ATO Interpretative Decision
ATO ID 2007/104
Income Tax
Assessability of income derived by an Australian resident performing independent personal services for an Italian entityFOI 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This ATO ID contains references to repealed provisions, some of which may have been re-enacted or remade.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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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
Is income derived by an Australian resident taxpayer, from performing freelance journalism in Australia for an Italian radio station, assessable under subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997)?
Decision
Yes. Income derived by an Australian resident taxpayer from freelance journalism performed in Australia for an Italian radio station is assessable under subsection 6-5(2) of the ITAA 1997.
Facts
The taxpayer is a resident of Australia for tax purposes.
The taxpayer is a freelance journalist reporting news items from Australia to a radio station in Italy.
The taxpayer is not under any employment contract with the Italian radio station. The editors of the Italian radio station contact the taxpayer in Australia to request reports on any news from Australia to broadcast in their news bulletin or current affairs programs.
Reasons for Decision
Subsection 6-5(2) of the ITAA 1997 provides that assessable income of a resident taxpayer includes ordinary income derived directly or indirectly from all sources, whether in or out of Australia, during the income year. The amounts paid to the taxpayer are ordinary income for the purposes of subsection 6-5(2).
However, in determining the liability to Australian tax it is necessary to consider not only the income tax laws but also any applicable tax treaty contained in the International Tax Agreements Act 1953 (Agreements Act) that exists between Australia and Italy.
Section 4 of the Agreements Act incorporates the Income Tax Assessment Act 1936 (ITAA 1936) and the ITAA 1997 so that those Acts are read as one with the Agreements Act. The Agreements Act effectively overrides the ITAA 1936 and ITAA 1997 where there are inconsistent provisions (except in specified situations).
Schedule 21 to the Agreements Act contains the Australia - Italy Double Taxation Convention (the Italian Convention). The Italian Convention operates to avoid the double taxation of income received by Australian and Italian residents.
Article 14(1) of the Italian Convention provides that income derived by an individual who is a resident of Australia in respect of professional services or other independent activities of a similar character shall be taxable only in Australia unless the taxpayer has a fixed base regularly available to him in Italy for the purpose of performing his activities. If the taxpayer has such a fixed base, the income may be taxed in Italy but only so much of it as is attributable to that fixed base.
Article 14(2) of the Italian Convention defines the term 'professional services' as including independent scientific, literary, artistic, educational or teaching activities, as well as the independent activities of physicians, lawyers, engineers, architects, dentists and accountants. This is an inclusive definition, and thus is not limited to the specific examples provided. Moreover, because the Article also applies to 'other independent activities of a similar character', its scope extends to activities that are of an 'independent' nature and which are similar in character to the professional services listed in Article 14(2) of the Italian Convention.
Activities will be considered 'independent' for the purposes of Article 14 of the Italian Convention where they are provided outside a formal employment arrangement, that is, not in the capacity of an employee of the recipient of the services. This interpretation is consistent with the Explanatory Memorandum to the Italian Convention which explains that remuneration derived as an employee is subject to another Article of the Convention and is not covered by Article 14. It is also supported by the Commentary on the previous OECD Model Article 14 (deleted from the OECD Model on 29 April 2000) which explained, at paragraph 1, that the Article did not apply to professional services performed in employment.
The taxpayer is a freelance journalist and the services provided by the taxpayer to the Italian radio station are provided in this capacity and not as an employee of the Italian radio station. The provision of freelance journalism services is similar in character to the professional services listed in Article 14(2) of the Italian Convention in that journalism is also an occupation which requires specific qualifications or a high level of skill and experience to perform the relevant functions.
The freelance journalism services provided by the taxpayer, therefore, fall within the scope of Article 14 of the Italian Convention as 'professional services or other independent activities of a similar character'.
As the taxpayer performs these services from Australia and not from any fixed base available to him in Italy, Australia is allocated the sole taxing right over the income derived from the services under Article 14(1) of the Italian Convention. Accordingly, the income is included in the assessable income of the taxpayer under subsection 6-5(2) of the ITAA 1997.
Date of decision: 14 June 2006Year of income: Year ended 30 June 2006
Legislative References:
Income Tax Assessment Act 1936
ITAA36
subsection 6-5(2) International Tax Agreements Act 1953
subsection 4(1)
subsection 4(2)
Schedule 21, Article 14
Schedule 21, Article 14(1)
Schedule 21, Article 14(2) ATO Interpretative Decisions overturned by this decision
ATO ID 2006/160
Other References:
Explanatory Memorandum to the Income Tax (International Agreements) Amendment Bill 1983 (Explanatory Memorandum to the Italian Convention)
OECD Committee on Fiscal Affairs for the Organisation for Economic Co-operation and Development, Model Tax Convention on Income and Capital, Paris, as adopted by the Committee and published on November 1, 1997.
Keywords
Double tax agreements
Italy
International tax
Treaties
Professional services sector
ISSN: 1445-2782