ATO ID 2004/111: Ship agency commission fees derived by a Danish taxpayer in Australia
Date of decision: 23 December 2003
Year of income: Year ended 30 June 2003
Business line: Public Groups and International

Issue
Are ship agency commission fees derived by the Australian branch of a Danish company covered by Article 8 of Schedule 18 to the International Agreements Act 1953 (the Agreements Act), such that these fees are only taxable in Denmark?

Decision
No. The ship agency commission fees derived by the Australian branch of a Danish company are not covered by Article 8 of Schedule 18 to the Agreements Act.

Facts
A Danish company is a holding company of a group of companies that own and operate shipping fleets. The holding company also has a branch office in Australia. This branch office is a commission agent. It arranges for exporters to move their cargoes on ships which are operated by other group companies. The branch office receives commission fees for organising these arrangements. The branch office is regarded as a 'permanent establishment' in Australia.

Reasons for decision
Summary: Schedule 18 to the Agreements Act contains the double tax agreement between Australia and Denmark (the Danish Agreement). The Danish Agreement operates to avoid double taxation of income received by Australian and Danish residents. Article 8 of the Danish Agreement deals with the treatment of profits from shipping and air transport. This Article provides that the profits from the operation of ships or aircraft derived by a resident of Denmark will be taxable only in Denmark unless the profits from the operation of the ships or aircraft are confined solely to places within Australia. Profits derived from the carriage of passengers, livestock, mail, goods or merchandise by ships or aircraft are treated as profits from the operations of ships or aircraft. The Danish company is a holding company and not a ship operating company accordingly, Article 8 of the Danish Agreement does not apply. Therefore, the ship agency commission fees derived by the Australian branch of a Danish company are not covered by Article 8 of the Danish agreement. Note: Article 7 of the Danish Agreement provides that business profits are taxable only in Denmark unless the profits are attributable to a 'permanent establishment' in Australia. As the branch office is a 'permanent establishment' in Australia as defined in Article 5 of the Danish Agreement, the profits from the ship agency commission fees may be taxed in Australia under Article 7 of the Danish Agreement.

Legislative references: International Agreements Act 1953 section 4 Schedule 18 Schedule 18, Article 5 Schedule 18, Article 7 Schedule 18, Article 8
Related public rulings and determinations: Taxation Ruling TR 2001/13
Subject references: Commission income Denmark Permanent establishment Shipping income