Edited version of private ruling

Authorisation Number: 1011625733701

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Ruling

Subject: Permanent establishment & Seminar registration fees

Question

Are the registration fees received by the taxpayer from events held in Australia assessable in Australia in terms of subsection 6-5(3) of the Income Tax Assessment Act 1997 (the ITAA 1997)?

Answer

No, the taxpayer is not assessable.

This ruling applies for the following periods:

Year ended 30 June 2010 (the 2010 year)

Year ended 30 June 2011 (the 2011 year)

Year ended 30 June 2012 (the 2012 year)

The scheme commences on:

1 July 2009.

Relevant facts and circumstances

The taxpayer is incorporated in Country X and is managed and controlled in Country X.

The taxpayer is a tax resident of Country X.

The taxpayer's activities include providing seminars in Australia.

The taxpayer holds a few events in Australia each year for short periods at different venues. During the 2010 year, the taxpayer received fees from holding two events which did not exceed a week in duration.

These events were organised out of Country X.

The taxpayer does not maintain any premises and does not have any employees working for it in Australia.

The equipment used at the venues was minimal, such as laptops and overhead projectors.

The taxpayer did not sell anything at the seminars.

Relevant legislative provisions

Income Tax Assessment Act 1997 subsection 6-5(3)

International Tax Agreements Act 1953 Section 4.

International Tax Agreements Act 1953 SchX-ArtX.

Does Part IVA, or any other anti-avoidance provision, apply to this ruling?

Part IVA of the Income Tax Assessment Act 1936 is a general anti-avoidance rule that can apply in certain circumstances if you or another taxpayer obtains a tax benefit in connection with an arrangement and it can be concluded that the arrangement, or any part of it, was entered into or carried out by any person for the dominant purpose of enabling a tax benefit to be obtained. If Part IVA applies the tax benefit can be cancelled, for example, by disallowing a deduction that was otherwise allowable.

We have not fully considered the application of Part IVA to the arrangement you asked us to rule on, or to an associated or wider arrangement of which that arrangement is part.

If you want us to rule on whether Part IVA applies we will first need to obtain and consider all the facts about the arrangement which are relevant to determining whether Part IVA may apply.

For more information on Part IVA, go to our website and enter 'part iva general' in the search box on the top right of the page, then select: Part IVA: the general anti-avoidance rule for income tax.

Reasons for decision

Summary

The taxpayer does not have a permanent establishment in Australia and is not liable to Australian income tax.

Detailed reasoning

Subsection 6-5(3) of the Income Tax Assessment Act 1997 (ITAA 1997) provides that the assessable income of a foreign resident includes ordinary income derived directly or indirectly from all Australian sources.

Income derived from providing seminars is ordinary income for the purposes of subsection 6-5(3) of the ITAA 1997.

In determining liability to tax on Australian sourced income received by a foreign resident, it is necessary to consider not only the income tax laws but also any applicable tax treaty contained in the International Agreements Act 1953 (the Agreements Act).

Section 4 of the Agreements Act incorporates that Act with the ITAA 1997 and Income Tax Assessment Act 1936 (ITAA 1936) so that those Acts are read as one. The Agreements Act effectively overrides the ITAA 1997 and the ITAA 1936 where there are inconsistent provisions (except for limited provisions).

Schedule X to the Agreements Act contains the agreement between Australia and Country X (the Country X Agreement).

Under Article X of the Country X Agreement, the business profits of a Country X enterprise will not be taxable in Australia unless the enterprise carries on a business in Australia through a permanent establishment situated in Australia. If the enterprise has a permanent establishment in Australia, so much of the profits that are attributable to the permanent establishment may be taxed in Australia.

The term 'permanent establishment' is defined in Article XX of the Country X Agreement as 'a fixed place of business through which the business of the enterprise is wholly or partly carried on'.

Taxation Ruling TR 2001/13 at paragraphs 101 to 105 provides the Commissioner's view that the OECD Model Tax Convention and Commentaries are relevant in interpreting Australia's tax treaties. Paragraph 2 of the OECD Commentary on Article 5 of the OECD Model Tax Convention (the OECD Commentary) identifies the following elements as to what constitutes a 'permanent establishment' within the general meaning of that term:

· there must be a 'place of business', that is, a facility such as premises or, in certain instances, machinery or equipment;

· this place of business must be 'fixed', that is, it must be established at a distinct place with a certain degree of permanence;

· the business of the enterprise must be carried on at this fixed place of business. This means usually that persons who, in one way or another, are dependant on the enterprise (personnel) conduct the business of the enterprise in the State in which the fixed place is situated.

Even if an enterprise does not own or lease premises, the enterprise will be treated as having a place of business if the enterprise has a certain amount of space at its disposal which is used for business activities, for example where the enterprise has at its constant disposal a part of the office premises owned by another business enterprise: See paragraphs 4 and 4.1 of the OECD Commentary.

Paragraph 4.2 of the OECD Commentary also states that the mere presence of an enterprise at a particular location does not necessarily mean that the location is at the disposal of that enterprise. For example a salesman who regularly visits a major customer to take orders and meets the purchasing officer in his office.

The second condition for a permanent establishment is that the place of business must be fixed, that is, its existence is not of a purely temporary nature. There must be a link to a specific geographical point (paragraph 5 of the OECD Commentary). Paragraph 4.3 of the OECD Commentary provides that the place of business should be at their disposal for a sufficiently long period of time so as to constitute a "fixed place of business" and the activities performed at the place go beyond those of storage, display or of a preparatory or auxiliary character. Paragraph 6 of the OECD Commentary provides that normally a permanent establishment is not considered to exist where the business is carried out from a place that was maintained for less than six months. However, there is an exception where the activities are of a recurrent nature. In such cases, each period of time that the place is used needs to be considered in combination with the number of times during which the place is used on other occasions which may extend over a number of years.

The third requirement for a place of business to constitute a permanent establishment is that the enterprise using it must carry on its business wholly or partly at that place on a regular basis (paragraph 7 of the OECD Commentary).

In this case, the taxpayer organised its seminars out of Country X, its participants registered online, the venues of the seminars were provided by its members, the events were held at two different locations, the taxpayer does not have one location at its constant disposal and the duration of each of the seminars was for a week or less.

Having regard to the small number of events in Australia, the very short duration of each event and the fact that the events were held at different locations, it is considered that the taxpayer did not have a 'fixed place of business' in Australia in terms of Article XX of the Country X Agreement in the 2010 year. The taxpayer did not have a geographical location at its disposal for a sufficiently long duration to regard that place as a 'fixed' place of business.

None of the other paragraphs of Article XX of the Country X Agreement apply to deem the taxpayer to have a permanent establishment in Australia.

The seminar registration fees received by the taxpayer form part of the business profits of an entity that is a tax resident of Country X. Under Article X of the Country X Agreement only so much of the profit of the taxpayer as is attributable to its permanent establishment in Australia may be taxed in Australia.

Since the taxpayer is not considered to have a permanent establishment in Australia, the registration fees received by the taxpayer are not taxable in Australia under Article X of the Country X Agreement.

Consequently, seminar registration fees received by the taxpayer are not assessable in Australia under subsection 6-5(3) of the ITAA 1997.

2011 and 2012 years

Although this private ruling also applies for the 2011 and 2012 years, the ruling only applies to the extent that the facts do not materially change. Hence, if, in future, there is a marked increase in the number and duration of the events in Australia, the Commissioner will not be bound by this private ruling.

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