Private ruling: Residency and 99B
Date of advice: 11 April 2019
Published: June 2019
Ruling period: Year ended 30 June 2019 | Year ended 30 June 2020 | Year ended 30 June 2021 | Year ended 30 June 2022
Date scheme commenced: XX XXX 20XX

Ruling: Q1: Are you a temporary resident under the Income Tax Assessment Act 1997 ? | A1: Yes | Q2: Does section 99B of the Income Tax Assessment Act 1936 apply to you if you receive a capital distribution from the Trust that is attributable to a source outside of Australia? | A2: No

Relevant facts and circumstances: You and your spouse will be receiving distributions from a Country X based trust (the Trust). The Trust is intending to distribute ‘capitalised distributions’ to the taxpayer which are composed of income that has been generated by the Trust in specified income years. The taxpayer and your spouse: ● are married to each other, ● were born in Country X and are citizens of Country X, ● are not Australian citizens or permanent residents of Australia, ● each hold a current Country X passport, and ● each entered Australia on their Country X passport each time they arrived in Australia. You were living in Country X a number of years ago. Later, you and your spouse purchased a property in Country Y. From around that time, you both lived in Country Y on visitor visas until you both became Country Y residents. A number of years later, you purchased an apartment in Australia. Since you purchased the apartment you and your spouse have: ● divided your time between Australia and Country Y; and ● treated the Australian Apartment as your home and your property in Country Y as a holiday house. You and your spouse intend to make your relocation to Australia permanent. You and your spouse intend to purchase a property in Australia. The Trust The Trust is a discretionary trust that was established in Country X a number of years ago. Until a specified date, the trustees of the Trust were: ● yourself – who had been a trustee for a number of years, and ● the Corporate Trustee, a company that is incorporated and has its registered office in Country X Since the specified date, the sole director of the Trust has been the Corporate Trustee. The directors of the Corporate Trustee are: ● Director 1 – a resident of Country X, and ● Director 2 – a resident of Country X. The settlors of the Trust were at the time of settlement, and remain today, Country X residents. You and your spouse are discretionary beneficiaries of the Trust. The Corporate Trustee makes and implements all decisions relating to the day-to-day administration of the Trust from Country X. These include decisions that relate to the payment of all expenses of the Trust, administering the Trust’s bank accounts, accounting for income earned by the Trust, arranging for the payment of distribution to beneficiaries and general administration matters. Trust resolutions are drawn up in Country X by the Corporate Trustee and the Trust’s Country X accountant. Until the specified date, all major investment decisions of the Trust were made jointly by the trustees based on the recommendations of the Corporate Trustee. Where an investment decision concerned a material change in the structure of the investment, the directors of the Corporate Trustee communicated their recommendation to you to obtain your agreement before implementing the proposal. The meetings of the Trustees were physically held in the offices of the Corporate Trustee in Country X. This is where the two directors of the Corporate Trustee reside. You never attended any of those meetings in person or via video link, telephone or any other electronic means. Where the directors of the Corporate Trustee requested your comments on their proposed decisions during the time you were a co-trustee, this occurred via e-mail. All of the Trust’s advisers (including accountants, lawyers and investment advisers) are located in Country X. The Trust has no bank account in Australia. Its only bank account is in Country X. The property of the Trust comprises: ● capital notes issued by Country X listed companies ● a property in Country Y ● an advance to yourself, and ● shares in Australian listed companies. The property of the Trust previously included shares in Country X companies. The property of the Trust has never included Australian real property or other Australian assets (with the exception of shares in Australian listed companies). The trust has derived income from the following sources: ● interest from capital notes issued by Country X listed companies ● dividends from Country X companies ● a capital gain on the disposal of shares in a Country X unlisted company ● interest from Country X bank accounts, and ● dividends from shares in Australian companies (to which withholding tax had been applied, but that were not otherwise assessed in Australia). Most of the Trust’s other income has been accumulated by the trustees, such that it forms part of the capital of the Trust. Other amounts of income were distributed to you or other beneficiaries in the years in which they were derived. The Trust is a Country X based trust that has been subject to and paid income tax in Country X on all its taxable income each financial year. Assumptions You and your spouse have been residents of Australia for taxation purposes since the specified date and intend to continue to be so for the remainder of the income year and the following years. On and from the specified date, only the Corporate Trustee, in its capacity as trustee of the Trust, will be involved in, and direct, control and oversee: ● the day to day administration of the affairs of the Trust; ● decisions regarding the investment strategy of the Trust and to make, hold and dispose of investments of the Trust; ● the obtaining of investment advice in relation to the investments of the Trust. On and from the specified date you will not have any direct or indirect involvement in the decision-making process of the Trust. On and after the specified date the Corporate Trustee will continue to make enquiries of yourself and other beneficiaries about their needs for distributions from the Trust. While the Trustee may take this information into account in the making of investment decisions, the Trustee will make all investment decisions independently of the taxpayer or associates of the taxpayer.

Relevant legislative provisions: Income Tax Assessment Act 1936 subsection 95(2) | Income Tax Assessment Act 1936 paragraph 95(2)(a) | Income Tax Assessment Act 1936 paragraph 95(2)(b) | Income Tax Assessment Act 1936 section 97 | Income Tax Assessment Act 1936 section 98 | Income Tax Assessment Act 1936 section 99 | Income Tax Assessment Act 1936 section 99A | Income Tax Assessment Act 1936 section 99B | Income Tax Assessment Act 1936 subsection 99B(1) | Income Tax Assessment Act 1936 subsection 99B(2) | Income Tax Assessment Act 1936 section 99C | Income Tax Assessment Act 1936 section 102AAZD | Income Tax Assessment Act 1997 subsection 6-15(3) | Income Tax Assessment Act 1997 section 104-170 | Income Tax Assessment Act 1997 section 768-910 | Income Tax Assessment Act 1997 paragraph 768-910 | Income Tax Assessment Act 1997 subsection 768-910(1)(b) | Income Tax Assessment Act 1997 subsection 768-910(2) | Income Tax Assessment Act 1997 subsection 768-910(3) | Income Tax Assessment Act 1997 subsection 768-910(5) | Income Tax Assessment Act 1997 section 802-17 | Income Tax Assessment Act 1997 subsection 995-1(1)

Reasons for decision: Summary: You are a temporary resident of Australia for taxation purposes for the relevant income years. The capitalised distributions that you receive from the Trust would ordinarily be assessable income of the taxpayer in the year of income in which they are distributed to you. This is because they have not previously been assessed for taxation in Australia. However, the temporary resident provisions will apply to the capitalised trust distributions to nevertheless make them non-assessable non-exempt income as follows: ● 2019 income year on and after the specified date – The income will be non-assessable and non-exempt. Following application of the Australia-Country X DTA the Trust is taken to be solely a resident of Country X for taxation purposes as its place of effective management is in Country X. ● Other income years – The Income will be non-assessable and non-exempt because the Trust is not a resident of Australia under domestic Australian taxation laws as it does not have a trustee that is an Australian resident and nor is its central management and control located in Australia. | Detailed Reasoning - Issue 1 – Temporary resident: A person can only be a temporary resident if they are a resident of Australia for taxation purposes. It is confirmed that you are a resident of Australia for taxation purposes Section 995-1(1) of the ITAA 1997 defines temporary resident as: you are a temporary resident if: (a) you hold a temporary visa granted under the Migration Act 1958 (b) you are not an Australian resident within the meaning of the Social Security Act 1991 ; and (c) your spouse is not an Australian resident within the meaning of the Social Security Act 1991 However, you are not a temporary resident if you have been an Australian resident (within the meaning of this Act), and any of paragraphs (a), (b), and (c) are not satisfied, at any time after the commencement of this definition. Note: The tests in paragraphs (b) and (c) are applied to ensure that holders of temporary visas who nonetheless have a significant connection with Australia are not treated as temporary residents for the purposes of this Act. The definition was enacted by Tax Laws Amendment (2006 Measures No. 1) Act 2006 (amending Act) and commenced at the time that the amending Act commenced. As per section 2 of the amending Act it commenced on the day it received Royal Assent, that is 6 April 2006. Consideration is now given as to whether you are a temporary resident: (a) Holding of a temporary visa granted under the Migration Act 1958 You satisfy this criterion. (b) Not an Australian resident within the meaning of the Social Security Act 1991 Subsection 7(2) of the Social Security Act 1991 defines Australian resident to be: An Australian resident is a person who: (a) resides in Australia, and (b) is one of the following: (i) an Australian citizen; (ii) the holder of a permanent visa; (iii) a special category visa holder who is a protected SCV holder You satisfy this criterion on the basis that you do not satisfy any of the particulars listed in paragraph 7(2)(b). (c) Spouse is not an Australian resident within the meaning of the Social Security Act 1991 Your spouse satisfies this criterion on the basis that they do not satisfy any of the particulars listed in paragraph 7(2)(b). (d) If you have been an Australian resident for taxation purposes you have satisfied conditions (a), (b) and (c) on and from 6 April 2006 You have been an Australian resident for taxation purposes since Autumn 20XX and therefore it is necessary to consider whether you have satisfied conditions (a), (b) and (c) on and from 6 April 2006. You satisfy condition (a), (b), (c) and (d). Conclusion As you satisfy conditions (a), (b), (c) and (d) you are a temporary resident as per the definition of that term in subsection 995-1(1) of the ITAA 1997. | Detailed Reasoning - Issue 2 – Receipt of trust income not previously subject to tax: Subsection 99B(1) of the ITAA 1936 states: (1) Where, at any time during a year of income, an amount, being property of a trust estate, is paid to, or applied for the benefit of, a beneficiary of the trust estate who was a resident at any time during the year of income, the assessable income of the beneficiary of the year of income shall, subject to subsection (2), include that amount. (2) The amount that, but for this subsection, would be included in the assessable income of a beneficiary of a trust estate under subsection (1) by reason that an amount, being property of the trust estate, was paid to, or applied for the benefit of, the beneficiary shall be reduced by so much (if any) of the amount, as represents: (a) corpus of the trust estate (except to the extent to which it is attributable to amounts derived by the trust estate that, if they had been derived by a taxpayer being a resident, would have been included in the assessable income of that taxpayer of a year of income); (b) an amount that, if it had been derived by a taxpayer being a resident, would not have been included in the assessable income of that taxpayer of a year of income; (c) an amount: (i) that is or has been included in the assessable income of the beneficiary in pursuance of section 97; or in respect of which the trustee of the trust estate is or has been assessed and liable to pay tax in pursuance of section 98 , 99 or 99A; or (iii) that is reasonably attributable to a part of the net income of another trust estate in respect of which the trustee of the other trust estate is assessed and is liable to pay tax under subsection 98(4); (d) an amount that is or has been included in the assessable income of any taxpayer (other than a company) under section 102AAZD; or (e) if the beneficiary is a company - an amount that is or has been included in the assessable income of the beneficiary under section 102AAZD. (2A) An amount that is not included in a beneficiary's assessable income because of paragraph (2)(d) or (e) is not assessable income and is not exempt income. (3) In paragraphs (2)(d) and (e): company means a company other than a company in the capacity of a trustee. You were a resident taxpayer for the income year during the 2019 income year and you will be during the 2020, 2021 and 2022 income years. Subsection 99B(1) of the ITAA 1936 ensures any distributions of trust property to a beneficiary are assessable income and therefore subject to income tax if that beneficiary has been a resident at any time during the income year. This is unless they are specifically excluded by subsection 99B(2). Therefore, at first instance, the effect of subsection 99B(1) would be to treat as assessable income any distributions that involve the payment of money, including: ● distributions of income of the current year ● distributions of income of a prior year ● distributions of capital of any kind. As highlighted by the meaning of ‘distributions of trust property’ in section 99C of the ITAA 1936, section 99B of the ITAA 1936 is to apply broadly. Therefore, at first instance, disregarding subsection 99B(2), it would include the distributions that the Trust is proposing to make to the taxpayer. Subsection 99B(2) of the ITAA 1936 then excludes, from the application, of subsection 99B(1) the following amounts, (being amounts that have been previously assessed in some capacity): ● corpus of the trust (the exception is not detailed as it does not apply here) ● an amount that, if it had been derived by a taxpayer being a resident, would not have been included in the assessable income of the taxpayer in the year of income (for example exempt income) ● an amount that is conduit foreign income that is non-assessable non-exempt income of the beneficiary because of the application of section 802-17 of the ITAA 1997 ● an amount that has been assessed under sections 97, 98, 99 or section 99A of the ITAA 1936 ● an amount that has been assessed to any taxpayer other than a company under section 102AAZD of the ITAA 1936 ● an amount that has been assessed to a company that is a beneficiary under section 102AAZD of the ITAA 1936 The Trust is a Country X based trust that has been treated as a non-resident trust for taxation purposes for the 20XX and earlier income years. The distributions that you will be receiving are ‘capitalised distributions’ which are composed of income that has been generated by the trust in the 20XX and earlier income years. Subsection 99B(2) of the ITAA 1936 would not apply to exclude the distribution of these amounts to the taxpayer. This is because the capitalised trust distributions paid to the taxpayer have not been assessed to either the beneficiary or any entity in Australia. The capitalised distributions will therefore ordinarily be assessable income of you in the year of income in which they are distributed to you under section 99B of the ITAA 1936. This is the case, unless you are otherwise exempted by the temporary residents’ provisions. | Detailed Reasoning - Reasoning: Subsection 6-15(3) of the ITAA 1997 provides that if an amount is non-assessable non-exempt income then it is not assessable income. Therefore if section 768-910 of the ITAA 1997 applies to make the capitalised trust distributions non-assessable non-exempt income then they will not be assessable income of the taxpayer. Section 768-910 of the ITAA 1997 states: (1) The following are *non-assessable non-exempt income: (a) the *ordinary income you *derive directly or indirectly from a source other than an *Australian source if you are a *temporary resident when you derive it; (b) your *statutory income (other than a *net capital gain) from a source other than an Australian source if you are a temporary resident when you derive it. This subsection has effect subject to subsections (3) and (5). Note: A capital gain or loss you make may be disregarded under section 768-915. (2) For the purposes of paragraph (1)(b): (a) if you have statutory income because a particular circumstance occurs, you derive the statutory income at the time when the circumstance occurs; and (b) if you have statutory income because a number of circumstances occur, you derive the statutory income at the time when the last of those circumstances occurs. Exception to subsection (1) (3) However, the following are not *non-assessable non-exempt income under subsection (1): (a) the *ordinary income you *derive directly or indirectly from a source other than an *Australian source to the extent that it is remuneration, for employment undertaken, or services provided, while you are a *temporary resident; (b) your *statutory income (other than a *net capital gain) from a source other than an Australian source to the extent that it relates to employment undertaken, or services provided, while you are a temporary resident; (c) an amount included in your assessable income under Division 86. Note: This subsection only makes an amount not non-assessable non-exempt income under subsection (1). It does not prevent that amount from being non-assessable non-exempt income under some other provision of this Act or the Income Tax Assessment Act 1936. The exceptions in subsections 768-910(3) and (5) do not apply to your case as: ● Your income concerns capitalised trust distributions and as such is not employment or employment related income or alienated personal services income. ● the former Subsection 768-910(5) of the ITAA 1997 was repealed by Tax Laws Amendment (2009 Budget Measures No. 2) Act 2009 and therefore does not have application to the years under consideration for the taxpayer’s private ruling. The capitalised distributions the Trust is distributing to you are ordinarily assessable income under section 99B of the ITAA 1936 as stated above. As they are statutory income it is necessary to consider the application of section 768-910 of the ITAA 1997 from this perspective, that is specifically paragraph 768-910(1)(b). Subsection 768-910(2) of the ITAA 1997 provides that statutory income is taken to be derived when the circumstance occurs. For income to which section 99B of the ITAA 1936 applies, that is the time at which the distribution is made because that is when the disposition of property occurs. This is also the time at which source of that income, that is whether it is Australian or foreign sourced income, for the purposes of assessability is determined. The capitalised distributions are composed of trust income earned in past years that has been accumulated, but not distributed to any beneficiary. As the capitalised distributions are capital of the trust they will take on the same character as the trust itself, that is: ● if the trust is a resident for taxation purposes in Australia they will be Australian sourced, and ● if the trust is a foreign resident then they will be foreign sourced distributions. Determining the residency of the Trust is a two-step process, firstly to determine whether the Trust is a resident under domestic law and, if it is then to consider the application of the Australia-Country X DTA and, for the 20XX, 20XX and 20XX income years, also the Multilateral Convention to Implement Tax Treaty related Measures to Prevent Base Erosion and Profit Shifting (Multilateral Convention). In determining liability to Australian tax on income received by a non-resident, it is necessary to consider both Australian domestic income tax laws and any applicable double tax agreement. For this purpose section 4 of the International Tax Agreements Act 1953 (ITAA 1953) incorporates that Act with the ITAA 1936 and the Income Tax Assessment Act 1997 (ITAA 1997) so that they are read as one. Subsection 4(2) of the ITAA 1953 provides that in the case of any inconsistency with the provisions contained in the Assessment Acts, other than for Part IVA of the ITAA 1936 or an Act imposing Australian tax, the provisions of the ITAA 1953, prevail (refer also to paragraphs 5 and 6 of Taxation Ruling TR 2001/13). For this purpose the Australia-Country X DTA and the Multilateral Convention form part of the ITAA 1953 as it is that Act which incorporates them into domestic law. | Detailed Reasoning - Residency of the Trust under Australian domestic law: Subsection 95(2) of the ITAA 1936 states: For the purposes of this Division, a trust estate shall be taken to be a resident trust estate in relation to a year of income if: (a) a trustee of the trust estate was a resident at any time during the year of income; or (b) the central management and control of the trust estate was in Australia at any time during the year of income. 2019 income year The Corporate Trustee is a trustee of the Trust for the entire income year. You are also a trustee of the Trust up to and including the specified date. As you are a resident for taxation purposes in Australia and a trustee of the Trust for a part of the year, the Trust will also be a resident of Australia for taxation purposes for the whole of the 2019 income year as per subsection 95(2) of the ITAA 1936. The fact that paragraph 95(2)(a) of the ITAA 1936 is satisfied is sufficient, it is not necessary to further consider paragraph 95(2)(b) as they are alternatives. It does not matter that the Corporate Trustee was a resident of Country X for taxation purposes. This is because subsection 95(2) of the ITAA 1936 refers to ‘a trustee’, which connotes that the requirement is satisfied if any trustee is a resident even if that is one of a number of trustees where the other trustees are not Australian residents for taxation purposes. As the Trust is therefore a resident for taxation purposes both in Australia and Country X it is necessary to consider application of the Australia-Country X DTA to determine its residency status. 2020, 2021 and 2022 income years For the 2020, 2021 and 2022 income years the Trust is only a resident of Country X for taxation purposes. The Trust not a resident of Australia for taxation purposes as it does not satisfy the residency requirements as per subsection 95(2) of the ITAA 1936. Paragraph 95(2)(a) of the ITAA 1936 does not apply as the Trust only has the Corporate Trustee as trustee of the Trust for those income years. The Corporate Trustee will only be a resident for taxation purposes of Country X Paragraph 95(2)(b) of the ITAA 1936 is not satisfied because the central management and control of the Trust for the 20XX, 20XX and 20XX income years is not in Australia. Taxation Ruling TR 2018/5 discusses the central management and control test of residency following Bywater Investments Ltd & Others v. FC of T; Hua Wang Bank Berhard v. FC of T (2016) 260 CLR 169; [2016] HCA 45, 2016 ATC 20-589; 104 ATR 82 (the Bywater Case). The considerations of central management and control in both the joint decisions of French CJ, Kiefel, Bell and Nettle JJ in Bywater Case and the subsequent explanations provided in TR 2018/5 apply in this case. They are applied in this case in reaching this decision (but are too extensive to set out in this decision). The central management and control of the Trust will be in Country X. This is because, taking into account the information contained in the facts and assumptions, the Corporate Trustee is responsible for the following without involvement from you: ● making decisions regarding the investment strategy of the Trust; ● making decisions concerning the giving effect to of the investment strategy, including the making, holding and disposing of investments of the Trust, ● the obtaining of investment advice, in particular strategic advice, in relation to the Trust, and You also had no legal means and effectively did not in any way affect the making of such decisions by the Trust. While the ability by you to request distributions, and, given the purpose of the Trust, effectively set distribution policy, a relevant consideration this on its own is not sufficient to give the taxpayer central management and control of the Trust. | Detailed Reasoning - Application of Australia-Country X DTA and Multilateral Convention: 2019 income year The trust is also a tax resident of Country X for taxation purposes as evidenced by the fact that it subject to income tax on both its Country X domestic income and foreign sourced income there. Therefore, to determine the residency of the trust it is necessary to determine where its effective place of management is – if this is in: ● Australia - then as per the Australia-Country X DTA it will be taken to only be a resident of Australia for taxation purposes for that time ● Country X - then as per the Australia-Country X DTA it will be taken to only be a resident of Country X for taxation purposes and, a non-resident trust for Australian taxation purposes for that time. If there are changes to the management arrangements of the Trust it is possible that for part of the income year that its place of effective management is in one place and for the other part of the year it is somewhere else. For example there may be a different outcome while you are also a trustee of the Trust to the time when the Corporate Trustee is solely the trustee of the Trust. In the Bywater Case Gordon J considered the ‘place of effective management’ in relation to the Convention between the Government of Australia and the Government of the United Kingdom of Great Britain and Northern Ireland for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income and on Capital Gains [2003] ATS 22 . However those considerations apply equally here, as the term in both situations is given its ordinary meaning and is used in a similar context in both situations. In her judgement Gordon J stated: 163. … At the hearing, counsel for Chemical Trustee and Derrin submitted that you look to the same matters to determine the "place of effective management" as you do to determine the place of "central management and control". As the Commissioner acknowledged, in some cases, such as the present, the result may be the same. But as the Commissioner rightly submitted, they are different concepts. The meaning of each turns on the interpretation of the phrase as it appears in the relevant instrument - the 1936 Act for "central management and control" and the 2003 UK Convention for "place of effective management". Each must be examined to determine the applicability of each in any given case. It cannot be assumed that if one test is satisfied, then it will automatically follow that the other is satisfied. 164. Once that interpretive task is undertaken in relation to "place of effective management" in the 2003 UK Convention, it is clear that the location of the formal organs of a company cannot be determinative of the "place of effective management" of that company. 165. Article 31(1) of the VCLT provides that a "treaty shall be interpreted in good faith in accordance with the ordinary meaning to be given to the terms of the treaty in their context and in the light of its object and purpose". The ordinary meaning of the terms of the 2003 UK Convention points away from a construction that would benefit Chemical Trustee and Derrin. Significantly, Art 4(4) refers to the "place of effective management". The express terms of that phrase impose a requirement that in order to identify the place of effective management, the inquiry must go beyond the mere formalities of where the formal organs of a company might be located. 166. That conclusion is consistent with the object and purpose of the 2003 UK Convention. As noted earlier, the purpose of double tax agreements is to avoid tax being imposed on a person twice for the same activity. Under the 2003 UK Convention, the key determinant is residency. Article 4(4) operates against that background - it is enlivened when residency is not sufficient to provide an answer to the question: in which country should the person be taxed? Article 4(4) breaks any deadlock and, depending on the domestic laws of the relevant Contracting States, its ability to break a deadlock would be seriously undermined were it construed so as to be limited to an inquiry about the location of the formal organs of a company. 167. That construction is confirmed by Art 32 of the VCLT, which provides that "[r]ecourse may be had to supplementary means of interpretation... in order to confirm the meaning resulting from the application of article 31". The 2003 UK Convention is based upon the Organisation for Economic Co-operation and Development's ("the OECD") Model Tax Convention on Income and on Capital. In Thiel v Federal Commissioner of Taxation, all members of the Court referred to the Commentaries on the Articles of the Model Convention in accordance with Art 32[207]. 168. What does the Commentary on Art 4 provide? During the relevant period, the Commentary relevantly stated that[208]: "It would not be an adequate solution to attach importance to a purely formal criterion like registration. Therefore [Art 4(4)] attaches importance to the place where the company, etc is actually managed. ... The place of effective management is the place where key management and commercial decisions that are necessary for the conduct of the entity's business are in substance made. The place of effective management will ordinarily be the place where the most senior person or group of persons (for example a board of directors) makes its decisions, the place where the actions to be taken by the entity as a whole are determined; however, no definitive rule can be given and all relevant facts and circumstances must be examined to determine the place of effective management." (emphasis added) 169. As those passages of the Commentary explain, while the place of effective management may "ordinarily" be the place where the board of directors makes its decisions, "all relevant facts and circumstances must be examined to determine [where] the place of effective management" of a company is located[209]. [emphasis added] Gordon J in Bywater confirms that the place of effective management and central management and control are not necessarily the same. Rather, it is necessary, taking into account the context of the provision, the circumstances of the situation to determine where this may be. The concept of place of effective management was further considered in Lee and another v. Revenue and Customs Commissioners [2017] UKFTT 279 (TC) (the Lee Case). In the judgement Bishopp J stated: ‘[48] POEM is not defined in the DTA but was interpreted by the special commissioners as meaning the place which is the centre of top-level management: ie where the key management and commercial decisions are actually made. This is the test propounded by Professor Dr Klaus Vogel in his commentary on the OECD model convention and has been adopted in German case law. It was also taken to be the correct test by the special commissioner (Mr David Shirley) in Wensleydale’s Settlement Trustees v IRC [1996] STC (SCD) 241. The special commissioners took as their formulation of the test a passage in the current commentary on art 4(3) of the model convention which is in these terms: “24. As a result of these considerations, the ‘place of effective management’ has been adopted as the preference criterion for persons other than individuals. The place of effective management is the place where key management and commercial decisions that are necessary for the conduct of the entity’s business are in substance made. The place of effective management will ordinarily be the place where the most senior person or group of persons (for example a board of directors) makes its decisions, the place where the actions to be taken by the entity as a whole are determined; however, no definitive rule can be given and all relevant facts and circumstances must be examined to determine the place of effective management. An entity may have more than one place of management, but it can have only one place of effective management at any one time.” … [61] Ms Hardy directed me also to the analysis of the criteria to be derived from the authorities, and Smallwood in particular, conducted by Louw J in Oceanic Trust Co Ltd No v Commissioner for South African Revenue Service (2011) 15 ITLR 172 at [54]: ‘1. The POEM is the place where key management and commercial decisions that are necessary for the conduct of the entity’s business are in substance made; 2. The POEM will ordinarily be the place where the most senior group of persons (eg a board of directors) makes its decision, where the actions to be taken by the entity as a whole are determined; 3. However, no definite rule can be given and all relevant facts and circumstances must be examined to determine the POEM of an entity; 4. There may be more than one place of management, but only one POEM at any one time; 5. The decision [in Smallwood] was based not only on the general test for POEM but also on the specific section of the UK legislation which provided that the trustees be treated as a single and continuing body of persons who shall be treated as resident in the UK unless the general administration of the trusts is ordinarily carried on outside the United Kingdom and the trustees or the majority of them for the time being are not resident or not ordinarily resident in the United Kingdom; and 6. The court undertook a painstaking analysis of the facts and the way the scheme was set up and was implemented in order to come to the conclusion on where the POEM of the trust in that case was.’ In the Lee Case Bishopp J went on further to provide, in paragraph 74, that the place of effective management ‘is where most important decisions relating to the governance, or management’ is taken. For the part of the 2019 income year for which you were not a trustee, , the effective place of management of the Trust would be in Country X. This is because, taking into account the information contained in the facts and assumptions ● key decisions concerning the running and operation of the Trust were made by the Corporate Trustee in Country X without input from you ● day-to-day operations decisions concerning the running and operation of the Trust were made by the Corporate Trustee in Country X; ● the Trust’s advisers are all located in and consulted from Country X, ● Financial transactions relating to the Trust were transacted in Country X through the Trusts’ Country X bank account, and ● you had no legal means and effectively did not in any way affect the management and operation of the Trust. Other income years The Trust is not a resident of Australia under the domestic law. Therefore it will be treated as a non-resident for taxation purposes. Therefore there is no need to consider the Australia-Country X DTA and the Multilateral Convention.