paragraph 5 defines "annuities." Paragraph 6 provides that alimony and other maintenance payments, including child support payments, are taxable only in the State where they arise. The definitions and source rules relating to alimony and child support payments are determined under the internal laws of the Contracting States. Under Australian law alimony and child support payments are exempt to the recipient and not deductible by the payer. Thus, under this provision, alimony arising in the United States and paid to a resident of Australia will be deductible by the payer but taxed to the recipient by the United States. Alimony arising in Australia and paid to a U.S. resident, and child support payments arising in either State and paid to a resident of the other State, will not be deductible by the payer and will not be taxed to the recipient. These exemptions are available to residents and citizens of the respective States as a result of paragraph 4 of Article 1 (Personal Scope). ARTICLE 19 Governmental Remuneration 　　This Article provides that remuneration, including pensions, paid by one of the Contracting States or a political subdivision, local authority or agency thereof to a citizen of that State for the performance of governmental functions is exempt from tax by the other State. If such remuneration is paid to an individual who is a resident, but not a citizen, of the employing State, whether it may be taxed by the other Contracting State is determined in accordance with the provisions of Articles 14 (Independent Personal Services), 15 (Dependent Personal Services), 17 (Entertainers) or 18 (Pensions, Annuities, Alimony and Child Support), as the case may be. If such remuneration is paid by one of the States to an individual who is a resident of the other State (or by Australia to a citizen of the United States), it may be taxed by that other State (or by the United States in the case of U.S. citizens) in accordance with paragraph 3 of Article 1 (Personal Scope). If such remuneration is paid to an individual who is not a resident of either State (and is not a citizen of the United States), it is not covered by this Convention. 　　Whether functions are of a governmental nature is determined by reference to the concept of a governmental function in the State in which the income arises. ARTICLE 20 Students This Article provides that, when a resident of one of the Contracting States goes to the other State for the purpose of full-time education, that other State may not tax payments received by the student for the purpose of his maintenance or education from sources outside that State. ARTICLE 21 Income Not Expressly Mentioned This Article provides that items of income derived by a resident of one of the Contracting States and not covered in the preceding articles may be taxed by the country of residence of the recipient. If from sources in the other State, such income may also be taxed by that other State. However, Article 7 (Business Profits) governs the taxation of such income to the extent it is effectively connected with a permanent establishment in that other State. Among the items covered by this Article are prizes and income from the insurance business, which is specifically excluded from the provisions of Article 7 (Business Profits) by paragraph 8 of that Article. The source of such items of income is determined under the respective domestic laws of the two countries. Any difficulties or doubts in applying this Article, as in other cases, may be addressed in accordance with the provisions of Article 24 (Mutual Agreement Procedure). ARTICLE 22 Relief from Double Taxation Paragraph 1 provides that the United States shall give a foreign tax credit for income taxes paid to Australia, subject to the limitations provided in U.S. law. The credit is allowed for taxes paid directly by or on behalf of the U.S. resident or citizen. In addition, in the case of a U.S. corporation owning at least 10 percent of the voting stock of an Australian corporation, credit is allowed for the underlying Australian corporate tax on the profits of the Australian corporation out of which dividends are paid to the U.S. corporation. The Australian taxes referred to in paragraphs 1(b) and 2 of Article 2 (Taxes Covered) are considered income taxes for purposes of the credit. This guarantee of a foreign tax credit is independent of the statutory grant of a credit under the Internal Revenue Code, but the amount of the credit to be allowed is determined in accordance with the limitations provided in the Internal Revenue Code. Since the Convention does not provide credit for a tax which is believed not to be creditable under the Internal Revenue Code, no special per-country limitation is contained in the Convention. However, paragraph 1 provides that the Convention source rules may be used only for purposes of determining U.S. foreign tax credits for the Australian taxes covered by the Convention, i.e., not for taxes of other foreign countries. In paragraph 2, Australia agrees to allow Australian residents a credit against Australian income tax equal to the income tax paid in the United States other than solely by reason of U.S. citizenship (i.e., the amount of tax which the United States is authorized under the Convention to impose at source on residents of Australia who are not U.S. citizens), subject to the limitations in Australian law which limit the credit to the Australian income tax payable on the income or any class thereof or on income from sources outside Australia. Paragraph 3 confirms that an Australian corporation that owns at least 10 percent of the voting stock of a U.S. corporation is entitled to a rebate in its assessment, at the average rate of Australian tax payable by it, on dividends it receives from the U.S. corporation which are included in its taxable income in Australia. If Australian law providing this relief from tax on intercorporate dividends should change so that the rebate is no longer allowable, Australia agrees to allow credit for the underlying U.S. tax on the profits out of which such dividends are paid (similar to the U.S. credit allowed under section 902 of the Internal Revenue Code) in addition to the direct credit referred to in paragraph 3. Paragraph 4 provides a special rule for avoiding double taxation of a U.S. citizen who is a resident of Australia. Both the United States and Australia tax the worldwide income of such a person. The special rule provides that, in such a case, the United States will credit against the U.S. tax the Australian tax paid, net of the Australian foreign tax credit provided for in paragraph 2 (i.e., the Australian foreign tax credit for United States source basin taxation). For purposes of computing the foreign tax credit limitation under this paragraph, the United States will recharacterize enough U.S.- source income as Australian-source income to allow this special credit to be utilized, but without reducing the U.S. tax below the amount the United States may impose under this Convention other than by reason of citizenship (i.e., the amount of U.S. tax that may be imposed on a source basis under this Convention on residents of Australia who are not U.S. citizens). This source rule is provided by paragraph 1(c) of Article 27 (Miscellaneous), subject to the limitation provided in this paragraph. ARTICLE 23 Non-Discrimination 　　This Article provides certain criteria of non-discriminatory application of the taxes covered by the Convention. Paragraph 1 provides, first, that citizens of a Contracting State who are residents of the other State shall not be taxed less favorably in that other State than resident citizens of that other State who are in the same circumstances. It is understood that United States citizens who are not residents of the United States and Australian citizens who are not residents of the United States are not in the same circumstances with respect to the U.S. income tax, which is generally imposed on the worldwide income of U.S. citizens but not of Australian citizens. Paragraph 1 also provides, in subparagraph (b), that interest, royalties, and other disbursements paid by a resident of a Contracting State to a resident of the other State shall be deductible for determining taxable profits under the same conditions as if they had been paid to a resident of the first-mentioned State. The term "other disbursements" is understood to include a reasonable allocation of executive and administrative expenses, research and development expenses, and other expenses incurred for a group of related enterprises. Subparagraph (c) is the same as the corresponding paragraph in the U.S. Model. It requires that a Contracting State not impose more burdensome taxation on a subsidiary corporation owned by residents of the other Contracting State than it imposes on similar corporations which are locally owned. Subparagraph (d) provides that a Contracting State may not impose more burdensome taxes on a permanent establishment of an enterprise of the other State than it imposes on its own enterprises carrying on the same activities in the same circumstances. Paragraph 2 states that this Article does not affect the taxes of either Contracting State as in force on the date of signature of the Convention or tax laws subsequently enacted which are substantially similar to the existing taxes in purpose or are reasonably designed to prevent avoidance or evasion of tax. However, any subsequent tax measure must treat residents or citizens of the other State no less favorably than residents or citizens of a third State (except where the treatment of residents or citizens of third States is governed by an international agreement rather than by internal law). Both Australia and the United States allow certain exemptions, deductions or rate reductions to residents taxed on their worldwide income which they do not extend to nonresidents not taxed on their worldwide income. For example, Australia imposes a 5 percent additional corporate tax on the profits of Australian branches of foreign corporations in lieu of a withholding tax on their profit remittances to the home office, denies to such branches the rebate on intercorporate dividends available to Australian corporations, and limits certain exemptions from the withholding tax on interest to funds borrowed abroad by domestic corporations owned and controlled by Australian residents. The United States does not extend to U.S. branches of foreign corporations the same deductions for dividends received from U.S. corporations which is available to U.S. corporations nor does it allow inclusion of income of foreign corporations in a consolidated return. Under this Article, those practices will not be in violation of the Convention; however, paragraph 2 in this regard is merely clarifying as neither Australia nor the United States would consider the foregoing provisions of its respective law to violate to non-discrimination provisions even in the absence of the rule of paragraph 2. 　　Paragraph 3 states that differentiating in taxation laws between residents and nonresidents does not of itself constitute discrimination contrary to this Article. This is merely an elaboration of the principles contained in paragraph 1, which require equal treatment of residents in the same circumstances. Residents and nonresidents are not in the same circumstances, reflecting the fact that in both countries residents are taxable on their worldwide income whereas nonresidents in general are taxable only on income from sources in that country. 　　Paragraph 4 provides that the competent authorities will attempt to resolve any instances of discriminatory taxation which might arise as a result of the tax measures of either country. Taxpayers may also take advantage of the provisions of Article 24 (Mutual Agreement Procedure) in such cases. ARTICLE 24 Mutual Agreement Procedure 　　This Article provides for cooperation between the competent authorities to resolve　problems of double taxation. 　　Paragraph 1 (a) provides that a taxpayer who considers that the actions of one or both of the Contracting States may result in taxation not in accordance with the Convention may present his case to the competent authority of the State of which he is a resident or citizen. However, he must present his case within three years from the first notification of the action giving rise to the potential double taxation. 　　Paragraph 1(b) provides that the competent authority, if it considers the claim to be justified, shall endeavor to resolve the case by mutual agreement with the competent authority of the other Contracting State. Any agreement reached shall be implemented without regard to any statutory time limits of the Contracting States. Thus, for example, if it is agreed that tax liability should be adjusted downward, a refund of the excess tax paid will be made even though the statute of limitations may have expired. However, no additional tax may be imposed if the statute of limitations has expired in the taxing State. Paragraph 2 provides that the competent authorities shall endeavor by mutual agreement to resolve any difficulties or doubts which may arise in the interpretation or application of the Treaty. For example, the competent authorities may agree on the same allocation of income, deductions, credits or allowances; to the same determination of the source of particular items of income; on a common meaning of a term; and they may decide, for purposes of paragraph 2(c) of Article 4 (Residence) to which State an individual has closer personal and economic relations. They may also discuss the application of the provisions of domestic law regarding penalties, fines and interest in a manner consistent with the purposes of the Convention. Paragraph 3 provides that the competent authorities may communicate with each other directly for the purpose of reaching agreements in accordance with this Article. ARTICLE 25 Exchange of Information This Article provides for the exchange of information between the competent authorities of the Contracting States for the purposes of implementing the provisions of the Convention or administering statutory provisions concerning taxes covered by the Convention. Its terms are substantially similar to the corresponding provisions of the U.S. Model. Paragraph 1 provides that the competent authorities shall exchange such information as is necessary for carrying out the provisions of the Convention or for administering statutory provisions concerning taxes covered by the Convention provided the information can be obtained under domestic laws and administrative practices with respect to each State's own taxes. Thus, provided that the information could be obtained in administering a domestic tax covered by the Convention, the competent authorities agree to exchange such information without regard to whether there is a domestic liability in the case in question. The information furnished could relate to a tax not covered by the Convention if it is relevant to enforcing a tax which is so covered. For example, it is possible that information relating to sales taxes or estate taxes could be needed to verify an item of income or expense for income tax purposes. Paragraph 2 provides guarantees that the information exchanged shall be kept secret and may be disclosed only to persons, including a court or administrative body, concerned with the assessment, collection, administration or enforcement of the taxes covered by the convention or with litigation with respect to those taxes. Persons involved in the administration of taxes covered by the Convention include legislative bodies involved in the administration of taxes and their agents such as, for example, the United States General Accounting Office; therefore, information may be disclosed to them, subject to the limitations of this Article and the internal law of the respective Contracting State. Paragraph 3 provides that neither State will furnish information to the other State under this Article if it would be contrary to its public policy to do so. Paragraph 4 states that, when specifically requested by the competent authority of the other Contracting State, and provided that such documents could be obtained in enforcing its own taxes, copies of unedited original documents shall be provided. In paragraph 5 the competent authorities of the two Contracting States agree to endeavor to collect taxes on behalf of the other State to the extent necessary to ensure that any exemption or reduction in rate of tax provided in the Convention is not enjoyed by persons not entitled to the benefits of the Convention. ARTICLE 26 Diplomatic and Consular Privileges This Article corresponds to Article 27 of the U.S. Model. It provides that the Convention shall not affect taxation privileges of diplomatic consular officials under other special agreements of international law. ARTICLE 27 Miscellaneous This Article provides certain miscellaneous rules of taxation under the Convention. Paragraph 1 provides source rules. Income derived by a resident of the United States which, under the Convention, may be taxed by Australia, is deemed to have its source in Australia. Income derived by a resident of Australia which may be taxed by the United States under the Convention, other than solely by reason of citizenship or because the individual elected under U.S. law to be taxed as a resident of the United States, is deemed to have its source in the United States. With respect to U.S. citizens who are residents of Australia, to the extent that income which they derive is taxed by the United States by virtue of paragraph 3 of Article 1 (Personal Scope), such income is deemed to have its source in Australia for purposes of giving affect to paragraph 4 of Article 22 (Relief from Double Taxation). Paragraph 2 provides that certain exemptions granted with respect to earned income by the source country, in accordance with Articles 14 (Independent Personal Services), 15 (Dependent Personal Services), 17 (Entertainers), or 19 (Governmental Remuneration), will be inapplicable to the extent that such income is not taxed by the residence country. For example, a United States resident who performs services in Australia as a self-employed person and who neither remains in Australia for 183 days nor has a fixed base in Australia, nevertheless may be taxed by Australia on the remuneration for the services performed there, notwithstanding Article 14 (Independent Personal Services), to the extent with such remuneration is exempt from U.S. income tax under section 911 of the Internal Revenue Code. The purpose of the exemption at source provided in the articles listed in this paragraph is to avoid double taxation, not to provide double exemption. ARTICLE 28 Entry into Force The Convention is subject to ratification in accordance with the applicable procedures of each Contracting State. The instruments of ratification will be exchanged at Washington, D.C. The Convention enters into force on the date on which the instruments of ratification are exchanged. Its provisions take effect, with respect to dividends, interest and royalties paid, credited or otherwise derived, on or after the first day of the second month following the exchange of instruments of ratification and, with respect to all other income, for taxable years (or income years) beginning on or after the first day of the second month following the exchange of instruments of ratification. The 1953 Convention shall cease to have effect with respect to taxes to which this Convention applies in accordance with the above provisions and shall terminate on the expiration of the last date on which it has effect. ARTICLE 29 Termination The Convention shall remain in force indefinitely unless terminated by one of the Contracting States. Either State may terminate the Convention after five years from the date on which it enters into force by giving at least six months prior notice through diplomatic channels. In that event, the Convention will cease to have effect with respect to dividends, interest and royalties paid, credited or otherwise derived on or after January 1 following the expiration of the six-month period and, with respect to all other income, for taxable years (or income years) beginning on or after January 1 following the expiration of the six-month period. As an exception to those general rules, the provisions of the Convention concerning social security benefits and similar public pensions provided in paragraph 2 of Article 18 (Pensions, Annuities, Alimony and Child Support) may be terminated by either Contracting State at any time by giving prior notice to the other State through diplomatic channels.