The Negotiation and Drafting of the First Australia-Canada Taxation Treaty (1957)

The 1957 Australia-Canada taxation treaty was the third comprehensive taxation treaty entered into by Australia and the 11th entered into by Canada. Neither the negotiation and drafting of the treaty nor its relevance for understanding the development of the treaty practice and policy of each country has previously been the subject of published research. This article is based on archival sources located in the National Archives of Australia and in Library and Archives Canada. The impetus for the treaty came from Canada following submissions by Canadian businesses (initially shipping companies and subsequently Ford and Massey-Harris-Ferguson), which, after the signing of the 1946 Australia-UK taxation treaty and the 1953 Australia-US taxation treaty, regarded themselves as being at a competitive disadvantage as compared with UK or US businesses investing in or doing business with Australia. The active lobbying by Canadian business reflected the high levels of source taxation in Australia and Canada's then net capital export position in relation to Australia. Australia was initially reluctant to enter into further taxation treaties; but in 1953, awareness of the direct benefit that could flow to foreign investors through treaties, coupled with a desire not to offend Canada and notions of Commonwealth solidarity, meant that Australia was then willing to enter into a treaty with Canada on similar terms to those in the 1953 Australia-US treaty. Remarkably, following face-to-face negotiations in 1953, officials continued to negotiate via correspondence until 1957, even though the only technical issue of substantial disagreement between them concerned Australian undistributed profits tax. Canadian Department of Finance officials may have been concerned about a possible adverse US reaction if Canada conceded more to Australia on undistributed profits tax than it had to the United States in the 1946 Canada-US treaty. Once the technical issues had been resolved, following a concession by Canada on undistributed profits tax, the Australian Treasury reignited its general opposition to taxation treaties in response to adverse public reaction to high levels of dividend remittances by the Australian subsidiary of General Motors to its US parent. In both countries, the departments of External Affairs and relevant ministers were more concerned with promoting Commonwealth solidarity and direct investment between the two countries than with technical issues. Ultimately, this pragmatic and foreign-policy-oriented perspective prevailed, leading to the signing of the treaty in 1957. The treaty entered into was similar to earlier Canadian treaties but with variations resulting from Australia's desire to protect the operation of specific features of its domestic law. Some of those distinctive features continue in Australian treaty practice to this day. The impression gained from the negotiations is that, in this period, Canada was prepared to agree to unusual features in some treaties provided that they did not conflict with key features that Canada considered essential to all its taxation treaties.