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Double tax treaty treatment put to the test

Double tax treaty treatment put to the test

KPMG’s Peter Madden, Angela Wood, Liam Delahunty, Annemarie Wilmore and Jacqueline McGrath explore a significant Full Federal Court decision.


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The ‘shield but never a sword’ heresy – regarding the application of Australia’s double tax treaties – has been put to the sword.

The Full Federal Court handed down its decision in Satyam Computer Services Limited v Commissioner of Taxation on Thursday. This confirmed Perry J’s finding in Tech Mahindra Limited v Federal Commissioner of Taxation, that the “deemed source” Article 23(1) in the India /Australia Double Tax Agreement (Indian Agreement) can operate to deem income to have a source in Australia, for the purposes of Australia’s domestic tax law. The result is that such income can be liable to tax in Australia notwithstanding that the income in question would not have been liable to tax in Australia under Australian domestic law, but for the application of double tax agreements including the Indian Agreement.

This is a significant decision as it comprehensively extinguishes the arguments and “tax lore” that the double tax agreements Australia has entered into can only be applied to restrict the application of Australia’s domestic tax law. This decision is unsurprising having regard to the manner in which Australia’s double tax agreements are incorporated into Australia’s domestic tax law, and also the application of well-established principles of statutory interpretation. The finding has wide-ranging implications beyond the specific issue dealt with and highlights the risks of adopting filing positions based on long standing practices and optimistic tax advice, without thoroughly analysing the relevant law.

To read more analysis of this case, please register for KPMG Tax Now

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