Private ruling: Permanent establishment
Published: October 2014
Ruling period: Year ended 30 June 2012
Date scheme commenced: 1 July 2011

Ruling: Questions and answers | 1) Do you have a permanent establishment in Australia? | No. | 2) Are you required to pay tax in Australia on the commission you receive from an Australian entity? | No.

Relevant facts and circumstances: You are a resident of Country Y. You are the trustee for a discretionary trading trust. The management and control of the trust is carried out in Country Y. You have no connections with Australia. You do not have an office or branch in Australia. You have no presence in Australia. You produce income by marketing, advertising and running seminars in Country Y regarding investments in Australia. You receive commission from an Australian entity. The Australian entity is not related to you in any way. All agreements, contracts and negotiations are done in Country Y.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 6-5. | Income Tax Assessment Act 1997 Section 6-10. | Income Tax Assessment Act 1997 Section 995-1. | Income Tax Assessment Act 1936 Section 6(1). | International Tax Agreements Act 1953 Section 5.

Reasons for decision: Summary: Subsection 6-5(3) of the Income Tax Assessment Act 1997 (ITAA 1997) provides that the assessable income of a non-resident taxpayer includes ordinary income derived directly or indirectly from all Australian sources during the income year. The income derived from sales of goods is ordinary income for the purposes of subsections 6-5(3) of the ITAA 1997. 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 treaties contained in the International Tax Agreements Act 1953 (Agreements Act). Section 4 of the International Tax Agreements Act 1953 incorporates that Act with the Income Tax Assessment Act 1936 (ITAA 1936) and the ITAA 1997 so that all three Acts are read as one. The Agreements Act overrides both the ITAA 1936 and ITAA 1997 where there are inconsistent provisions (except in some limited situations). Section 5 of the Agreements Act states that, subject to the provisions of the Agreements Act, any provision in an Agreement listed in section 5 has the force of law. The Country Y Agreement is listed in section 5 of the Agreements Act. The country y agreement operates to avoid the double taxation of income received by residents of Australia and country Y. In interpreting the wording of the tax treaty, the Commissioner accepts in Taxation Ruling TR 2001/13 that it is appropriate to have reference to the OECD Commentary on the Model Tax Convention on Income and Capital (the OECD Model Commentary). Under Article 7 of the Country Y Convention, the business profits of an enterprise of country Y shall be only taxable in Country Y unless the enterprise carries on business in Australia through a permanent establishment (PE) situated in Australia. If so, so much of the profit of the enterprises profit attributable to the PE in Australia may be taxed in Australia. PE is defined in Article 5(1) of the country y Convention as a fixed place of business through which the business of an enterprise is wholly or partly carried on, and includes a branch or an office. Paragraph 4 of the OECD Model Commentary on Article 5(1) explains that the term place of business generally covers any premises, facilities or installations used for carrying on the business of an enterprise whether or not they are used exclusively for that purpose so long as a certain amount of space is at its disposal. In your case, you do not have an office, a branch, a factory or a workshop in Australia. Therefore, you do not have a fixed place of business in Australia under Article 5(1) of the country y Agreement. You do not have a presence in Australia and all business is carried out in Country y. You are not required to pay tax on the commission you receive from the Australian entity as you do not have a PE in Australia.