Private ruling: Residency and double tax agreements
Date of advice: 5 June 2018
Published: August 2018
Ruling period: Year ended 30 June 20xx | Year ended 30 June 20xx | Year ended 30 June 20xx | Year ended 30 June 20xx | Year ended 30 June 20xx
Date scheme commenced: 1 July 20xx

Ruling: Q1: Is the entity a ‘resident’, ‘resident of Australia’ and ‘Australian resident’ for the purposes of the Income Tax Assessment Act 1936 (ITAA 1936) and the Income Tax Assessment Act 1997 (ITAA 1997)? | A1: Yes | Q2: Is the entity a resident of Australia for the purposes of Australia’s double taxation agreements (DTAs) which are in force at the date of the ruling? | A2: Yes

Relevant facts and circumstances: The entity is a body corporate, established under a Commonwealth Act. The central management and control of the entity is in Australia. All members of the entity are Australian residents and are appointed by the Australian Government. There are typically nine board meetings of the entity held each year which occur within Australia. However, the board meetings are occasionally (no more than once annually) held outside of Australia. The entity’s main office is located in Australia.

Relevant legislative provisions: Corporations Act 2001 section 9 | Income Tax Assessment Act 1936 subsection 6(1) | Income Tax Assessment Act 1997 subsection 995-1(1) | International Tax Agreements Act 1953

Reasons for decision: Summary: The entity is a ‘resident’, ‘resident of Australia’ and ‘Australian resident’ for the purposes of the ITAA 1936 and the ITAA 1997. | Detailed Reasoning - Detailed reasoning: Subsection 995-1(1) of the ITAA 1997 defines ‘Australian resident’ as a person who is a resident of Australia for the purposes of the ITAA 1936. Subsection 6(1) of the ITAA 1936 defines a ‘resident’ or ‘resident of Australia’ as: … (b) a company which is incorporated in Australia, or which, not being incorporated in Australia, carries on business in Australia, and has either its central management and control in Australia, or its voting power controlled by shareholders who are residents of Australia. | Detailed Reasoning - ‘Company’: The term ‘company’ is defined in subsection 6(1) of the ITAA 1936 as having the meaning given by subsection 995-1(1) of the ITAA 1997. The definition of ‘company’ under subsection 995-1(1) of the ITAA 1997 includes a body corporate. As the entity is a body corporate, it is a company for the purposes of both the ITAA 1936 and the ITAA 1997. | Detailed Reasoning - ‘Incorporated in Australia’: A body corporate that was incorporated by or under a law of the Commonwealth is defined to be ‘incorporated in Australia’ under section 9 of the Corporations Act 2001. The entity was constituted under a law of the Commonwealth and therefore satisfies the definition of ‘incorporated in Australia’. As the entity is a company that was incorporated in Australia, it is a resident of Australia for the purposes of the ITAA 1936 and an Australian resident for the purposes of the ITAA 1997. | Summary: Having considered each of Australia’s DTAs that were in force at the date of this ruling, the Commissioner of Taxation considers that the entity is a resident of Australia for the purposes of each DTA. However, it is noted that the Chilean convention does not preclude the entity from also being a resident of Chile for the purposes of the Chilean Convention. | Detailed Reasoning - Detailed reasoning: While the Commissioner considers that the entity is a resident of Australia for Australian taxation purposes, the entity may also be a resident of a foreign country for the purposes of that country’s domestic law. Where Australia has a DTA with a foreign country and both countries treat the entity as a resident in accordance with their respective domestic tax law, the DTA may contain a provision for the entity to be treated as a resident of only one country for the purposes of the DTA. This is known as the tie-breaker provision. Generally the tie-breaker provision in the DTA will use one or more of the following criteria to determine the residency status of a dual resident company: ● the place of effective management and control ● the place of its main office ● the place it was incorporated, created, registered or organised. Based on the above criteria, the entity would be considered a resident of Australia for the purposes of Australia’s DTAs, where there are tie-breaker provisions in operation. However, the Chilean Convention, Turkish Convention and the United States Convention do not contain tie-breaker provisions and must be considered separately. | Detailed Reasoning - United States Convention (US Convention): The US Convention does not contain a tie-breaker rule for dual resident companies. As such, the provisions of the US Convention and respective domestic laws must be examined in order to determine the residency of the entity for the purposes of the US Convention. According to the US Convention, a person is a resident of Australia if the person is an Australian corporation (Article 4, subparagraph (1)(a)(i)). Under subparagraph (1)(g)(ii) of Article 3, the term ‘Australian corporation’ is defined as: a company, as defined under the law of Australia relating to Australian tax, which, under that law, is a resident of Australia, and which is not, under United States law relating to United States tax, a domestic corporation or an unincorporated entity treated as a domestic corporation. The entity is a resident of Australia for Australian taxation purposes (as established in the detailed reasoning for question 1 above). A company is classified as a domestic corporation, and thus a United States (US) person, if it is created or organised under the laws of any state in the US or under US federal law (U.S. Code § 7701(4)). As the entity was not created or organised under the laws of the US, the Commissioner considers that the entity would not be classified as a US domestic company. The entity is a resident of Australia for Australian taxation purposes and is not considered a domestic corporation under US law. Therefore, the entity is an Australian corporation and accordingly, a resident of Australia for the purposes of the US Convention. | Detailed Reasoning - Turkish Convention: The Turkish Convention does not contain a tie-breaker rule for dual resident companies. As such, the provisions of the Turkish Convention and respective domestic laws must be examined in order to determine the residency of the entity for the purposes of the Turkish Convention. According to the Turkish Convention, a person is a resident of Australia if the person is an Australian company (Article 4, subparagraph (1)(a)(i)). Under paragraph (1)(k) of Article 3, the term ‘Australian company’ is defined as: a company which, under the law of Australia relating to Australian tax, is a resident of Australia, and which is not, under the law of Turkey relating to Turkish tax, a resident of Turkey. The entity is a resident of Australia for Australian taxation purposes (as established in the detailed reasoning for question 1 above). Under Turkish tax law, full obligation taxpayers are taxed on all earnings generated both within and outside of Turkey. Limited obligation taxpayers are only taxed on earnings they generate within Turkey. Whether a corporate taxpayer is a full or limited obligation taxpayer is determined by reference to what is effectively their ‘residence’ status. A corporate entity is regarded as a full obligation taxpayer if its registered head office or business head office is located in Turkey (paragraph (1) of Article 3 of the Corporate Income Tax Law (Law Number: 5520)). As the head office of the entity is located in Australia, the Commissioner considers that the entity would not be a full obligation taxpayer and is therefore not a resident of Turkey. The entity is a resident of Australia for Australian taxation purposes, and is not considered a resident of Turkey for Turkish taxation purposes. Thus, the entity is an Australian company and accordingly, a resident of Australia for the purposes of the Turkish Convention. | Detailed Reasoning - Chilean Convention: The Chilean Convention does not contain a tie-breaker rule for dual resident companies. As such, the provisions of the Chilean Convention and respective domestic laws must be examined in order to determine the residency of the entity for the purposes of the Chilean Convention. Unlike the US Convention and the Turkish Convention, the Chilean Convention does not define what is a resident of Australia or resident of Chile. Instead, the term ‘resident of a Contracting State’ is defined in paragraph 1 of Article 4 as: …any person who, under the laws of that State, is liable to tax therein as a resident of that State or by reason of domicile in that State, and also includes that State and any political subdivision or local authority thereof. This term, however, does not include any person who is liable to tax in that State in respect only of income from sources in that State. The term ‘person’ includes a company (Article 3, subparagraph 1(d)) and the term ‘company’ includes a body corporate (Article 3, paragraph 1(e)). As such, for both Australia and Chile, ‘resident’ status is determined by reference to the company’s liability to tax under the laws of the respective country. Accordingly, the entity is a resident of Australia (as established in the detailed reasoning for question 1 above) for the purposes of the Chilean Convention. Paragraph 3 of Article 4 provides that where a person that is not an individual (such as a company) is a resident of both countries in accordance with paragraph 1, the person will not be entitled to any benefits provided by the Convention with the exception of the protection from discrimination afforded under Article 24 ( Non-Discrimination). Where the entity is also considered a Chilean resident under Chile’s domestic laws, any double taxation relief will be afforded as per Article 23 of the Chilean Convention. See other relevant comments below. | Detailed Reasoning - Other references (non ATO view): Explanatory Memorandum, International Tax Agreements Amendment Bill (No. 1) 2011, 37-145 | Detailed Reasoning - Other relevant comments: Double taxation relief for income that may be taxed by both countries under the Chilean Convention is required to be provided by the country of which the taxpayer is a resident under the terms of the Convention as follows: ● in Australia, by allowing a credit for the Chilean tax against Australian tax payable on income derived by a resident of Australia (Article 23, subparagraph 1(a)). However, where the relevant income derived by the Australian resident is a dividend paid by a Chilean company, Australia’s credit obligation is limited (Article 23, subparagraph 1(b)). ● in Chile, by allowing a credit for the Australian tax against Chilean tax payable on income derived by a resident of Chile (Article 23, paragraph 2). In Australia, effect will be given to the double tax relief obligations under the Convention by application of the general foreign income tax offset provisions of Australia’s domestic law, or the relevant exemption provisions of that law where applicable.