Edited version of your written advice

Authorisation Number: 1012926440360

Date of advice: 14 December 2015

Ruling

Subject: Liability to tax

Question 1

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

Answer

No.

This ruling applies for the following periods:

Year ending 30 June 20XX (20XX income year)

Year ending 30 June 20YY (20YY income year)

Year ending 30 June 20ZZ (20ZZ income year)

The scheme commences on:

The scheme has commenced.

Relevant facts and circumstances

The company is incorporated in Country X.

The company is managed and controlled in Country X.

It is a tax resident in Country X.

The activities of the company include providing events.

The company held several events at various locations in Australia in the past income years. These events were of a very short duration.

The company has held events in Australia to date in the 20XX income year and proposes to hold events in the remainder of the 20XX income year as well as in the 20YY and 20ZZ income years.

The company will receive fees from participants in the events.

These events will be organised from Country X and are open to members of the company and also to non-members.

Participants will generally register and pay online.

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

The venues for the events will generally be made available for use by the company either complimentary or for minimal cost.

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

The company does not sell goods, services, merchandise etc. at the events.

Relevant legislative provisions

Income Tax Assessment Act 1997

Subsection 6-5(3)

Country X Agreement

Article 4

Article 5

Reasons for decision

Question 1

Summary

In this discussion the relevant Australian taxation law is subsection 6-5(3) of the Income Tax Assessment Act 1997 (ITAA 1997). However, also applicable is the tax treaty between Australia and Country X (Country X Agreement) particularly the business profits article and the permanent establishment article. The OECD Commentary on those articles is used to interpret the provisions of the tax treaty and apply them to this case.

Three elements are considered to determine whether the company has a permanent establishment in Australia. They are the existence of a place of business; whether that place of business is fixed; and the carrying on of the business through that fixed place.

An examination was made of the events held in Australia in each income year as to the number of events, the total number of days those events occupied, the duration of an event and the location of the event.

The conclusion drawn is that the company does not have a permanent establishment in Australia and is not liable to Australian income tax.

Detailed reasoning

The company is incorporated, managed and controlled in Country X and it is tax resident of Country X. Thus the company is a foreign resident.

Subsection 6-5(3) of the ITAA 1997 is a provision that applies to a foreign resident. Subsection 6-5(3) relates to income according to ordinary concepts,

Income derived from providing events is ordinary income in terms of subsection 6-5(3) of the ITAA 1997.

In determining the liability to tax on Australian sourced income that a foreign resident receives it is necessary to consider Australian domestic tax law and any applicable tax treaty.

In this instance the relevant tax treaty is the Country X Agreement.

The business profits article of the Country X Agreement provides that the business profits of a Country X enterprise will not be taxable in Australia unless the enterprise carries on business in Australia through a permanent establishment situated in Australia. If the enterprise has a permanent establishment in Australia, the profits may be taxed in Australia but only so much of them as is attributable to that permanent establishment.

The permanent establishment article of the Country X Agreement contains definitions of the term "permanent establishment". A "permanent establishment" is defined as "a fixed place of business through which the business of the enterprise is wholly or partly carried on".

Taxation Ruling TR 2001/13 "Income tax: Interpreting Australia's Double Tax Agreements" at paragraphs 101 to 105 contains the Commissioner's view that the OECD Model Tax Convention and the Commentaries are relevant to interpreting Australia's tax treaties.

In the current OECD Model Tax Convention the article concerning the definition of permanent establishment is Article 5. The OECD Commentary on Paragraph 1 of Article 5 identifies the following features as constituting a "permanent establishment" within the general meaning of that term:

• the existence of a "place of business", i.e. a facility such as premises, or in certain instances, machinery or equipment;

• this place of business must be "fixed", i.e. it must be established at a distinct place with a certain degree of permanence;

• the carrying on of the business of the enterprise through the fixed place of business. This means that the persons, who, in one way or another, are dependent on the enterprise (personnel) conduct the business of the enterprise in the State in which the fixed place of business is situated. (paragraph 2 of the OECD Commentary on Article 5)

Where 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 its business activities. For example, in the situation where the enterprise has at its constant disposal a part of the office premises of another business enterprise. (paragraphs 4 and 4.1 of the OECD Commentary on Article 5.)

However, 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 the enterprise. For example, a salesman who regularly visits a major customer to take orders and meets the purchasing officer in the purchasing officer's office to do so. In that case the customer's premises are not at the disposal of the enterprise for which the salesman is working and therefore do not constitute a fixed place of business through which the business of that enterprise is carried on. (paragraph 4.2 of the OECD Commentary on Article 5.)

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 with a specific geographic point. (paragraph 5 of the OECD Commentary on Article 5.) The place of business should be at the disposal of the enterprise for a sufficiently long period of time in order to constitute a "fixed place of business" and the activities performed at that location need to go beyond those of storage and display or of a preparatory or auxiliary character. (paragraph 4.3 of the OECD Commentary on Article 5.) Normally a permanent establishment is not considered to exist in situations where a business has not been carried on in a country through a place of business that was maintained for less than six (6) months. However, there is an exception where the activities are of a recurrent nature. In such cases each period of time during which the place is used needs to be considered in combination with the number of times during which that place is used (which may extend over a number of years.) (paragraph 6 of the OECD Commentary on Article 5).

The third condition 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 on Article 5).

It is necessary to look at the events held in Australia in the relevant income years.

In the relevant income years the organisation of the events took place from Country X; the participants registered online and the Australian venues for the events were provided by company members in Australia. The company did not have a location at its constant disposal.

For the subsequent income years the company proposes that the events continue in a similar way to the way they have in the past.

Having regard to the number of events held in Australia, the very short duration of each event and the fact that many different locations were used it is considered that the company did not have a "fixed place of business" in Australia in terms of the Country X Agreement in the relevant income years. The company did not have a geographical location at its disposal for a sufficiently long duration to regard that place as a "fixed place of business".

On the basis that the company will conduct its activities in the subsequent income years in the same way as it has in the past income years it is considered the view formed about those past years be applied. Accordingly, the company will not have a "fixed place of business" in Australia and thus will not have a permanent establishment in Australia in the subsequent income years.

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

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

Consequently, the fees received by the company from events held in Australia are not assessable in Australia in terms of subsection 6-5(3) of the ITAA 1997.

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