Edited version of private ruling

Authorisation Number: 1011811573815

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Ruling

Subject: Requirement to register for an Australian Business Number and Pay As You Go Withholding

Issue 1

Question 1

Are you required to register for an Australian Business Number (ABN) in relation to the arrangement made with the Australian registered payroll business?

Answer

The arrangement you have made with the Australian payroll business, to pay an amount to them in return for the provision of payroll services, does not constitute carrying on an enterprise in Australia, nor does it constitute making a supply in the course of furtherance of your enterprise that is connected with Australia. Consequently you are not entitled to an ABN under subsection 8(1) of the A New Tax System (Australian Business Number) Act 1999 (ABN Act).

Question 2

Are you required to register for Pay As You Go Withholding [PAYG(W)] in relation to the arrangement made with the Australian registered payroll business?

Answer

An entity that is required to pay an amount to the Commissioner under PAYG withholding must apply to the Commissioner to be registered. PAYG withholding relates to payments made under Divisions 12,13 and 14 of Schedule 1 to the Taxation Administration Act 1953 (TAA). The arrangement between yourself and the Australian payroll business should not give rise to any payments made under those provisions and therefore you are not required to register for PAYG withholding in relation to that payment.

This ruling applies for the following period:

1July 2010 to 30 June 2011

The scheme commences on:

1 July 2010

Relevant facts and circumstances

· The entity is based in the United Kingdom and provides employment contracts around the world for independent contractors.

· The entity does not employ these consultants but provides placements for them in their client's/customer's businesses.

· The entity has contracted an Australian registered business to provide payroll services for these contractors. The entity will pay the payroll business a gross amount for the contractor and the payroll business will withhold taxes, superannuation and workers compensation insurances.

· The association between the entity and the payroll business is at arms length.

· The entity does not have a permanent establishment in Australia.

· The entity does not have any shareholders or central management resident or registered in Australia.

Relevant legislative provisions

A New Tax System (Australian Business Number) Act 1999 section 8(1) and

Taxation Administration Act 1953 section 16-140(1) of Schedule 1.

Reasons for decision

Issue 1 Question 1

Summary

The arrangement you have made with the Australian payroll business, to pay an amount to them in return for the provision of payroll services, does not constitute carrying on an enterprise in Australia, nor does it constitute making a supply in the course of furtherance of your enterprise that is connected with Australia. Consequently you are not entitled to an ABN under subsection 8(1) of the A New Tax System (Australian Business Number) Act 1999 (ABN Act).

Detailed reasoning

Subsection 8(1) of the ABN Act provides that

You are entitled to have an Australian Business Number (ABN) if:

(a) you are carrying on an enterprise in Australia; or

(b) in the course of furtherance of carrying on an enterprise, you make supplies that are connected with Australia.

Subsection 9-25(6) of the A New Tax System (Goods and Services Tax) Act 1999 (the GST Act) defines that

An enterprise is carried on in Australia if the enterprise is carried on through;

(a) a permanent establishment (as defined in subsection 6(1) of the Income Tax Assessment Act 1936) or;

(b) a place that would be such a permanent establishment if paragraph (c), (f) or (g) of that definition did not apply.

You have advised that you do not have a permanent residency in Australia, that none of your shareholders are resident in Australia and that you do not have central management in Australia. Consequently you do not meet the criteria set out in paragraph 8(1)(a) of the ABN Act for entitlement to an ABN as you are not carrying on an enterprise in Australia.

To satisfy paragraph 8(1)(b) of the ABN Act you need to make a supply in the course of furtherance of carrying on your enterprise that is connected with Australia. The term "supply" is defined in section 9-10 of the GST Act as being a form of supply whatsoever and includes the following;

· a supply of goods

· a supply of services

· a provision of advice or information

· a grant, assignment or surrender of any right

· a financial supply

· an entry into, or release from, an obligation to do anything, or to refrain from an act, or to tolerate an act or situation

· a combination of any 2 or more of the above

In relation to the arrangement you have made with the Australian payroll business, you are not actually providing a supply of any form to them. Rather, you are making a payment to them and you are the recipient of the supply which is the provision of payroll services. Consequently you do not meet the criteria set out in paragraph 8(1)(b) of the ABN Act for entitlement to an ABN as no supply is provided.

In conclusion, the arrangement you have made with the Australian payroll business, to pay an amount to them in return for the provision of payroll services, does not constitute carrying on an enterprise in Australia, nor does it constitute making a supply in the course of furtherance of your enterprise that is connected with Australia. Consequently you are not entitled to an ABN under subsection 8(1) of the ABN Act.

Question 2

Summary

An entity that is required to pay an amount to the Commissioner under PAYG withholding must apply to the Commissioner to be registered. PAYG withholding relates to payments made under Divisions 12,13 and 14 of Schedule 1 to the Taxation Administration Act 1953 (TAA). The arrangement between yourself and the Australian payroll business should not give rise to any payments made under those provisions and therefore you are not required to register for PAYG withholding in relation to that payment.

Detailed reasoning

Subsection 16-140(1) of Schedule 1 to the TAA provides the following;

An entity that must pay an amount to the Commissioner under;

(a) subsection 16-70(1) (about amounts withheld under Division 12); or

(aa) Division 13 (about payments in respect of alienated personal services payments); or

(b)Division 14 (about payments in respect of non-cash benefits);

must apply to register with the Commissioner.

You have advised that you will pay a gross amount to the Australian payroll business for the provision of payroll services. The payroll business will then be responsible for payment to the contractors and the withholding of taxes, superannuation and workers compensation insurances. Consequently the gross amount that you will pay to the Australian payroll business does not constitute a payment under Division 12 of the TAA as it represents payment for the provision of a supply, namely the provision of payroll services. The following general payments are covered by Division 12;

· Subdivision 12-B - Payments for work and services

· Subdivision 12-C - Payments for retirement or as a result of termination of employment

· Subdivision 12-D - Benefit and compensation payments

· Subdivision 12-E - Payments where TFN or ABN not quoted

· Subdivision 12-F - Dividend, interest and royalty payments

· Subdivision 12-FA - Departing Australian superannuation payments

· Subdivision 12-FAA - Excess untaxed roll-over amount

· Subdivision 12-FB - Payments to foreign residents

· Subdivision 12-G - Payments in respect of mining on Aboriginal land and natural resources

· Subdivision 12-H - Distributions of managed investment trust income

In addition the payment is not a payment under Division 13 or Division 14. Therefore as the payment to the Australian payroll business does not meet the criteria outlined in subsection 16-140(1) of Schedule 1 to the TAA, you are not required to register for PAYG(W) or withhold tax from the payment.

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