Australian Tax Office reminds taxpayers not to undertake treaty shopping arrangements

On 20 July 2022 the ATO released its Taxpayer Alert TA 2022/2 to remind taxpayers not to undertake “treaty shopping” arrangements in order to reduce Australian withholding tax (WHT) under a Double Tax Agreement (DTA) in relation to a royalty or unfranked dividend payment from Australia.

‘Treaty shopping’ broadly involves corporate groups interposing related entities in DTA friendly jurisdictions to obtain a more favourable WHT rate than would have applied if a payment from Australia were received directly by the ultimate recipient, in a country with no or a less favourable DTA with Australia.

The ATO will engage with taxpayers and advisers to scrutinise existing and proposed arrangements exhibiting features outlined in TA 2022/2, and in appropriate circumstances penalise the taxpayer under Australian tax laws, including using the “Part IVA” general anti-avoidance rules and/or diverted profits tax rules.

If you have entered into, or are contemplating entering into, an arrangement of this type, we encourage you to discuss your situation with your Grant Thornton contact.