Australian nationals that are employees and office holders working for certain international organisations should be aware that under a recent decision of the High Court in Macoun v Commissioner of Taxation [2015] HCA 44 which has determined that former employees of certain international organisations are not exempt from paying tax on monthly pension payments received from the retirement fund once they cease to hold an office with that international organisation.

Which organisations are affected by the Courts’ decision?

Former employees of the following organisations will be required to pay tax on monthly pension payments received from the following organisations:

1. International Labour Organisation
2. Food and Agriculture Organization of the United Nations
3. International Civil Aviation Organization
4. United Nations Educational, Scientific and Cultural Organization
5. International Monetary Fund
6. International Bank for Reconstruction and Development
7. World Health Organization
8. Universal Postal Union
9. International Telecommunication Union
10. World Meteorological Organization
11. International Maritime Organization
12. International Finance Corporation
13. International Development Association
14. World Intellectual Property Organization
15. International Fund for Agricultural Development
16. United Nations Industrial Development Organization
17. World Tourism Organization

The facts of the case

The appellant, Mr Andrew Macoun, worked for the International Bank for Reconstruction and Development (IBRD), part of the World Bank, as a sanitary engineer. In 2009 and 2010 income years, he received monthly pension payments from a Retirement Fund established under the IBRD’s Staff Retirement Plan. The Commissioner for Taxation sought to include those monthly pension payments in Mr Macoun’s assessable income for 2009 and 2010 income years.

The Court unanimously decided that:

1. after Mr Macoun ceased to hold an office with the IBRD he was no longer able to enjoy exemption from tax in relation to the monthly pension payments he received from the Retirement Fund;

2. further, the monthly pension payments fell outside the phrase “salaries and emoluments” which were exempted from tax payment under the International Organisations (Privileges and Immunities) Act 1963 (the Act); and

3. the Convention on the Privileges and Immunities of Specialized Agencies (the Agencies Convention), construed in accordance with the principles under the Vienna Convention on the Law of Treaties (the Vienna Convention) does not require Australia to not tax Mr Macoun’s monthly pension payments.

Relevant law

The International Organisations (Privileges and Immunities) Act 1963 (and the regulations made under it) conferred privileges and immunities on officials of the UN in accordance with the Convention on the Privileges and Immunities of the United Nations. Under section 6(1)(d)(i) of Act and regulation 8(1) of the Specialised Agencies (privileges and Immunities) Regulations 1986 (the Regulations) a person who holds an office in an international organisation which the Act applies is exempted from paying tax on salaries and emoluments received from that international organisation.

The Fourth Schedule of the Act provided for certain privileges and immunities of officers and former officers (other than a High Officer) of the relevant international organisations. Relevantly, Part II of the Fourth Schedule of the Act provided that a former officer (other than a High Officer) of an international organisation to which the Act applies enjoyed “immunity from suit and from other legal process in respect of acts and things done in his capacity as such an officer” though Part I of the Fourth Schedule of the Act states that a current officer enjoys “exemption from taxation on salaries and emoluments received from the organisation.”

The Court held that the plain construction of the Act supports the proposition that a person who receives monthly pension payments while no longer an officer of an organisation is able to enjoy exemption from taxation on those payments. Further, the monthly pension payments were received from a Retirement Fund established under the Staff Retirement Plan which was separate from the IRDB. The enjoyment of exemption will depend on the status of the officer holder as and when the relevant amount being taxed is received.

The Court also dismissed Mr Macoun’s argument that his right to receive a pension was a vested right which existed when he was an officer holder, as it had not yet an obligation which had accrued to him.

Commentary

The Court also noted that privileges and immunities granted to an officer of an international organisation are granted for the benefit of the organisations, not the individuals themselves. As such, the international organisation may waive any privileges or immunities (not the officer) and it does not necessarily stop the international organisation from organising their affairs in such a way that a person may be considered an officer notwithstanding the fact they have ceased performing their usual duties.

What impact the High Court’s decision will have in regards to the development and operations of international organisations employing Australian nationals, remains to be seen. Some argue that the decision sets a “dangerous and unwise precedent which is antithetical to the consistent and uniform development of international law in Australia” Discussion on the potential impact of the Courts’ decision in Macoun are presently beyond the scope of this update.

However, it should be noted that notwithstanding that there is no generally accepted practice between sovereign States as to the exemption on payment of tax on retirement pensions from certain international organisations, the decision arrived by the High Court that the plain language of the Agencies Convention did not prevent a country from taxing a pensions was consistent with the interpretation rules required under the Vienna Convention which is consistent with legislative interpretation in Australia generally.

In summary, former-employees of international organisations should be mindful in setting up and administering pension plans of the potential effect and timing of payments of pensions when they cease to be “officers” of the international organisation.