EY-Global-oil-and-gas-tax-guide-2014

34 Australia
E. Withholding taxes
Interest, dividends and royalties
Interest, dividends and royalties paid to nonresidents are subject to a final
Australian withholding tax of 10%, 30% (on the unfranked portion of the
dividend (see Section B for a discussion on dividends)) and 30%, respectively,
unless altered by a relevant double tax agreement.
Australia has a comprehensive tax treaty network that can significantly
reduce these taxes. In addition, some recent double tax agreements specifically
exclude payments for the use of substantial equipment from the definition
of royalty.
Natural resource payments made to nonresidents are subject to a non-final
withholding tax. Natural resource payments are payments calculated by
reference to the value or quantity of natural resources produced or recovered
in Australia. Entities receiving natural resource payments are required to lodge
an income tax return in Australia, which includes the non-final withholding
tax paid.
Branch remittance tax
Branch remittance tax does not generally apply in Australia.
Foreign resident withholding tax and foreign contractor
withholding tax
Foreign resident withholding tax and foreign contractor withholding tax (FRWT)
of 5% must be withheld from payments made to foreign residents for certain
“works” and for related activities in connection with such works in Australia.
Works include the construction, installation and upgrade of buildings, plant
and fixtures, and include such works where they relate to natural gas field
development and oilfield development and pipelines. Related activities cover
associated activities, such as administration, installation, supply of equipment
and project management.
A variation of, or exemption from, the FRWT rate of 5% may be sought from
the ATO in certain circumstances: for example, if the relevant income is not
assessable in Australia, or if the rate of 5% is excessive in comparison to the
amount of tax that would ultimately be payable or if the foreign entity has an
established history of tax compliance in Australia.
Examples of payments that are not subject to FRWT include:
• Payments that constitute a royalty (a royalty withholding tax may apply
depending on the circumstances)
• Payments for activities relating purely to exploration-related activities
• Payments for services performed entirely outside of Australia
Withholding tax from clients of nonresidents doing business in
Australia without an Australian Business Number
An entity is required to withhold 45% 5 from a payment it makes to another
entity if the payment is for a supply made in the course or furtherance of an
enterprise carried on in Australia and the other entity does not correctly quote
its Australian Business Number (ABN).
The 45% need not be withheld if the ABN is correctly quoted or if the taxpayer
has evidence that the payment is being made to a nonresident for a supply that
is not made in carrying on an enterprise in Australia, or if it will be exempt from
income tax.
F. Financing considerations
Australia’s income tax system contains significant rules regarding the
classification of debt and equity instruments and, depending on the level of
funding, rules that have an impact on the deductibility of interest.
5 The tax is 46.5% (47% from 1 July 2014) if the recipient is not a “prescribed foreign
resident”.