Assessability of salary and wages earned by resident working for Interpol in France

Are the salary and wages received by a resident taxpayer from working in France for the International Criminal Police Organization (Interpol) assessable under subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997)?

Yes. The salary and wages received by an Australian resident taxpayer from working in France for Interpol are assessable under subsection 6-5(2) of the ITAA 1997.

The taxpayer is a resident of Australia for taxation purposes.

The taxpayer is an employee of the Australian Government who was seconded to Interpol.

The taxpayer is regarded as an official of Interpol during the term of the secondment.

The taxpayer worked in France for a continuous period of at least 91 days.

The taxpayer received salary and wages in respect of their employment in France.

The taxpayer's salary and wages are exempt from taxation in France pursuant to French laws dealing with privileges and immunities of Interpol and its employees.

Subsection 6-5(2) of the ITAA 1997 provides that the assessable income of a resident taxpayer includes ordinary income derived directly or indirectly from all sources, whether in or out of Australia, during the income year.

Salary and wages are ordinary income for the purposes of subsection 6-5(2) of the ITAA 1997.

Subsection 6-15(2) of the ITAA 1997 provides that if an amount is exempt income then it is not assessable income.

Section 11-15 of the ITAA 1997 lists those provisions dealing with income which may be exempt. Included in this list is section 23AG of the Income Tax Assessment Act 1936 (ITAA 1936) which deals with overseas employment income.

Subsection 23AG(1) of the ITAA 1936 provides that where a resident taxpayer is engaged in foreign service for a continuous period of not less than 91 days, any foreign earnings derived will be exempt from tax. 'Foreign service' includes service in a foreign country in the capacity as an employee and 'foreign earnings' include income consisting of salary and wages (subsection 23AG(7) of the ITAA 1936).

Subsection 23AG(2) of the ITAA 1936 provides that the exemption in subsection 23AG(1) of the ITAA 1936 will not apply where the income is exempt from income tax in the foreign country only because of any of the reasons listed therein.

Paragraphs 23AG(2)(a) and 23AG(2)(b) of the ITAA 1936 list exceptions that apply where the income is exempt in the foreign country because of a double tax agreement or a law giving effect to a double tax agreement.

Therefore, in determining liability to Australian tax on foreign sourced income received by a resident, it is necessary to consider not only the income tax laws but also any applicable double tax agreement contained in the International Tax Agreements Act 1953 (the Agreements Act).

Section 4 of the Agreements Act incorporates that Act with the ITAA 1936 and the ITAA 1997 so that those Acts are read as one.

Schedule 11 to the Agreements Act contains the double tax agreement between Australia and French Republic (the French Agreement). Schedule 11A to the Agreements Act contains the protocol amending the French Agreement (the French Protocol). The French Agreement and French Protocol operate to avoid the double taxation of income received by Australian and French residents.

Article 26(2) of the French Agreement provides that the French Agreement shall not apply to: (a) international organizations, to organs or officials thereof, or (b) to persons who are members of a diplomatic or consular mission of a third State and who, being present in a Contracting State, are not treated in either Contracting State as residents in respect of taxes on income.

The taxpayer is regarded as an official of Interpol for the duration of their secondment. As Interpol is an international organisation, the French Agreement does not apply to the taxpayer because of Article 26(2) of the French Agreement.

Therefore, paragraphs 23AG(2)(a) or 23AG(2)(b) of the ITAA 1936 do not apply to the taxpayer.

Paragraphs 23AG(2)(c) and 23AG(2)(d) of the ITAA 1936 list further exceptions that apply where the income is exempt in the foreign country because the law of the foreign country does not provide for the imposition of income tax or provides a general exemption from income tax on one or more of the following categories of income: (i) income derived in the capacity of an employee (ii) income from personal services, or (iii) similar income.

The tax law of France generally provides for the taxation of employment income and does not generally exempt income of that nature from income tax. Therefore, paragraphs 23AG(2)(c) and 23AG(2)(d) of the ITAA 1936 do not apply.

Paragraphs 23AG(2)(e), 23AG(2)(f) and 23AG(2)(g) of the ITAA 1936 list the final exceptions that apply where the income is exempt in the foreign country because of a law corresponding to the International Organisations (Privileges and Immunities) Act 1963 (the IO(P&I)A) or an international agreement to which Australia is a party that deals with privileges and immunities in relation to persons connected with international organisations.

On 3 November 1982, Interpol and the French Government entered into the 'Agreement between the International Criminal Police Organization and the Government of the French Republic regarding Interpol's Headquarters and its Privileges and Immunities in France' (the Headquarters Agreement).

The Headquarters Agreement was entered into on the basis that Interpol should enjoy the privileges and immunities generally accorded to international organisations with their headquarters on French territory.

Article 19(1) of the Headquarters Agreement provides an exemption from French income tax on salaries received by Interpol employees working in France.

Appendix B of the Headquarters Agreement provides that Interpol staff include seconded government officials.

The French Parliament passed Law No 83-1023 on 3 December 1983 which approved the signing of the Headquarters Agreement and the privileges and immunities contained therein. On 6 March 1984, the French Parliament issued Decree No 84-172 advising of the publishing of the Headquarters Agreement in the Official Journal of the French Republic.

Law No 83-1023 and Decree No 84-172 are laws that achieve the effect of granting privileges and immunities to employees of international organisations, being laws required to give legal effect to the provisions of the Headquarters Agreement. Those laws are laws of France that correspond to the IO(P&I)A.

As the income is exempt in France because of a law corresponding to the IO(P&I)A, paragraph 23AG(2)(e) of the ITAA 1936 will apply.

Accordingly, the salary and wages received by the taxpayer are not exempt under subsection 23AG(1) of the ITAA 1936.

As there are no other provisions in the ITAA 1997 or any other Commonwealth law (eg the IO(P&I)A and its regulations) that treat the salary and wages as exempt income, the salary and wages received by the taxpayer from working in France for Interpol are assessable under subsection 6-5(2) of the ITAA 1997.