On August 1, 2022 the Australian Treasury published draft legislation to stop the taxation of income of non‑resident Indian firms providing technical services remotely to Australian customers and the draft explanatory memorandum for public consultation. Please note that the consultation period is short. The consultation period runs from August 1, 2022 until August 8, 2022.
On 2 April 2022, in connection with the Australia‑India Economic Cooperation and Trade Agreement (AI‑ECTA), Australia agreed to amend Australia’s domestic taxation law to stop the taxation of income of non‑resident Indian firms providing technical services remotely to Australian customers. Australia and India agreed that this outcome would be implemented in a similar time period as the AI‑ECTA. The side letters on taxation exchanged between Australia and India are available on DFAT’s website.
The Government has released draft legislation to implement the agreement reached between Australia and India on taxation.
The draft legislation proposes that the amendments will commence on the later of the day of Royal Assent and the day the AI‑ECTA enters into force for Australia. However, the amendments will not commence at all if the AI‑ECTA does not enter into force.
About the draft legislation
The draft legislation amends the Agreements Act to stop Australian taxation on income of non-resident Indian firms providing technical services remotely (not through a permanent establishment) to Australian customers that are covered by Article 12(3)(g) of the Indian Agreement, that is a not a royalty within the meaning of the ITAA 1936, and that is only taxable in Australia because of the operation of Article 12(3)(g) and Article 23 of the Indian Agreement, as given effect by the Agreements Act.
Currently, Australia is taxing payments or credits paid to non-resident Indian firms by Australian customers for technical services covered by Article 12(3)(g) that are provided remotely. Australia taxes these payments or credits of non-resident Indian firms due to operation of both the royalty definition and the Source Article (Article 23) under the Indian Agreement, which were included when it was first agreed in 1991.
Following extensive negotiations in 2021 and 2022, as part of the AI-ECTA, the Australian Government agreed to stop the taxation of payments or credits paid to non-resident Indian firms by Australian customers for technical services covered by Article 12(3)(g) that are provided remotely. This commitment was reflected through an exchange of side letters on 2 April 2022 between the then Minister for Trade, Tourism and Investment and their Indian counterpart. The Australian Government agreed to implement this legislative change in a similar time frame to the implementation of the AI-ECTA, an interim agreement.
The draft legislation as available on the website of the Australian Treasury can be found here.
The draft explanatory memorandum as available on the website of the Australian Treasury can be found here.
How To Respond
Address written submissions to:
Tax Treaties Branch
Corporate and International Tax Division
Parkes ACT 2600
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