FROM THE OFFICE OF PUBLIC AFFAIRS

The Treasury Department announced today that U.S. Ambassador J. Thomas Schieffer and Australian Treasurer Peter Costello signed a new Protocol to amend the existing bilateral income tax treaty, concluded in 1982, between the two countries.

"The new protocol amending the existing tax treaty between the United States and Australia reflects the close economic relationship between our two countries. We are pleased that the new agreement provides significant reductions in taxes on dividends, interest, and royalties that will facilitate cross-border trade and investment," stated Mark Weinberger, Treasury Assistant Secretary for Tax Policy, in explaining the significance of the Protocol.

The agreement significantly reduces tax-related barriers to trade and investment flows between the United States and Australia. It also modernizes the treaty to take account of changes in the laws and policies of both countries since the current treaty was signed. The new Protocol brings the tax treaty relationship with Australia into closer conformity with U.S. treaty policy.

The most important aspects of the new Protocol deal with the taxation of cross-border dividend, royalty and interest payments. In many cases, the new Protocol places limits on source-country taxation that are significantly lower than the level of taxation permitted under the existing treaty. The new Protocol is only the second U.S. tax agreement to provide a zero rate of withholding tax on dividends arising from certain direct investments. Dividends from 10-percent owned corporations which do not qualify for this exemption would be subject to a maximum rate of withholding tax of 5 percent under the Protocol (instead of the 15-percent maximum rate of the existing treaty). The new Protocol also reduces the level of withholding tax on royalty payments from the 10-percent rate in the existing treaty to a maximum 5-percent rate and eliminates entirely withholding tax on rental payments with respect to leases of personal property. In addition, the new Protocol eliminates the withholding tax on interest payments to financial institutions and interest paid to the governments of each country. The new Protocol also clarifies that Australia's tax on capital gains will be a covered tax for purposes of the existing treaty, thereby eliminating the potential for double taxation of U.S. taxpayers on such income.

Copies of the new Protocol are available from the Office of Public Affairs, Treasury Department, Room 2321, Washington, D.C. 20220, (202) 622-2960, or on the Internet at http:/www.treas.gov/taxpolicy/library/austral.pdf.