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.