NO.094

CLARIFYING THE TAXATION OF FOREIGN GOVERNMENT INVESTMENTS

New legislation will be introduced to clarify the current practice of exempting

foreign governments and their investment bodies from interest and dividend withholding

taxes.

The exemptions apply only to sovereign income from passive investment, such

as a portfolio shareholding in an Australian listed company (that is, a holding

of less than 10per cent of the share capital of the company). No income from

commercial investments will be exempt from Australian tax.

Generally accepted international practice is that sovereign governments do

not pay tax to each other on income from passive investments. As the investment

options and structures available to foreign governments become more diverse

and complex, application of the exemption from Australian taxation of foreign

government investments has become more uncertain.

New legislation will clarify which foreign government investment bodies will

be exempt from Australian tax and what income will qualify for the exemption.

Similar treatment for foreign government investment is provided in other countries,

although practice varies considerably.

Interested stakeholders are urged to provide input into proposed legislation

governing tax treatment of foreign government investment.

The new legislation will apply to income derived on or after Royal Assent.

Those interested in being involved in this consultation process are invited

to email submissions to

taxtreatiesunitconsultation@treasury.gov.au

by 30 November 2005.

4 November 2005

MELBOURNE

Contact: Amanda Kennedy

03 9650 0244