Private ruling: Withholding tax
Published: November 2012
Ruling period: Year ended 30 June 2013
Date scheme commenced: 1 July 2012

Ruling: Q1: Are you required to withhold an amount referred to as 'No ABN withholding' under Division 12 of Schedule 1 to the Taxation Administration Act 1953 (TAA 1953) from a payment to an entity that invoices its Australian customers via a non-resident company? | A1: No


Relevant legislative provisions: Taxation Administration Act 1953 section 10-5 of Schedule 1 Taxation Administration Act 1953 subsection 12-190(4 ) of Schedule 1 Taxation Administration Act 1953 subsection 12-190(5 ) of Schedule 1 Taxation Administration Act 1953 subsection 12-190(6 ) of Schedule 1

Reasons for decision: Summary: The PAYG withholding system, contained in Part 2-5 in Schedule 1 to the TAA 1953, was introduced for paying instalments during the income year towards an expected income tax liability for any business and investment income. The table in section 10-5 in Schedule 1 to the TAA 1953 provides a summary of payments and other transactions covered by PAYG. Where a supplier does not provide their ABN or a statement that they are not carrying on an enterprise, the payer should withhold 46.5% of the payment unless one of the exceptions in subsections 12-190(4) to (6) of Schedule 1 to the TAA 1953 applies. Taxation Ruling TR 2002/9 discusses the rules governing PAYG withholding where no ABN is quoted, including whether the supply and payment are made "in the course or furtherance of an enterprise" and whether the enterprise is "carried on in Australia". If a supplier is not carrying on an enterprise in Australia, they will not need an ABN and you will not need to withhold from payments you make to them: subparagraph 12-190(4)(a) of Schedule 1 to the TAA 1953 . In general, Australia does not tax the profits of an enterprise resident in a country with which it has a double tax agreement unless the enterprise carries on business in Australia via a permanent establishment (PE). Australia has a Double Tax Agreement with Country A. For a non-resident enterprise to be deemed to have a PE in Australia, the 'Permanent Establishment' Article of a double tax agreement generally requires four conditions to be satisfied. (a) there is a person acting on behalf of the non-resident enterprise in Australia (b) that person is not an agent of independent status to whom a subsequent paragraph of the Article applies (c) the person has authority to conclude contracts on behalf of the non-resident enterprise, and (d) the authority is habitually exercised. In the present case, the non-resident company has no PE in Australia because although it has an Australian affiliate, the responsibilities of its Australian affiliate do not include the requisite 'authority to conclude contracts' on the non-resident company's behalf in Australia. The contract is between you as the trader and the non-resident company. Therefore, the payments fall within an exception to the withholding payments rules and there is no obligation for you to deduct withholding amounts from the payments.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. If you have any concerns about this ruling you wish to discuss, you will find our contact details in the fact sheet. | Relevant facts: You sell goods through an online trading platform which provides services to Australian traders for the purpose of selling such goods and services online. | Fees are charged by a non-resident entity to users ('Traders') for these services. | The non-resident entity has advised you that they are neither subject to GST nor required to be registered for an ABN as the fee payments it receives from you are not subject to taxation. | You are billed by and remit payments to the non-resident company periodically on the basis of services provided.