Private ruling: Permanent establishment
Published: September 2012
Ruling period: Year ended 30 June 2011 | Year ended 30 June 2012 | Year ending 30 June 2013 | Year ending 30 June 2014 | Year ending 30 June 2015 | Year ending 30 June 2016 | Year ending 30 June 2017
Date scheme commenced: 1 July 2010

Ruling: Q1: Is the income you, a non-resident, which you generate from your website business assessable under subsection 6-5(3) of the Income Tax Assessment Act 1997 (ITAA 1997)? | A1: No.

Relevant facts and circumstances: You are a resident of the Country X for tax purposes. You own and operate, from the Country X, an internet business in Country X and Australia. You have registered a .com.au domain name. Your .com.au website (the website) is hosted by an independent internet service provider (ISP), who are situated in Country X. The goods sold through the website are sourced in Australia from Australian suppliers. Goods purchased through the website are shipped directly to the customer from the supplier. Any faulty or returned goods are sent back to the supplier. You hold a business bank account in Australia. You have no physical presence in Australia. You don't employ staff in Australia. You return the profits you make from the website in your Country X tax return. Australia has a tax treaty with the Country X.

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

Reasons for decision: Summary: Subsection 6-5(3) of the ITAA 1997 provides that the assessable income of a non-resident includes ordinary income derived directly or indirectly from all Australian sources as well as other ordinary income that a provision includes on a basis other than having an Australian source. The income you derive from your website business is ordinary income for the purposes of subsection 6-5(3) of the ITAA 1997. As you are a resident of Country X, a country with which Australia has entered into a tax treaty. It is necessary to consider not only the income tax laws but also any tax treaty. The tax treaty operates to avoid the double taxation of income received by a resident of either Australia or country X. An article in the tax treaty governs the taxation of business profits derived from Australia by a resident of Country X. Under an Article in the tax treaty the business profits of an enterprise of Country X shall be taxable only in Country X unless the enterprise carries on business in Australia though a permanent establishment situated in Australia. The term 'permanent establishment' (PE) is defined within the tax treaty as a fixed place of business through which the business of an enterprise is wholly or partly carried on. It includes a sales outlet, a branch, and a place of management, a factory, a workshop, an office or a dependant agent who has authority to enter into contracts on your behalf and regularly exercises that authority. In accordance with Taxation Determination TD 2005/2 a non-resident will not, by virtue of an internet website alone, have a PE in Australia, provided that the ISP is acting as a mere conduit. In your case, you do not have a PE in Australia for the purposes of the tax treaty as you carry on your business solely through an internet website hosted by an independent ISP that is acting as a mere conduit. Accordingly, your business income is not subject to tax in Australia as you do not carry on your business through a permanent establishment in Australia. The income you derive from your website business is not assessable under subsection 6-5(3) of the ITAA 1997 by virtue of the overriding effect of the tax treaty.

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