DT2658 - Particular agreements: Australia: Interest

Where the beneficial owner is in the other territory, a reduced rate of 10% withholding tax is payable.

This reduced rate applies under both the old and new Agreements. However, under the new Agreement, interest is payable gross where the beneficial owner is:

• the territory itself, a political or administrative sub-division thereof, a local authority, any other body exercising governmental functions in the territory or a bank performing central banking functions there;
• a financial institution unrelated to and dealing wholly independently with the payer. There is a definition of financial institution: broadly a bank or similar enterprise. In cases of doubt, consult the wording of the Article.

The new Agreement applies for both UK and Australian withholding taxes from 1st July 2004.

Under the old Agreement, the 10% rate was not available if the recipient was not subject to tax on the interest in their country of residence and they sold the debt-claim on which the interest arose within three months (see DT2708). The new Agreement contains instead the standard UK anti-abuse provisions against treaty-shopping and excessive interest paid between connected persons.