Australia and Germany Enter into New Tax Treaty

November 13, 2015Taxesby EW News Desk Team

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On Thursday, Australia and Germany signed a new tax treaty, seen by many as the first step towards growing trade and investment between the two European nations. There is a need for greater closeness with regard to the tax systems of these nations in order to help prevent rampant multinational tax evasion.

Australian Finance Minister Mathias Cormann and German Finance Minister Wolfgang Schäuble formalized the deal in Berlin. The new deal replaces a previously existing double taxation agreement the two nations had observed since 1972. The deal came just before the arrival in Berlin of Australian Prime Minister Malcolm Turnbull on Friday.

Prime Minister Turnbull and German Chancellor Angela Merkel are set to release a series of recommendations of the Australia-Germany Advisory Group in Berlin on Friday night. The Australia-Germany Advisory Group came into existence a year ago when Chancellor Merkel visited Australia for the G20 leaders' summit.

The group now includes not only Mathias Cormann, but also:

* National Australia Bank chairman Michael Chaney

* Siemens Australia CEO Jeff Connolly

* Peter Jennings of the Australian Strategic Policy Institute

* Nicholas Milton, conductor of the Canberra Symphony Orchestra

* Australian National University professor Brian Schmidt

* Australia's ambassador to Germany David Richie

* Lucy Turnbull, president of the German-Australian Chamber of Industry and Commerce.

The group's recommendations include suggestions regarding ways to improve economic and cultural ties between the two nations, who have the world's fourth and twelfth largest economies, respectively. The group also seeks greater collaborations on matters including investment, trade, the arts, security, people links, and science and innovation.

According to a report by Financial Review, the new double taxation agreement will facilitate greater collaboration on these issues by reducing the rates of withholding tax, helping to create a better climate for bilateral investment while also making it cheaper for Australian businesses to access foreign capital and technology. It will also contain new arbitration rules and other provisions designed to prevent double-taxation, a problem that can deter business investment.

The treaty also helps the two nations come closer into alignment with the BEPS recommendations issued by the Organization for Economic Cooperation and Development. The progress on implementing BEPS laws in various nations will be a topic of discussion at the G20 summit in Turkey.

The new tax treaty will take effect after the Parliaments of both countries have ratified the agreement and then passed the requisite legislation.