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Ruling

Subject: Medical Consulting Services

Question:

Is your Australian sourced income, derived from the provision of medical consultancy services, exempt from Australian income tax?

Answer:

Yes.

This ruling applies for the following period:

Year ending 30 June 2011.

The scheme commenced on:

1 July 2011.

Relevant facts

You are a Country X resident for income tax purposes.

You visit Australia as a locum doctor doing short-term contracts with hospitals to provide your personal professional medical services in their emergency departments.

In the past two years you have only taken contracts with a specific hospital.

Each time you visit Australia the hospital provides accommodation for you. It's usually in a different house every time. During other periods, these houses are used for other staff and are in no way used or connected to you.

You have not spent more than 183 days in Australia in any twelve month period beginning or ending in the 2010-11 income year, nor the 2011-12 income year.

You have no office in Australia.

Relevant legislative provisions

International Tax Agreements Act 1953 Section 5A

International Tax Agreements Act 1953 Section 3(AAA)

Reasons for decision

Article 14 of the Country X tax treaty states that income derived by an individual that is a resident of Country X in respect of professional services will be taxable only in Country X unless the services are performed in Australia and either:

· you are present in Australia for a period or periods exceeding in the aggregate, 183 days in any twelve month period commencing or ending in the year of income concerned ("the 183 day test"), or

· a fixed base ("permanent establishment") is regularly available to you in Australia for the purposes of performing your activities.

In your case, you have not spent more than 183 days in Australia for any twelve month period commencing or ending in the 2010-11 income year. Further, you indicated that you do not intend to alter this pattern. Accordingly, "the 183 day test" does not apply to you.

Also, we shall consider whether you had a "permanent establishment" (PE) available to you whilst performing your duties in Australia. The term PE is defined in Article 5(1) of the Country X treaty as a fixed place of business through which the business of an enterprise (or individual) is wholly or partly carried on.

In interpreting the terms used in the treaty, the general rule is to give words their meaning under domestic tax law where the term is not specifically defined under the treaty. In Thiel v. Federal Commissioner of Taxation (1990) 90 ATC 4717; 171 CLR 338, the Full High Court held that it was also proper to have regard to any supplementary means of interpretation where the expressions used in the treaty are ambiguous. The supplementary means of interpretation were the OECD Model Convention (OECD Convention) and commentaries (OECD commentaries) thereon.  The Commissioner has also confirmed this approach in Taxation Ruling TR 2001/13 at paragraph 104.

According to the OECD commentaries the three important elements in Article 5(1) of are:

(a)  the existence of a place of business;

(b)  the fact that this place must be fixed; and

(c)  business must be carried on through this fixed place of business.

The term place of business generally covers any premises, facilities or installations used for carrying on the business of an enterprise whether or not they are used exclusively for that purpose.

Existence of a fixed place of business 

In this regard, paragraphs 4, 4.1 and 4.3 of the OECD Commentary states that:

4. It is immaterial whether the premises, facilities or installations are owned or rented by or is otherwise at the disposal of the enterprise. A place of business may be situated in the business facilities of another enterprise.

4.1 As noted above, the mere fact that an enterprise has a certain amount of space at its disposal, which is used for business activities, is sufficient to constitute a place of business.

4.3 A second example is that of an employee of a company who, for a long period of time, is allowed to use an office in the headquarters of another company in order to ensure that the latter company complies with its obligations under the contracts concluded with the former company. In that case, the employee is carrying on activities related to the business of the former company and the office that is at his disposal at the headquarters of the other company will constitute a permanent establishment of his employer, provided that office is at his disposal for a sufficient long period of time so as to constitute a fixed place of business and that the activities that are performed there go beyond the activities referred to in paragraph 4 of the article.

Paragraph 4 of Article 5 refers to facilities that are maintained solely for storage, display, for purchasing or for activities that are preparatory or auxiliary characters.

Paragraph 6 of the OECD Model commentary provides that since the place of business must be fixed, it also follows that a PE can be deemed to exist only if the place of business has a certain degree of permanency. That is, if it is not of a purely temporary nature. A PE is not normally deemed to have existed in a situation where a business had been carried on in a country through a place of business that is maintained for less than six months. However, the exception is where the activities were 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.

Paragraph 6.1 of the OECD Model Commentary provides that:

"Where a particular place of business is used for only short periods of time but such usage takes place regularly over long periods of time, the place of business should not be considered to be of a purely temporary nature".

In your case, you are not in Australia for a significant period of time to be deemed to be performing your medical consultancy services from a PE. Accordingly, a PE is not available to you in Australia for the performance of your medical consultancy services.

In conclusion, as you neither meet "the 183 day test" nor "the permanent establishment test", your Australian sourced income derived from your provision of medical consultancy services is exempt from Australian income tax.