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Edited version of your written advice

Authorisation Number: 1012747593777

Ruling

Subject: Permanent Establishment

Question and Answer

Do you have a permanent establishment in Country X?

No

This ruling applies for the following period

Financial year ended 30 June 2015

The scheme commences on

1 July 2014

Relevant facts and circumstances

This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

You were engaged by a company in Country X

Invoices dating back more than 1 year remain unpaid.

You request for payment from the Company in Country X is that they must withhold tax from the outstanding amounts.

The Company in Country X believe that you should be deemed to have a Permanent Establishment in Country X, therefore tax needs to be withheld in Country X.

You have provided the following timeline of your employees' presence in Country X over the entire period:

Your employees simply visited the site on each occasion then returned to Australia.

No employee or representative was left "on the ground" in Country X as a representative or agent or in any capacity outside of the above dates.

Relevant legislative provisions

International Tax Agreements Act 1953

Schedule 35

Schedule 35, Article 5

Schedule 35, Article 5(1)

Schedule 35, Article 5(2)

Schedule 35, Article 5(3)

Schedule 35, Article 5(4)

Schedule 35, Article 5(5)

Schedule 35, Article 5(6)

Schedule 35, Article 5(7)

Reasons for decision

Permanent Establishment

Broadly, the definition of "permanent establishment" means, in relation to a person, a place in a country at or through which a person carries on any business. That place must have an element of permanence, both geographic and temporal; permanence must be construed in the context of each particular business and is a question of fact and degree, but it does not mean forever).

The need for temporal permanence requires that a business operates at a place for a period of time. As a rule of thumb, if a business operates at or through a place continuously for six months or more, it will generally be considered to be temporally permanent.

Australia and Country X defined the term Permanent Establishment in the double tax agreement.

The Double Tax Agreement

Schedule Z to the Agreements Act contains the tax treaty between Australia and the Country X (the Country X Agreement). Relevantly Article W of the Country X Agreement defines the term Permanent Establishment PE.

Article W(1) of the Country X Agreement contains the general definition of a PE which is as follows:

Article W(2) of the Country X Agreement further illustrates the general definition by providing listed facilities that are included in the definition. For example, at subparagraph (a):

Taxation Ruling TR 2001/13 at paragraphs 101 to 105 explains the Commissioner's view that the OECD Model Tax Convention and Commentaries are relevant to interpreting Australia's tax treaties. Paragraph 2 of the OECD Commentary on Article 5 of the OECD Model Tax Convention explains that the general definition of a PE contains the following conditions:

You do not have any facilities listed in Article W(2) of the Country X Agreement, or more importantly a fixed place of business within the general definition as provided by Article W(1) of the Country X Agreement. Notwithstanding, the latter paragraphs of Article W of the Country X Agreement which can deem an enterprise to have a Permanent Establishment must also be considered to resolve the question.

On the above facts, Article W(3) of the Country X Agreement has no application.

Article W(4) of the Country X Agreement provides a list of exceptions to the definition which relevantly includes that an enterprise will not be deemed to have a PE merely because it has the use of facilities solely for the purpose of the storage of goods and/or maintains stock for the purpose of storage.

Article W(5) of the Country X Agreement deems there to be a PE, in certain circumstances, where a person, other than an agent of independent status to whom Article W(6) of the Country X Agreement applies, acts on behalf of the enterprise. However, Article W(6) of the Country X Agreement provides that an enterprise shall not be deemed to have a PE merely because it carries out business in the other state through an agent of independent status where that person is acting in the ordinary course of that person's business.

You are an independent agent acting in the ordinary course of its business in accordance with Article W(6) of the Country X Agreement, Article W(5)(b) of the Country X Agreement will not deem the taxpayer to have a PE in Country X.

Article W(7) of the Country X Agreement makes it clear that even if the Company in Country X exerts control over who you have carrying out your business in Country X, this will not in itself result in a PE for the taxpayer in Country X.

In summary therefore, you do not have a Permanent Establishment in Country X pursuant to Article W of Schedule Z to the Agreements Act.

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