Private ruling: Permanent establishment
Published: March 2013
Ruling period: Income year ending 30 June 2014 | Income year ending 30 June 2015
Date scheme commenced: The scheme is yet to commence

Ruling: Q1: Is income derived by Company A in respect of the Convention held in Australia assessable income in Australia in terms of subsection 6-5(3) of the Income Tax Assessment Act 1997 ? | A1: No. | Q2: Is income derived by Company B in respect of the Convention held in Australia assessable income in Australia in terms of subsection 6-5(3) of the Income Tax Assessment Act 1997 ? | A2: No.

Relevant facts and circumstances: Company A and its associate, Company B, are planning to hold their worldwide convention in Australia. A number of events will be held during the Convention. Company A anticipates receiving fees from these events. The duration of the Convention will be for a period of less than a week. Company A is an international association of member organisations. Company A is a corporation established in Country X and a tax resident of Country X for the purposes of the domestic tax law of Country X and the tax treaty between Australia and Country X Company A's business activities conducted in Country X are to support member organisations in their effort to fulfil the mission of the organisation. Company A maintains a branch office in Australia, The branch follows policy, performs works, and supports initiatives as communicated by the general secretary and designated staff based at the Headquarters in Country X. The Australian Office is also a branch of Company B. It collects membership dues on behalf of Company A's Headquarters in Country X and handles any queries in relation to these coming from members based in Australia and a number of other countries. All business activities that the Australia office conducts are on behalf of the Company A's Headquarters in Country X. Company B is a corporation established in Country X and a tax resident of Country X for the purposes of the domestic tax law of Country X and the tax treaty between Australia and Country X. Company A is the sole corporate member of Company B. The business activities of the Company B in Country X are to manage and support the core activities that benefit Company B's programs. These activities are administered from Company A's Headquarters in Country X. Company B's Australia office is a representative office of the company. The Australian branch provides regional support for the activities of Company B. The Convention The primary purpose of the Convention is to stimulate, inspire, and inform members at an international level while advancing the strategic goals of the association. It is also the annual business meeting of Company A. The Convention program includes pre-convention meetings, plenary sessions, workshops, forums, entertainment, and other ancillary meetings. Company A and Company B are organising the Convention directly from Country X. The Convention is a completely separate activity to the normal activity of their office in Australia. The Convention programs include inspirational, educational, entertainment, and general interest features that members and their guests will enjoy. Company A will be in receipt of revenue generated from each of the events held at the Convention. The role of Company A staff and their involvement in relation to the Convention The entire operations of the Convention will be organised out of Country X, including registration, housing, logistical planning, contract negotiations, and financial planning. Company A's staff will take multiple site visits to Australia to review the planning of the Convention. These trips will be for short duration. Staff members will stay in a hotel within close proximity to the venue site meetings with vendors at the venue or hotel. It is not common for these staff members to utilise the Australia office since most site visits require meeting with vendors on the venue site. Company A will be sending their staff in Country X to Australia during the time of the Convention. The staff will provide supports to the activities of the Convention in the finance area, information boots, distribution of informational, translation, preparation of presentations, etc. The staff of Company A and Company B whom have the authority to conclude contracts, exercise that authority and sign contracts in Country X only, not in Australia. All contract negotiations in relation to the Convention are done by telephone and email and ultimately concluded in Country X and sent back to Australia by post or email. The role of Company B staff and their involvement in relation to the Convention Company B is only involved in planning of a single event or any pre-convention activities that are approved. Overall convention planning is Company A's responsibility. The staff members of Company B will take a couple of short visits to Australia meeting with vendor at the venue or at one of the hotels in city centre. In addition, a number of staff members are dedicated to the associate entity's activities during the Convention. These staff members will depart once the Convention ends. The role of the Australian branch office staff and their involvement in relation to the Convention The Australian staff will be rarely involved in any aspects of the Convention planning. However, due to their particular skills they may be assigned a supporting role in relation to the activities conducted during the Convention. The branch office has no ongoing connection with the Convention. It has provided occasional access to video conferencing facilities to communicate between Australia and Company A's Headquarters in Country X, and allowed visiting staff to use office facilities and staff amenities. This involvement is only for the brief periods that head office personnel are visiting. None of the Australian permanent staff or office holders has any involvement in organising the Convention. The staff at the Australian branch do not have the authority to conclude contracts on behalf of Company A and Company B in relation to the Convention.


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. The income derived from the Convention is ordinary income. In determining liability to Australian tax on Australian sourced income received by a non-resident, it is necessary to consider not only the income tax laws but also the applicable agreement as defined in section 3AAA or section 3AAB of the International Tax Agreements Act 1953 ('Agreements Act'). The applicable agreement in these circumstances is Agreement X Subsection 4(1) of the Agreements Act incorporates the Income Tax Assessment Act 1936 ('ITAA 1936') and the ITAA 1997 so that those Acts are read as one with the Agreements Act. Subsection 4(2) of the Agreements Act, provides that the Agreements Act effectively overrides the ITAA 1936 and the ITAA 1997 where there are inconsistent provisions (except for some limited provisions). Under Article X of Agreement X, the business profits of an enterprise of Country X shall be taxable only in Country X unless the enterprise carries on business in Australia through a permanent establishment situated in Australia. The term 'permanent establishment' is defined in Article Y of Agreement X as a fixed place of business through which the business of an enterprise is wholly or partly carried on. Article Y of Agreement X contains a list of examples, each of which can be regarded as constituting a permanent establishment, such as a place of management, an office, a branch, a factory or a workshop, etc. Taxation Ruling TR 2001/13 at paragraphs 101 to 105 explains the Commissioner's view that the Commentaries on the Organisation for Economic Co-operation and Development ('OECD') Model Tax Convention on Income and on Capital are relevant to interpreting Australia's tax treaties ('OECD Commentary'). Accordingly, the Commentary on the OECD Model Tax Convention is relied upon and is cited below. Paragraph 2 of the OECD Commentary on Article Y of the OECD Model Tax Convention explains that the definition of permanent establishment contains the following requirements: · the existence of a "place of business", i.e. a facility such as premises or, in certain instances, machinery or equipment; · this place of business must be "fixed", i.e. it must be established at a distinct place with a certain degree of permanence; · the carrying on of the business of the enterprise through this fixed place of business. This means usually that persons who, in one way or another, are dependent on the enterprise (personnel) conduct the business of the enterprise in the state in which the fixed place is situated. Even if an enterprise does not own or lease premises, the enterprise will be treated as having a place of business if the enterprise has a certain amount of space at its disposal which is used for business activities, for example where the enterprise has at its constant disposal a part of the office premises owned by another business enterprise: See paragraphs 4 and 4.1 of the OECD Commentary. Paragraph 4.2 of the OECD Commentary also states that the mere presence of an enterprise at a particular location does not necessarily mean that the location is at the disposal of that enterprise. For example a salesman who regularly visits a major customer to take orders and meets the purchasing officer in his office. The second condition for a permanent establishment is that the place of business must be fixed, that is, its existence is not of a purely temporary nature. There must be a link to a specific geographical point (paragraph 5 of the OECD Commentary). Paragraph 4.3 of the OECD Commentary provides that the place of business should be at their disposal for a sufficiently long period of time so as to constitute a "fixed place of business" and the activities performed at the place go beyond those of storage, display or of a preparatory or auxiliary character. Paragraph 6 of the OECD Commentary provides that normally a permanent establishment is not considered to exist where the business is carried out from a place that was maintained for less than six months. However, there is an exception where the activities are of a recurrent nature. In such cases, each period of time that the place is used needs to be considered in combination with the number of times during which the place is used on other occasions which may extend over a number of years. The third requirement for a place of business to constitute a permanent establishment is that the enterprise using it must carry on its business wholly or partly at that place on a regular basis (paragraph 7 of the OECD Commentary). In this case, Company A and Company B are organising the Convention directly from Country X and the events of the Convention will be held in Australia for a period of less than a week. The Convention is a completely separate activity to the normal activity of the branch office in Australia. The Australian branch office has no ongoing connection with the Convention. It has provided occasional access to video conferencing facilities to communicate between Australia and the headquarters in Country X, and allowed visiting staff of Company A and Company B to use office facilities and staff amenities. This involvement is only for the brief periods that head office personnel are visiting. None of the Australian permanent staff or office holders has any involvement in organising the Convention. The staff in Country X will take a number of brief site visits to Australia to review the planning of the Convention and also provide support to the member attendees during the course of the Convention. In view of the temporary nature of the Country X staff's stay in Australia, it is considered that the staff's use of the premises of the Australian branch office does not result in that premises being a permanent establishment of either Company A or Company B in relation to the events held at the Convention in Australia. Furthermore, having regard to the activities of Company A and Company B conducted in Australia in connection with the Convention which are intermittent and of short duration, and the fact that the Convention is a one off event held in Australia in the relevant year, it is considered that neither Company A nor Company B will have a 'fixed place of business' in Australia in terms of Article Y of Agreement X. Company A and Company B do not have a geographical location at its disposal for a sufficiently long duration to regard that place as a 'fixed' place of business. If a Country X enterprise does not conduct activities itself through a fixed place of business in Australia, it may still, in some circumstances, be 'deemed' to carry on business through a PE, under the provision of Article Y of the Agreement X. Relevantly, Article Y of Agreement X also identifies circumstances where a permanent establishment will be deemed to exist. Article Y of Agreement X provides that an enterprise of Country X will be deemed to have a permanent establishment in Australia if the enterprise carries on business in Australia through a person (other than an independent agent) who has authority to conclude contracts on behalf of the enterprise and habitually exercises that authority in Australia. In the present case, the Australian staff will not be involved in any aspects of the Convention planning. The role of the Australian Staff will be to support member attendees during the Convention for a short period of time. The Australian staff do not have any authority to conclude contracts on behalf of Company A and Company B. The staff of Company A and Company B in Country X manage all the Convention planning from Country X. In particular, a specific staff manages the entire operations of the Convention at the headquarters in Country X. These operations include registration, housing, logistical planning, contact negotiations, and financial planning. Further, contract negotiations and conclusions are also carried out in Country X by the authorised Country X staff. The Country X staff's involvement in Australia includes a number of short visits to Australia to review the planning of the Convention and providing support to the member attendees during the time of the Convention. They do not enter into contracts in Australia on behalf of either Company A or Company B. Accordingly, Article Y of Agreement X does not apply to deem Company A or Company B to have a PE in Australia through a dependent agent. In conclusion, Company A and Company B are not carrying on a business through a permanent establishment in Australia as defined in Article Y of Agreement X. Accordingly, Article X of Agreement X does not confer upon Australia a right to tax the business profits of Company A and Company B in the present case. Consequently, the income derived by Company A and Company B in relation to the Convention is not assessable under subsection 6-5(3) of the ITAA 1997.