Private ruling: Permanent establishment in Australia
Published: September 2014
Ruling period: Year ended 30 June 2013 | Year ended 30 June 2014 | Year ended 30 June 2015 | Year ended 30 June 2016 | Year ended 30 June 2017 | Year ended 30 June 2018
Date scheme commenced: 1 July 2012

Ruling: Q1: Does your non-resident entity have a permanent establishment in Australia? | A1: No | Q2: Is there any liability to Australian taxation on profits of the non-resident entity while the double tax agreement applies to you as a tax resident of country X, due to the absence of an Australian permanent establishment? | A2: No

Relevant facts and circumstances: You established a sole trader business while you were residing in Australia. You have moved to overseas with your spouse and children for between two to four years. Your spouse's employment contract is for 2 years with an option to extend it. You have leased an apartment to live in for 2 years with an option to extend. Your house in Australia is being rented. The business provides services to numerous clients at various locations under subcontracted labour-hire arrangements, within an Australian state. The clients schedule the staff rosters. Staff, work under directions provided by the clients. Your business does not store equipment in the clients' premises nor does it have other space for the business. There is no signage at these locations. Staff, are scheduled by and work under client direction. This side of the business is labour hire rather than the business of cleaning premises. Staff, are present only for the duration of the services. They have no permanence or space available. Rosters for these shifts are prepared by your personal assistant and provided by you. Your business may provide the equipment and consumables required for cleaning. Clients contact your business initially by phone or email. The contract details are not available on the internet or phone directories but are obtained from existing clients and referrals. Your personal assistant receives these contacts. A message is taken and relayed to you. Your business does not have an office of its own in Australia. Most contact with staff and clients is by phone or online teleconference. Meetings, if required, take place in clients' offices. Your business may be represented by your personal assistant. If decisions are to be made, you attend by teleconference. You are in daily contact with the personal assistant and clients as required. As the business has always been conducted without separate premises, clients are not aware that you are not present in Australia. You contact the clients on receiving messages forwarded by the personal assistant. You make decisions as to: • which jobs will be engaged and prices to be charged; • which staff members will attend each job; • staff performance issues, hiring and termination; • how new work will be generated; • any other decisions required. You make all decisions regarding the business. The personal assistant does not have authority to make decisions regarding engagements. For commercial reasons, business control is maintained by you to ensure that the clients identify the business with you. Role of the personal assistant The personal assistant works from their home. Their role involves administrative and promotional tasks: • Taking phone calls and relaying client messages to you for you to address. • Preparing staff rosters for your approval. • Preparation of payroll. • Administrative tasks, including bookkeeping, paying bills that you have approved for payment, purchasing cleaning equipment and supplies required for private client work, as approved. • Any administration required for the business. • Distributing promotional letters of introduction to the staff of city apartment buildings to generate potential clients. The personal assistant does not have, or in fact exercise, authority to make decisions regarding client contracts. While residing in Australia you ran the business from your family home. The personal assistant worked from their own home rather than yours. There is no operational address of the business. There is a post box for mail. Clients make payments to your bank account in Australia. The changes that occurred on you moving to country X were: • the moving of a filing cabinet containing documents to the personal assistant's home; • the holding of the business mobile phone was transferred to the personal assistant; and • bank payments are now made by the personal assistant, once authorised by you. The business has no control over and no right of access to the home office of the personal assistant. It is merely a situation where the personal assistant works from home. The business has not provided office equipment, does not provide reimbursement or an allowance for home office expenses such as lighting, heating or internet. There is no signage. It is not a location for clients or staff to visit nor is it a business base for your business. Your business does reimburse the personal assistant for mileage for promotional visits to clients as directed by you.

Relevant legislative provisions: Income Tax Assessment Act 1997 Subsection 6-5(3) | International Tax Agreements Act 1953

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 and indirectly from all Australian sources during the income year. In determining your liability to pay tax in Australia it is necessary to consider not only the domestic income tax laws but also any applicable double tax agreements. Section 4 of the International Tax Agreements Act 1953 (Agreements Act) 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 X agreement is listed in section 5 of the Agreements Act. The country X agreement (the Agreement) is located on the Austlii website (www.austlii.edu.au) in the Australian Treaties Series database. The Agreement operates to avoid the double taxation of income received by residents of Australia and country X. In Thiel v. Federal Commissioner of Taxation (1990) 171 CLR 338; 90 ATC 4717; (1990) 21 ATR 531 ( Theil ), the High Court accepted that the OECD Model Taxation Convention's official Commentaries (the OECD Commentary) may be relevant to the interpretation of Double Tax Agreements based on the OECD Model Tax Convention on Income and on Capital (the OECD Model). In Theil the High Court approved recourse to the OECD Model and Commentaries under Article 32 of the Vienna Convention. Under Article 5 of the Agreement, the profits of a country X resident entity shall be taxable only in country X unless the enterprise carries on a business in Australia through a permanent establishment situated in Australia. The term 'permanent establishment' is defined in Article 4(1) of the Agreement as a 'fixed place of business through which the business of an enterprise is wholly or partly carried on'. Article 4(4)(e) of the Agreement states that an enterprise shall not be deemed to have a permanent establishment merely by reason of the maintenance of a fixed place of business solely for the purpose of activities which have a preparatory or auxiliary character for the enterprise. You have a personal assistant that works from their home in Australia. Their role involves administrative and promotional tasks: • Taking phone calls and relaying client messages to you for you to address. • Preparing staff rosters for your approval. • Preparation of payroll. • Administrative tasks, including bookkeeping, paying bills that you have approved for payment, purchasing cleaning equipment and supplies required for private client work, as approved. • Any administration required for the business. • Distributing promotional letters of introduction to the staff of city apartment buildings to generate potential clients. Article 4(5) of the Agreement provides that a permanent establishment may exist where a country X 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 exercise that authority in Australia. • The personal assistant does not have, or in fact exercise, authority to make decisions regarding client contracts. • Your business has no control over and no right of access to the home office of the personal assistant. • Your business has not provided office equipment, does not provide reimbursement or an allowance for home office expenses such as lighting, heating or internet. • There is no business signage. • It is not a location for clients or staff to visit nor is it a business base for your business. The personal assistant is providing dependent personal services to your business in Australia. As such the personal assistant's residence does not constitute a permanent establishment of the country X entity in Australia. Due to the application of Article 5 of the Agreement, in the absence of a permanent establishment of the country X company in Australia, Australia does not have a taxing right over the income received by the country X entity from the operations of your business in Australia. As such that income is not assessable in Australia under section 6-5(3) of the ITAA 1997. | Detailed Reasoning - Note:: You have requested a private ruling from the 2012-13 financial year for an indefinite period. Due to the possibility of change to the law, the possibility of changes in your circumstances, and the risk that a subsequently issued public ruling might override a private ruling the Commissioner has issued, the Commissioner has provided a private ruling until the 2017-18 financial year. You can request a further ruling after this time if you are unsure about this issue at that time.