Edited version of your private ruling

Authorisation Number: 1012103270973

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Ruling

Subject: foreign income

Question 1

Is the income derived by Entity X from conducting training courses in Country A considered as 'remuneration or other income for personal (including professional) services' for the purposes of Article Y of the double tax agreement between Australia and Country A (Country A Agreement)?

Answer

No.

Question 2

Is the income derived by Entity X from conducting training courses in Country A assessable in Country A pursuant to Article Z of the Country A Agreement?

Answer

No.

This ruling applies for the following periods:

Year ended 30 June 2007

Year ended 30 June 2008

Year ended 30 June 2009

Year ended 30 June 2010

Year ended 30 June 2011

The scheme commences on:

1 July 2006

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 are a sole trader.

You conduct a business by the name of Entity X.

Entity X is a resident of Australia for income tax purposes and is treated solely as an Australian resident under the Country A Agreement.

Entity X has conducted training courses in Country A from time to time since 2002.

The contracts for the provision of the training courses in Country A are made in the name of Entity X.

Fee income derived from the training courses conducted by Entity X were directly paid to Entity X.

Entity X's employees conducted the training courses in Country A and no contractors were hired to conduct these courses.

Wages and salaries were subsequently paid by Entity X to Entity X's employees.

Entity X does not have a permanent establishment (PE) in Country A.

Entity X does not have an agent in Country A acting on behalf of Entity X.

Entity X is not controlled by any company in Country A.

You have reported Entity X's business income and business expenses in your individual income tax returns for the relevant periods.

Relevant legislative provisions

International Tax Agreements Act 1953 Section 3AAA and

International Tax Agreements Act 1953 Section 5.

In determining your liability to pay tax in Australia it is necessary to consider not only the domestic income tax laws but also any applicable tax treaties.

The International Tax Agreements Act 1953 overrides both the ITAA 1936 and ITAA 1997 where there are inconsistent provisions (except in some limited situations).

There is a double tax agreement between Australia and Country A (Country A Agreement) which operates to avoid the double taxation of income received by residents of Australia and Country A.

Article Z of the Country A Agreement states that the profits of an enterprise of Australia shall be taxable only in Australia unless the enterprise carries on business in Country A through a PE. If the enterprise carries on business in Country A through a PE, the profits of the enterprise may be taxed in Country A but only so much of the profits which are attributable to that PE.

Article Y of the Country A Agreement states that 'the term "enterprise" includes undertaking'.

Taxation Ruling TR 2001/13 states that the OECD Model Taxation Convention's official Commentaries are relevant in the interpretation of double tax agreements based on the OECD model.

In the OECD Commentary on Article 3 General definitions, the term "enterprise" applies to the carrying on of any business.

Article Y of the Country A Agreement states that 'the terms "profits of a Country A enterprise" and "profits of an Australian enterprise" mean profits of a Country A enterprise or profits of an Australian enterprise respectively, but do not include remuneration or other income for personal (including professional) services".

In ATO Interpretative Decision ATO ID 2009/116, the Commissioner considered whether the income derived by the Australian resident taxpayer company from conducting finance training courses in Country A were not 'remuneration or other income for personal (including professional) services' for the purposes of Article Y of the Country A Agreement.

In interpreting the Country A Agreement in ATO ID 2009/116, the Commissioner determined that Article Y is 'merely a technical reconciliation designed to confirm that the income derived by individuals falling within Articles 11 and 12 is not dealt with under Article Z of the Country A Agreement'.

The Commissioner considered in ATO ID 2009/116 that the income derived by the taxpayer company from conducting finance training courses in Country A was not income derived by individuals falling within Articles A and B of the Country A Agreement. Accordingly, he determined that the income derived by the taxpayer company from conducting finance training courses in Country A were not 'remuneration or other income for personal (including professional) services' for the purposes of Article Y.

The Commissioner determined in ATO ID 2009/116 that the income derived by the taxpayer was business income which was therefore included in the profits of the taxpayer's Australian enterprise for the purposes of Article Z of the Country A Agreement.

Entity X is a resident of Australia for income tax purposes and is treated solely as an Australian resident under the Country A Agreement.

Entity X does not have a permanent establishment (PE) in Country A.

Entity X does not have an agent in Country A acting on behalf of Entity X.

Entity X is not controlled by any company in Country A.

You have reported Entity X's business income and business expenses in your individual income tax returns for the relevant periods.

The Commissioner considers that your circumstances are very similar to those in ATO ID 2009/116. Even though Entity X is not a company, it also carried on a business as an Australian enterprise albeit as a sole trader. Entity X also conducted training courses in Country A from which it derived income. The contracts for the provision of the training courses in Country A are made in the name of Entity X and the fee income derived from the training courses conducted by Entity X were directly paid to Entity X. Entity X's employees conducted the training courses in Country A and no contractors were hired to conduct these courses. Wages and salaries were subsequently paid by Entity X to Entity X's employees.

Therefore, applying ATO ID 2009/116 to your circumstances, it follows that the income derived by Entity X from conducting training courses in Country A was not income derived by individuals falling within Articles A and B of the Country A Agreement. Accordingly, the income derived by Entity X from conducting training courses in Country A were not 'remuneration or other income for personal (including professional) services' for the purposes of Article Y.

Applying ATO ID 2009/116, the income derived by Entity X from conducting training courses in Country A is business income which is included in the business profits of Entity X for the purposes of Article Z of the Country A Agreement. Pursuant to Article Z of the Country A Agreement, the business income of Entity X which is an Australian resident enterprise is taxable only in Australia as Entity X does not carry on business in Country A through a PE.

Therefore, the income derived by Entity X from conducting training courses in Country A is not assessable in Country A pursuant to Article Z of the Country A Agreement.