ATO Interpretative Decision
ATO ID 2006/309
Income tax
Permanent establishment: UK Convention and subsection 3(11A) of the Agreements Act - sublicensing of broadcasting and apparatus licencesFOI status: may be released
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This ATO ID contains references to repealed provisions, some of which may have been re-enacted or remade. The ATO ID is current in relation to the re-enacted or remade provisions.
Australia's tax treaties and other agreements except for the Taipei Agreement are set out in the Australian Treaty Series. The citation for each is in a note to the applicable defined term in sections 3AAA or 3AAB of the International Tax Agreements Act 1953.
This ATOID provides you with the following level of protection:
If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.
Issue
Does a taxpayer, as licensor of a broadcasting licence and an apparatus licence, have a permanent establishment in Australia for the purposes of Article 5 of Schedule 1 of the International Tax Agreements Act 1953 (the UK Convention)?
Decision
No. A taxpayer, as licensor of a broadcasting licence and an apparatus licence, does not have a permanent establishment in Australia for the purposes of Article 5 of the UK Convention.
Facts
The taxpayer is a resident of the UK for the purposes of the UK Convention.
The taxpayer owns a Broadcasting Licence and an Apparatus Licence.
The Broadcasting Licence is issued under sections 36 and 38 of the Broadcasting Services Act 1992.
The Apparatus Licence is issued under section 102 of Part 3.3 of the Radiocommunications Act 1992.
The taxpayer entered into an agreement with an Australian resident, under which the Australian resident agreed to pay an annual fee to the taxpayer in return for the exclusive use of the Broadcasting Licence and the Apparatus Licence.
The taxpayer has a registered office in Australia, but does not carry on its business through that office nor through any other premises in Australia.
The taxpayer does not own, maintain, or have access to, any facilities, equipment or physical infrastructure for transmission or broadcasting radio in Australia.
Articles 5(4) to 5(8) of the UK Convention do not apply to the taxpayer.
Reasons for Decision
The UK Convention operates to avoid the double taxation of income received by Australian and United Kingdom residents.
The term 'permanent establishment' is defined in Article 5(1) of the UK Convention as a 'fixed place of business through which the business of an enterprise is wholly or partly carried on'.
As this provision of the UK Convention is identical to Article 5(1) of the OECD Model Tax Convention, it is appropriate to consider the guidance in the OECD Commentary on Article 5(1) in interpreting this provision. This interpretative approach is consistent with statements of the High Court in Thiel v. Federal Commissioner of Taxation (1990) 171 CLR 338; (1990) 21 ATR 531; 90 ATC 4717, as well as paragraph 104 of Taxation Ruling TR 2001/13.
Paragraph 4 of the OECD Commentary on Article 5(1) explains, in relation to one of the requisite characteristics of a permanent establishment, that a 'place of business' covers any premises, facilities or installations used for carrying on business of the enterprise, and that a place of business may also exist where the enterprise simply has a certain amount of space at its disposal.
The taxpayer does not have any premises in Australia, nor does it have any amount of space at its disposal in Australia, that it uses to carry on its business. The taxpayer therefore does not have a place of business in Australia through which it carries on its business and consequently does not have a permanent establishment in Australia under Article 5(1) of the UK Convention.
The taxpayer is also not deemed to have a permanent establishment in Australia under Article 5(3) of the UK Convention. In particular, the taxpayer does not have a deemed permanent establishment under Article 5(3)(b) of the UK Convention because the taxpayer does not have any substantial equipment that is present in Australia for rental or other purposes.
Subsection 3(11A) of the International Tax Agreements Act 1953 (Agreements Act) deems a licensee of a spectrum licence, who is a resident of a tax treaty partner country, to have a permanent establishment in Australia for the purposes of the tax treaty in which the licensee is a resident for treaty purposes where they derive income from operating radiofrequency devices or from authorising others to operate such devices.
A spectrum licence is defined in subsection 995-1(1) of the Income Tax Assessment Act 1997 (ITAA 1997) as having the meaning given by section 5 of the Radiocommunications Act 1992. A spectrum licence is defined under section 5 of the Radiocommunications Act 1992 to mean a spectrum licence issued under Part 3.2 of the Radiocommunications Act 1992.
As the Broadcasting Licence and the Apparatus licence owned by the taxpayer are not issued under Part 3.2 of the Radiocommunications Act 1992, they are not spectrum licenses for the purposes of the Radiocommunications Act 1992, or for the purposes of subsection 3(11A) of the Agreements Act. Consequently, subsection 3(11A) of the Agreements Act does not apply to the taxpayer, as the taxpayer is not a licensee of a spectrum licence.
Accordingly, subsection 3(11A) of the Agreements Act does not deem the taxpayer to have a permanent establishment in Australia for the purposes of Article 5 of the UK Convention.
Date of decision: 31 August 2006Year of income: Year ended 30 June 2007
Legislative References:
International Tax Agreements Act 1953
subsection 3(11A)
Schedule 1, Article 5
subsection 995-1(1) Radiocommunications Act 1992
Broadcasting Services Act 1992
Case References:
Thiel v. Federal Commissioner of Taxation
(1990) 171 CLR 338
(1990) 21 ATR 531
90 ATC 4717
Related Public Rulings (including Determinations)
Taxation Ruling TR 2001/13
Taxation Ruling TR 2006/D8
ATO ID 2006/307
ATO ID 2006/308
Other References:
OECD Committee on Fiscal Affairs for the Organisation for Economic Co-operation and Development, Model Tax Convention on Income and Capital, Paris, Condensed Version 15 July 2005
Keywords
Double tax agreements
International tax
Permanent establishment
Spectrum licences
Treaties
United Kingdom
ISSN: 1445-2782