Australia signs bilateral tax treaty with Ukraine

Australia has signed a tax treaty with Ukraine to build “even closer” economic relations and bolster support for the Ukraine economy currently under “maximum pressure”.

The announcement came on Friday, 17 October at a joint press conference in Washington D.C., where Treasurer Jim Chalmers was joined by Australian Defence Industry Minister, Pat Conroy.

During the press conference, Chalmers said he had signed the tax treaty between the two countries with Ukrainian Finance Minister, Sergii Marchenko.

“We salute and we support the extraordinary bravery and courage of the Ukrainian people in the face of Russian aggression. We support the Ukrainian people and its government militarily,” Chalmers said.

“We support them across the board but today was an important demonstration of our ability to build even closer economic relations between Australia and Ukraine at a time when its economy, for obvious reasons, is under maximum pressure.”

Once Chalmers made this announcement, he handed over to Conroy, who said Australia was proud to be the biggest non-NATO supporter of Ukraine in terms of military assistance over $1.3 billion.

Before being signed, the tax treaty with Ukraine had been in negotiation since October last year as part of Australia’s expanded tax treaty program first announced in December 2023.

According to the Australian government department of foreign affairs and trade, Australia’s objective along with its partners was to “empower Ukraine to achieve a just, fair and lasting peace”.

In terms of Australian tax treaties with other countries, Treasury revealed it consistently looked to sign and forge the relationships to foster collaboration between Australia and other international tax authorities.

The ATO added that tax treaties were also a mechanism to avoid double taxation, with Australia holding tax treaties with more than 40 jurisdictions.

“A tax treaty is also referred to as a tax convention or double taxation agreement (DTA). They prevent double taxation and fiscal evasion, and foster cooperation between Australia and other international tax authorities by enforcing their respective tax laws,” the Tax Office said.

Australia’s various tax treaties come in the form of income tax treaties, tax information exchange agreements, estate gift tax treaties, East Timor agreements, convention on mutual administrative assistance in tax matters, FATCA intergovernmental agreement and the multilateral instrument.

The multilateral instrument referred to the multilateral convention to implement tax treaty related measures to prevent base erosion and profit shifting.

“The multilateral instrument is a multilateral treaty that enables jurisdictions to swiftly modify their tax treaties to implement measures designed to better address multinational tax avoidance and more effectively resolve tax disputes,” the ATO said.

It was added that the purpose of the multilateral instrument needed to be taken note of as it had modified some of Australia’s tax treaties and was set to modify more treaties in due course, therefore, “the potential impact of the multilateral instrument needs to be considered when interpreting Australia’s tax treaties”.

Australia’s tax treaties also had three basic principles applied: residency versus source, business profits and tax relief, all of which related to a person’s residency status and how tax applied to income and business profits they earned, or tax relief they received in the other jurisdiction.

The ATO noted it was important for individual taxpayers and companies or trusts to work out if they were affected by a tax treaty.

“Your residency status determines the jurisdiction in which you pay income tax and how much tax you are liable to pay,” it said.

“Most tax treaties include a ‘tie-breaker’ test under which a dual resident is deemed to be a resident solely of one of the two jurisdictions for the purposes of taxation.”