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Ruling

Subject: Whether assessable income is derived in Australia.

Question 1:

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

Answer:

No, the taxpayer is not assessable in Australia.

This ruling applies for the following periods:

Year ending 30 June 2013

Year ending 30 June 2014

Year ending 30 June 2015

The scheme commences on:

The scheme has commenced.

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.

In the relevant years, the taxpayer anticipates receiving fees for conducting approximately seven events annually in Australia. None exceeding a week in duration.

These events will be 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 will be minimal, such as laptops and overhead projectors.

The taxpayer does not sell anything at their events.

Relevant legislative provisions

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

Reasons for decision

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.

Agreement X is the applicable tax treaty in these circumstances.

Under Article X of Agreement X, 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 Y of Agreement X 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 are provided by its members, the events will be held in different locations, the taxpayer does not have one location at its constant disposal and the duration of each of the seminars is 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 will be held at different locations, it is considered that the taxpayer will not have a 'fixed place of business' in Australia in terms of Article Y of Agreement X in the relevant years. The taxpayer does 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 Y of Agreement X 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 Agreement X 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 Agreement X.

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

NOTE

Although this private ruling applies for the 2013, 2014 and 2015 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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