28 Aug 2009

Accessing Double Tax Agreements

by Darren

We are now going to look at who can benefit from the concessions offered in double tax agreements DTA apply to persons who are residents of one or both of the countries involved in the agreement. The definition of person under the DTA generally includes an individual, company and any other body of persons such as partnerships and trusts. Resident is based upon a specific article in the agreement as well as the definitions in the domestic laws. We have seen in earlier blogs the definition of resident in Australia, Singapore, USA, Japan, Hong Kong and China. As we can see from the definitions of residence there is the potential that a person can be a dual resident, i.e. a resident of both countries in the agreement. If the agreement was not in place then both countries would tax that individual on all income earned - double tax. The rules in the DTA vary depending on the actual agreement however, there is a tie-breaker provision that determines which country the taxpayer is resident. In general in the case of a company it will be the place where key management and commercial decisions are made. However, looking at the USA Australia DTA if there is a dual resident situation for companies then the company in question is deemed not entitled to the benefits of the DTA rather than apply the rule place of management. For an Individual firstly the agreements look at where the individual has his/ her permanent home, if this is not determinable then secondly look at where the individual has a habitual abode. Finally if the individual has a habitual abode in both countries then the agreements look at where the individual is a national.

Next entry: Income sourced within China - Individuals
Previous entry: Income sourced within Hong Kong

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