Private ruling: Permanent establishment- section 161 of the Income Tax Assessment Act 1936
Date of advice: 17 November 2025
Published: 5 January 2026
Date scheme commenced: 1 July 20XX

Ruling: Q1: Does the Applicant have a permanent establishment in Australia under double taxation agreement between Australia and Country A. | A1: No | Q2: If the answer to Question 1 is 'No', is the Applicant required to lodge annual income tax returns under section 161 of the Income Tax Assessment Act 1936 (ITAA 1936)? | A2: No This private ruling applies for the following periods: Year ending 30 June 20XX Year ending 30 June 20XX Year ending 30 June 20XX Year ending 30 June 20XX Year ending 30 June 20XX The scheme commenced on: 1 July 20XX

Relevant facts and circumstances: 1. The Applicant is foreign incorporated company. 2. The Applicant provides services to clients in various countries, including Australia. 3. The Applicant's office is located in Country A. 4. The Applicant does not have any offices in Australia and does not own, lease, or otherwise control any premises there. 5. All the Applicant's employees are located in Country A. 6. The Applicant does not have any employees or offices in Australia. 7. The Applicant's employees carry out the necessary work from Country A to deliver its services to its clients. 8. Generally, Services for clients in Australia are managed entirely from overseas: engagements are approved and concluded remotely, required information is exchanged electronically, analysis is performed offshore, and final deliverables are prepared and sent digitally. 9. Between 1 January 20XX to 31 December 20XX, the Applicant had entered into an independent contractor agreement with contractor (Company 1), a private company operating under its own Australian Business Number (ABN). The contractor's engagement was strictly on an independent basis, with no employment relationship, common ownership, or control between the Applicant and the contractor. No personnel of the contractor were employees of the Applicant, and all dealings were conducted on commercial terms and at arm's length. 10. The Applicant did not exercise any right to direct or control the contractor's operations. The contractor was solely responsible for delivering the agreed services and had no authority to negotiate or enter into contracts on behalf of the Applicant. The engagement was temporary, lasting for a period of 12 months (1 January 20XX to 31 December 20XX), and was not renewed thereafter. There was no ongoing or permanent relationship between the parties. 11. The agreement confirmed the contractor's role was limited to client referrals, with no authority to negotiate or conclude contracts. It also stated the contractor was independent and not subject to employer-style control. 12. Furthermore, the Applicant had no control over the contractor's other engagements, which were allowed provided they did not conflict with services to the Applicant or breach the agreement 13. The contractor had been engaged to provide services for a few days per month, unless otherwise agreed in writing (Clause X.1). 14. The contractor was engaged for a maximum of X days per month unless otherwise agreed in writing, confirming the non-exclusive nature of the arrangement. 15. Fees were set at AUD per day (plus GST if applicable) on arm's-length terms. 16. The contractor operated independently without detailed supervision or control by the Applicant. 17. The agreement expressly disclaimed any agency relationship or authority to bind the Applicant. 18. The relationship was strictly independent. 19. The contractor had no authority to conclude or enter into contracts on behalf of the Applicant. 20. The agreement reiterated the absence of any agency authority. 21. The Applicant had no other contractors in Australia. 22. All directors of the Applicant reside outside Australia; no local directors exist, all high-level decisions are made offshore, and no board meetings have ever been held in Australia.

Relevant legislative provisions: Income Tax Assessment Act 1936 section 6(1) | Income Tax Assessment Act 1936 section 161 | Income Tax Assessment Act 1936 Section 6(4) | Income Tax Assessment Act 1997 subsection 6-5(3) | International Tax Agreements Act 1953 subsection 3AAA (1) | International Tax Agreements Act 1953 section 5 | International Tax Agreements Act 1953 section 7 | International Tax Agreements Act 1953 subsection 5(1) | International Tax Agreements Act 1953 section 7 Australia-Country A Agreement Article 1 | Australia-Country A Agreement Article 2 | Australia-Country A Agreement Article 3 | Australia-Country A Agreement Article 4 | Australia-Country A Agreement Article 5 | Australia-Country A Agreement | Question 1 | Does the Applicant have a permanent establishment in Australia under Article 4 of Australia and Country A agreement. | Summary | The Applicant does not have a PE in Australia including during the time a third party contractor was engaged by the Applicant. | Detailed reasoning | All legislative references are to the ITAA 1936 unless otherwise stated | 23. The rules for when income is assessable based on your residency status are set out under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997). For foreign residents, your assessable income includes only income derived from an Australian source. | 24. In determining liability to tax on Australian sourced income, it is necessary to consider not only the income tax laws but also any applicable tax treaty. In the case of Country A, the relevant agreement is the Australia and Country A agreement(Country A DTA). | 25. Under Article 5 of the Country A DTA, profits of an enterprise are taxable only in its home country unless it operates in the other country through a permanent establishment (PE). | 26. The business profits of the Applicant are taxable only in Country A unless the Applicant carries on business in Australia through a permanent establishment located in Australia, then the profits attributable to that establishment may be taxed in Australia. | The Country A DTA | 27. Section 7 of the International Tax Agreements Act 1953 (Agreements Act) gives the Country A DTA the force of law. Subsection 5(1) of the Agreements Act gives the first amending protocol and second amending protocol the force of law. | Applicability of the Country A DTA | 28. In order to determine if a PE exists under Article 4 of the Country A DTA, it is necessary to firstly determine whether the Country A DTA applies to the Applicant. | A 'person' | 29. Under Article 1A of the Country A DTA, it applies to persons who are residents of one or both Contracting States. | 30. Article 2(1)(j) of the Country A DTA defines a 'person' to include 'an individual, a company and anybody of persons, corporate or not corporate'. A 'company' is defined in Article 2(1)(f) of the Country A DTA to include 'anybody or association which is treated as a company for tax purposes'. | A 'resident' | 31. In determining whether the Applicant is a resident of one or both Contracting States, Article 3(1)(c) of the Country A DTA defines 'Country A resident' to mean 'any Country A company and any person (other than a company) who is resident in Country A'. | 32. Article 3(1)(b) of the Country A DTA defines 'Country A company' to mean 'any company which is managed and controlled in Country A, and which is not an Australian company'. | 33. In applying the above definitions to the Applicant: | • the Applicant is incorporated in Country A, | • the Applicant is managed and controlled in Country A given XX% of the board of directors are physically in Country A during the Applicant's board of directors' meetings and none of the director is located in Australia, | • the Applicant is not an Australian company. | 34. The Applicant is therefore both a person and a Country A resident for the purpose of Article 1A of the Country A DTA. As such, the Country A DTA applies to the Applicant. | Permanent Establishments | 35. The term 'permanent establishment' is defined in Article 4(1) of the Country A DTA as 'a fixed place of business through which the business of the enterprise is wholly or partly carried on'. | 36. Article 4(2) of the Country A DTA (as amended by the first amending protocol) states that a 'permanent establishment' includes but is not limited to: | (a) a place of management; | (b) a branch; | (c) an office; | (d) a store or other sales outlet; | (e) a factory; | (f) a workshop; | (g) a warehouse except where it is used solely for any of the purposes mentioned in paragraph (4); | (h) a mine, an oil or gas well, a quarry or any other place of extraction of natural resources; and | (i) a building site, or a construction, installation or assembly project, but only where such site or project or any combination of them continues for a period aggregating more than 6 months within any 12-month period. | 37. Article 4(5) of the Country A DTA also provides that a PE may exist where a Country A enterprise carries on a business in Australia through a person (other than an independent agent) who has authority to conclude contracts on behalf of that enterprise and habitually exercises that authority in Australia. | 38. Article 4(6) of the Country A DTA provides a carve-out, "An enterprise shall not be deemed to have a permanent establishment merely because it carries on business in that other State through a broker, general commission agent or any other agent of an independent status, provided that such persons are acting in the ordinary course of their business." | 39. For present purposes, the Country A DTA requires an assessment of whether the Applicant has a PE in Australia, including in the context of engaging the services of an unrelated Australian entity, the Contractor. | 40. Taxation Ruling TR 2001/13. It confirms that the interpretation of DTAs often involves considering international models and commentaries. Specifically, paragraph 104 of TR 2001/13 states that commentaries on the interpretation and application of the OECD Model Convention will often need to be considered as a matter of practice in interpreting tax treaties. | 41. The OECD Model Tax Convention (2017) provides guidance on determining whether a permanent establishment (PE) exists. Paragraph 6 of the Commentary states that three cumulative conditions must be met: there must be a place of business, that place must be fixed with a degree of permanence, and the enterprise's business must be carried on through that fixed place. | 42. Additionally, if a non-resident enterprise does not operate through a fixed place of business in Australia, it may still be deemed to have a PE under Article 4(5) of the Country A DTA. This applies where a person acts on behalf of the enterprise in Australia, is not an independent agent, has authority to conclude contracts on behalf of the enterprise, and habitually exercises that authority. | Application to the Applicant | Residency | 43. The Applicant is incorporated in Country A and therefore fails the incorporation test for Australian residency. | 44. All directors are based in Country A, and central management and control is exercised there. | 45. All shareholders are Country A residents, so the voting power test is not satisfied. | 46. The Applicant does not meet the incorporation, central management and control, or voting power tests and is not an Australian resident under subsection 6(1) of the ITAA 1936. Its income is assessable in Australia only if it has a permanent establishment under Article 4 of the Country A DTA. | Permanent establishment | 47. Having clients in Australia and providing services does not, by itself, create a permanent establishment under Article 4 of the Country A DTA. | 48. The Applicant's operational headquarters and all core functions, including management and support, are in Country A, and no employees are located in Australia. | 49. The Applicant operates from a fixed place of business in Country A and has no fixed place of business in Australia as described in Article 4(2) of the Country A DTA. | 50. The only presence in Australia was a third-party contractor engaged between 1 January 20XX to 31 December 20XX. | Use of a third party contractor (1 January 20XX to 31 December 20XX) | 51. Although the Applicant does not operate through a fixed place of business in Australia, a PE could still arise under Article 4(5) of the Country A DTA. | 52. Under Article 4(1) of the Country A DTA, a PE requires a fixed place of business. The Applicant's arrangement with The contractor does not meet this test: the contractor worked under its own ABN, was independent, and no office or premises were provided. | 53. The contractor's personnel were not employees, had no authority to conclude contracts, and the engagement was temporary (1 January 20XX to 31 December 20XX), confirming no ongoing presence under Article 4(1) of the Country A DTA. | 54. Under Article 4(5)(c) of the Country A DTA, a PE may arise if a person habitually concludes contracts on behalf of the enterprise, unless they qualify as an independent agent under Article 4(6). The agreement disclaimed agency, allowed work for other clients, limited engagement to five days per month, and set arm's-length fees, confirming independent status. | Conclusion | 55. Based on the facts outlined above we consider the contractor acted as an independent agent in the ordinary course of its business, and therefore the 'carve-out' in Article 4(6) of the Country A DTA applies such that the Applicant did not have a PE in Australia during the period between 1 January 20XX to 31 December 20XX. | 56. In addition, as stated above, the Applicant does not have either a 'fixed place of business PE' under Article 4(1) of the Country A DTA. | 57. Under Article 5 of the Country A DTA, the business profits of an enterprise of Country A are taxable only in Country A, unless the enterprise carries on business in Australia through a PE situated in Australia. As the Applicant does not operate through a PE in Australia, the income it earns is not assessable in Australia. | Question 2 | If the answer to Question 1 is 'No', is the Applicant required to lodge annual income tax returns under section 161 of the Income Tax Assessment Act 1936 (ITAA 1936) Summary | Because the activities of the Applicant were not conducted through a PE in Australia, the Applicant is not required to lodge annual income tax returns as required by section 161 of the ITAA 1936. | Detailed reasoning | 58. Section 161 of the ITAA 1936 provides that every person must, if required by the Commissioner via a legislative instrument, lodge a return for a year of income within the period specified in that instrument. | 59. The following legislative instruments set out the requirements for lodging income tax returns for full self-assessment taxpayers, including companies, for the income years ending 30 June 20XX to 20XX: | Legislative Instruments and Applicable Provisions | Table 1: Lodgement requirement for full self-assessment taxpayers | Income Year Ended | Instrument | Applicable Provision | Lodgment Requirement for Full Self-Assessment Taxpayers | 30 June 20XX | LODGE 20XX/X | Table C | Must lodge if: | 1) Australian resident deriving income (including capital gains) from any source; or | 2) Non-resident deriving taxable Australian income, excluding payments listed in Table A(1)(a)(ii), (vi), or (vii) | 30 June 20XX | LI 20XX/X | Table C | Same as above: applies to full self-assessment taxpayers not covered by Table L or M | 30 June 20XX | LI 20XX/XX | Table C | Same criteria: applies to full self-assessment taxpayers, excluding certain trustees, who meet residency and income conditions | 30 June 20XX | LI 20XX/XX | Section 6(4) | Must lodge if: | (a) Australian resident deriving income (including capital gains) from any source; or | (b) Non-resident deriving taxable Australian income, excluding payments listed in subparagraphs 6(2)(a)(ii), (vi), or (vii) | 30 June 20XX | LI 20XX/X | Section 6(4) | Must lodge if: | (a) Australian resident deriving income (including capital gains) from any source; or | (b) Non-resident deriving taxable Australian income, excluding payments listed in subparagraphs 6(2)(a)(ii), (vi), or (vii) | 60. Under each of the legislative instruments issued pursuant to section 161 of the ITAA 1936, non-resident companies are not required to lodge an income tax return for the relevant income year unless it has derived income that is assessable in Australia. This exclusion does not apply where the company has received payments subject to Pay As You Go (PAYG) withholding under the Taxation Administration Act 1953 , which is not applicable in the present case. | Conclusion | 61. The Applicant was a non-resident of Australia who derived income from business activities connected with Australia. However, as those activities were not conducted through a PE in Australia, the resulting profits are taxable exclusively in Country A pursuant to Article 5 of the Country A DTA between the Government of Australia and the Government of the Republic of Country A for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income. | 62. Consequently, the Applicant is not required to lodge an income tax return in Australia under section 161 of the ITAA1936 as it did not derive assessable income for Australian tax purposes