On September 9, 2024 the Australian Treasury issued a press release that on that same date the Governments of Australia and the Republic of Slovenia had signed a Convention for the elimination of Double Taxation with respect to Taxes on Income and the Prevention of Tax Evasion and Avoidance (Hereinafter: the Convention).
Although the Convention has been signed, it has not entered into force yet. For the Convention to enter into force, the respective ratification procedures have to have been finalized in both jurisdictions.
Below we will discuss a selection of provisions included in the Convention of which we think they might interest our readers.
Persons covered
Article 1, Paragraph 1 of the Convention arranges that the Convention shall apply to persons who are residents of one or both of the Contracting States.
Article 1, Paragraph 2 subsequently arranges that for the purposes of the Convention, income (including profits or gains) derived by or through an entity or arrangement that is treated as wholly or partly fiscally transparent under the tax law of either Contracting State shall be considered to be income of a resident of a Contracting State but only to the extent that the income is treated, for purposes of taxation by that State, as the income of a resident of that State.
Taxes covered
Based on Article 2, Paragraph 3 of the Convention, the existing taxes to which the Convention shall apply are in particular:
(a) in Australia:
(i) the income tax;
(ii) resource rent taxes; and
(iii) the fringe benefits tax,
imposed under the federal law of Australia;
(b) in Slovenia:
(i) the tax on income of legal persons; and
(ii) the tax on income of individuals.
Permanent establishment
Article 5, Paragraph 3 of the Convention arranges that a building site or construction, assembly or installation project constitutes a permanent establishment only if it lasts more than nine months.
Article 5, Paragraph 4 of the Convention arranges that where an enterprise of a Contracting State:
(a) carries on supervisory or consultancy activities in the other State for a period or periods exceeding in the aggregate nine months in any 12 month period in connection with a building site or construction, assembly or installation project which is being undertaken 1in that other State;
(b) carries on activities (including the operation of substantial equipment) in the other State in the exploration for or exploitation of natural resources situated in that other State for a period or periods exceeding in the aggregate 90 days in any 12 month period; or
(c) operates substantial equipment in the other State (including as provided in subparagraph (b)) for a period or periods exceeding in the aggregate 183 days in any 12 month period,
such activities shall be deemed to be carried on through a permanent establishment of the enterprise situated in that other State, unless the activities are limited to those mentioned in paragraph 6 which, if exercised through a fixed place of business, would not make this place of business a permanent establishment under the provisions of that paragraph.
Article 5, Paragraph 6 of the Convention subsequently arranges that for the sole purpose of determining whether the periods referred to in paragraphs 3 and 4 have been exceeded:
(a) where an enterprise of a Contracting State carries on any of the activities referred to in paragraphs 3 and 4 in the other Contracting State during one or more periods of time that, in the aggregate, exceed 30 days without exceeding the aggregate period of time referred to in paragraphs 3 and 4; and
(b) connected activities are carried on in that other Contracting State during different periods of time, each exceeding 30 days, by one or more enterprises closely related to the first-mentioned enterprise, these different periods of time shall be added to the period of time during which the first-mentioned enterprise has carried on its activities.
Immovable property
Article 6, Paragraph 1 of the Convention arranges that Income derived by a resident of a Contracting State from immovable property (including income from agriculture or forestry) situated in the other Contracting State may be taxed in that other State.
Article 6, Paragraph 2 subsequently arranges that the term "immovable property" shall have the meaning which it has under the law of the Contracting State in which the property in question is situated. The term shall in any case include:
(a) property accessory to immovable property;
(b) livestock and equipment used in agriculture and forestry;
(c) rights to which the provisions of general law respecting landed property apply;
(d) usufruct of immovable property;
(e) a lease of land and any other interest in or over land, whether improved or not;
(f) a right to explore for mineral, oil or gas deposits or other natural resources, and a right to mine those deposits or resources; and
(g) a right to receive variable or fixed payments either as consideration for or in respect of the exploitation of, or the right to explore for or exploit, mineral, oil or gas deposits, quarries or other places of extraction or exploitation of natural resources.
Ships and aircraft shall not be regarded as immovable property.
With respect to immovable property Article 13, Paragraph 1 of the Convention arranges that Income, profits or gains derived by a resident of a Contracting State from the alienation of immovable property referred to in Article 6 and situated in the other Contracting State may be taxed in that other State.
Article 13, Paragraph 4 of the Convention subsequently arranges that Income, profits or gains derived by a resident of a Contracting State from the alienation of any shares or comparable interests, such as interests in a partnership or trust, may be taxed in the other Contracting State if, at any time during the 365 days preceding the alienation, these shares or comparable interests derived more than 50 per cent of their value directly or indirectly from immovable property, as defined in Article 6, situated in that other State.
Associated enterprises
Article 9, Paragraph 2 of the Convention (“Associated enterprises”) contains a so-called appropriate adjustment clause, which will be made under the condition that other State considers the adjustment justified.
Dividends
If the beneficial owner of the dividends is a resident of the other Contracting State, Article 10, Paragraph 2 of the Convention maximizes the withholding tax a Source State is allowed to withhold over dividends to:
(a) 5 per cent of the gross amount of the dividends if the beneficial owner is a company which, in the case of Australia, holds directly at least 10 per cent of the voting power in the company resident of Australia paying the dividends, or in the case of Slovenia, holds directly at least 10 per cent of the capital of the company resident of Slovenia paying the dividends, throughout a 365 day period that includes the day of payment of the dividend (for the purpose of computing that period, no account shall be taken of changes of ownership that would directly result from a corporate reorganisation, such as a merger or divisive reorganisation, of the company that holds the shares or that pays the dividend);
(b) 10 per cent of the gross amount of the dividends in all other cases.
Interest
If the beneficial owner of the dividends is a resident of the other Contracting State, Article 11, Paragraph 2 of the Convention maximizes the withholding tax a Source State is allowed to withhold over interest to:
(a) 5 per cent of the gross amount of the interest if the interest is derived by a financial institution which is unrelated to and dealing wholly independently with the payer, provided that the interest is not paid as part of an arrangement involving back-to-back loans or other arrangement that is economically equivalent and intended to have a similar effect to back-to-back loans;
(b) 10 per cent of the gross amount of the interest in all other cases.
Royalties
If the beneficial owner of the royalties is a resident of the other Contracting State, Article 12, Paragraph 2 of the Convention maximizes the withholding tax a Source State is allowed to withhold over the royalties to 10 per cent of the gross amount of the royalties.
Limitation on benefits
Article 27 of the Convention contains a.o. a so-called Principal Purpose Test.
Other
Furthermore the Convention contains a.o. provisions regarding a Mutual Agreement Procedure (Article 24), regarding the Exchange of Information (Article 25) and regarding the Assistance in the Collection of Taxes (Article 26).
The text of the Convention in both the English and the Slovenian languages can be found here.
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