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09 January 2023

Australia-India Economic Cooperation and Trade Agreement enters into force

  • The Australia-India Economic Cooperation and Trade Agreement, which ensures that payments or credits paid to Indian residents by Australian customers for technical services provided are not subject to tax in Australia, applies to income years beginning on/after 29 December 2022.
  • The agreement applies from 1 April 2023 for Indian companies with a 31 March year-end.

Australian Assistant Treasurer Stephen Jones has now made the Notifiable Instrument (Treasury Laws (Announcement of Australia-India Economic Cooperation and Trade Agreement Entry into Force) Instrument 2022) required for the Australia-India Economic Cooperation and Trade Agreement (AI-ECTA) to enter into force (Treasury Laws Amendment (Australia-India Economic Cooperation and Trade Agreement Implementation) Act 2022). The AI-ECTA applies to income years starting on or after the specified commencement date of 29 December 2022.

The AI-ECTA, which was signed on 2 April 2022, unilaterally removes Australian deemed source taxation on payments or credits paid to Indian residents by Australian customers for technical services provided remotely (i.e., not by an Australian permanent establishment) that are covered by Article 12(3)(g) of the Australia-India Double Taxation Agreement (DTA), that is not a royalty within the meaning of Australian tax law.

This will have practical effect for Indian companies with a 31 March year-end for financial years starting from 1 April 2023.

Prior to this amendment, these payments were subject to tax in Australia (deemed to be Australian sourced by virtue of Article 23 of Australia-India DTA) following the decision in Tech Mahindra Ltd v Commissioner of Taxation [2016] FCAFC 130.

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For additional information with respect to this Alert, please contact the following:

Ernst & Young (Australia), Sydney

Ernst & Young (Australia), Melbourne

Ernst & Young LLP (United States), Australia Tax Desk, New York

Document ID: 2023-0058

 

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