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Under Article 10.3 of the tax treaty between Australia and the United Kingdom of Great Britain and Northern Ireland contained in Schedule 1 to the International Tax Agreements Act 1953 (the UK Convention), are unfranked dividends paid by an Australian resident subsidiary to the taxpayer, a United Kingdom (UK) resident company, not taxed in Australia where the taxpayer has owned all the shares of the Australian resident subsidiary since 1990 and the Australian competent authority has made a determination under Article 10.3(c) of the UK Convention?

Yes. Unfranked dividends paid by the Australian resident subsidiary to the taxpayer are not taxed in Australia where the taxpayer has owned shares representing 80 per cent or more of the voting power of the Australian resident subsidiary for a 12 month period ending on the date of the dividend is declared, Article 10.3(a) or (b) of the UK Convention are not satisfied and the Australian competent authority has made a determination under Article 10.3(c) of the UK Convention.

The taxpayer is a UK resident company. One of the taxpayer's wholly-owned subsidiaries is an Australian resident. The taxpayer has held and continues to hold its investment in its Australian resident subsidiary since 1990.

All the shares in the taxpayer were held by a UK resident company the shares of which have been listed on the London Stock Exchange since 1993.

In 2000, another UK resident company that was a wholly owned subsidiary of a company, the shares of which are listed on Country A Stock Exchange acquired all the shares of the UK resident listed company

The taxpayer continued to own all the shares in the Australian resident company.

During the income year, the Australian resident company paid unfranked dividends to the taxpayer, which is the company that is beneficially entitled to and the beneficial owner of the dividends.

The Australian competent authority has determined under Article 10.3(c) of the UK Convention and in accordance with Australian law, that the establishment, acquisition or maintenance of the taxpayer and the conduct of its operations did not have as one of its principal purposes the obtaining of benefits under the UK Convention.

Article 10.3(c) of the UK Convention provides that dividends paid by a company that is a resident of Australia shall not be taxed in Australia if: • the person who is beneficially entitled to the dividends is a company that is a resident of the UK that has owned shares representing 80% or more of the voting power of the company paying the dividends for a 12 month period ending on the date the dividend is declared; and • the company that is the beneficial owner of the dividends does not meet the requirements of Articles 10.3(a) or 10.3(b) but the Australian competent authority determines, in accordance with the law of Australia, that the establishment, acquisition or maintenance of the company and the conduct of its operations did not have as one of its principal purposes the obtaining of benefits under the UK Convention.

In the present case, the taxpayer: • is a UK resident company, • is beneficially entitled to and beneficial owner of the dividends; • has owned since 1990 all the shares in the Australian resident company paying the dividends; • does not have its principal class of shares listed and regularly traded on one or more recognised stock exchanges; and • is not owned directly or indirectly by one or more companies whose principle class of shares are similarly listed and regularly traded.

Furthermore, the Australian competent authority has made a determination under Article 10.3(c) of the UK Convention.

Accordingly, the taxpayer satisfies the requirements of Article 10.3 of the UK Convention. The unfranked dividends paid by the Australian resident subsidiary to the taxpayer will not be subject to tax in Australia.