Reliable residency is closer than ever

Reliable residency is closer than ever

Vimal Vincent, Financial Services Specialist, discusses the OECD proposal to recognise pensions funds and what this means for Australia super funds.

Manager, Tax

KPMG Australia


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For a long time the ability of Australian superannuation funds (ASF) to access treaty rates of withholding tax has been uncertain in many overseas jurisdictions. This stems from conjecture as to whether ASFs satisfy the residency requirements of Australia’s Double Tax Agreements (DTA).

In many of these overseas jurisdictions, ASFs are able to reclaim overpaid withholding tax. However, difficulties in demonstrating that the relationship between an ASF and its members is substantially similar to that of pension funds in overseas jurisdictions mean that the process of reclaiming overpaid withholding tax can be time consuming and a drain on resources.

To address this, the Organisation for Economic Co-operation and Development (OECD) released a Public Discussion Draft (the DD), which proposes to alter the OECD Model Tax Convention and the supporting commentary to redefine residency to include pension funds, and thereby facilitate ASFs access to treaty rates of withholding tax.

The DD proposes to include a ‘recognised pension fund’ with the following elements in the definition of a resident:

  • constituted and operated to provide retirement or similar benefits to individuals or invest funds for the benefit of entities or arrangements
  • that will themselves qualify as recognised pension funds
  • treated as separate persons under the taxation laws of the given country
  • regulated as pension funds by the country in which they are established.

These changes are proposed to be adopted through a multilateral instrument, which will modify existing DTAs of a given jurisdiction and avoid the need to each DTA to be individually amended.

This is a welcome development for ASFs as it reduces the administrative burden in respect of their withholding tax obligations. We recommend that ASFs review their current withholding tax arrangements to identify areas where this change may be relevant.

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