ARTICLE 23

Non-Discrimination

This Article provides certain criteria of non-discriminatory application of the taxes covered by the Convention.

Paragraph 1 provides, first, that citizens of a Contracting State who are residents of the other State shall not be taxed less favorably in that other State than resident citizens of that other State who are in the same circumstances. It is understood that United States citizens who are not residents of the United States and Australian citizens who are not residents of the United States are not in the same circumstances with respect to the U.S. income tax, which is generally imposed on the worldwide income of U.S. citizens but not of Australian citizens.

Paragraph 1 also provides, in subparagraph (b), that interest, royalties, and other disbursements paid by a resident of a Contracting State to a resident of the other State shall be deductible for determining taxable profits under the same conditions as if they had been paid to a resident of the first-mentioned State. The term "other disbursements" is understood to include a reasonable allocation of executive and administrative expenses, research and development expenses, and other expenses incurred for a group of related enterprises.

Subparagraph (c) is the same as the corresponding paragraph in the U.S. Model. It requires that a Contracting State not impose more burdensome taxation on a subsidiary corporation owned by residents of the other Contracting State than it imposes on similar corporations which are locally owned.

Subparagraph (d) provides that a Contracting State may not impose more burdensome taxes on a permanent establishment of an enterprise of the other State than it imposes on its own enterprises carrying on the same activities in the same circumstances.

Paragraph 2 states that this Article does not affect the taxes of either Contracting State as in force on the date of signature of the Convention or tax laws subsequently enacted which are substantially similar to the existing taxes in purpose or are reasonably designed to prevent avoidance or evasion of tax. However, any subsequent tax measure must treat residents or citizens of the other State no less favorably than residents or citizens of a third State (except where the treatment of residents or citizens of third States is governed by an international agreement rather than by internal law).

Both Australia and the United States allow certain exemptions, deductions or rate reductions to residents taxed on their worldwide income which they do not extend to nonresidents not taxed on their worldwide income. For example, Australia imposes a 5 percent additional corporate tax on the profits of Australian branches of foreign corporations in lieu of a withholding tax on their profit remittances to the home office, denies to such branches the rebate on intercorporate dividends available to Australian corporations, and limits certain exemptions from the withholding tax on interest to funds borrowed abroad by domestic corporations owned and controlled by Australian residents. The United States does not extend to U.S. branches of foreign corporations the same deductions for dividends received from U.S. corporations which is available to U.S. corporations nor does it allow inclusion of income of foreign corporations in a consolidated return. Under this Article, those practices will not be in violation of the Convention; however, paragraph 2 in this regard is merely clarifying as neither Australia nor the United States would consider the foregoing provisions of its respective law to violate to non-discrimination provisions even in the absence of the rule of paragraph 2.

Paragraph 3 states that differentiating in taxation laws between residents and nonresidents does not of itself constitute discrimination contrary to this Article. This is merely an elaboration of the principles contained in paragraph 1, which require equal treatment of residents in the same circumstances. Residents and nonresidents are not in the same circumstances, reflecting the fact that in both countries residents are taxable on their worldwide income whereas nonresidents in general are taxable only on income from sources in that country.

Paragraph 4 provides that the competent authorities will attempt to resolve any instances of discriminatory taxation which might arise as a result of the tax measures of either country. Taxpayers may also take advantage of the provisions of Article 24 (Mutual Agreement Procedure) in such cases.