Permanent establishment or branch
The primary meaning of 'permanent establishment' is a fixed place of business in Australia or overseas other than a storage or display facility.
The most obvious example would be a branch.
If you have a non-independent agent who contracts on your behalf, you may have a permanent establishment in Australia or overseas through which your business is wholly or partly carried on.
Permanent establishment has a statutory meaning under subsection 6(1) of the ITAA 1936 which includes:
- a place where the person is carrying on business through an agent
- a place where the person has, is using or is installing substantial equipment or substantial machinery
- a place where the person is engaged in a construction project
- if the person is engaged in selling goods manufactured, assembled, processed, packed or distributed by a related party, the place where these activities are undertaken.
A permanent establishment generally does not include:
- carrying on business dealings through a bona fide commission agent or broker who acts in the ordinary course of business and receives remuneration at the customary rate
- carrying on business through an agent who does not have, or does not habitually exercise, a general authority to negotiate and conclude contracts on behalf of the person
- carrying on business through an agent whose authority extends to filling orders from a stock of goods or merchandise situated in that country, but who does not regularly exercise that authority
- a place of business maintained by the person solely for the purpose of purchasing goods or merchandise.
Double tax agreements also have their own definition, which may share or extend the statutory meaning.
For the purposes of Schedule 25A, certain items (2a to 2d and 3a to 3b) should be answered on the notional basis that a permanent establishment is a separate but related entity. Any allocation of profits or income and expenditure between the permanent establishment and the taxpayer's other business sites or activities must follow the arm's length principle.