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Edited version of your private ruling
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Ruling
Subject: permanent establishment
Question
Does Company A have a permanent establishment in Australia for the purposes of the Country A treaty?
Answer
No. Company A does not have a permanent establishment in Australia for the purposes of the Country A treaty.
This ruling applies for the following periods:
Year ended 31 December 2012
Year ended 31 December 2013
Year ended 31 December 2014
Year ended 31 December 2015
Year ended 31 December 2016
The scheme commences on:
1 January 2012.
Relevant facts and circumstances
Company A is a company incorporated under Country A law with its principal office in Country A, and is a non-resident for Australian income tax purposes.
Company A is a resident of Country A for the purposes of the domestic taxation laws of Country A and for the purposes of the Country A treaty.
Company A derives its revenue from fees in respect of activities carried out on the Internet.
No aspect of the generation of the transaction based revenues is carried out in Australia other than the fact that an Australian seller could make the payment of the fees in Australia.
Company A does not own, rent or otherwise have at its disposal premises in Australia either in the form of a physical office or in the form of servers and equipment.
There are no signs or other indicia at Company B's premises which indicate that the premises constitute an office of Company A.
In a typical year, a few employees or directors of Company A could be expected to visit Australia for periods of about one week. Company A does not have any employees resident or located in Australia for any length of time that would indicate a degree of permanence.
Company A does not have representatives in Australia.
Company B was established in relation to the Australian market to provide Company A with advice related to local legal consulting, marketing, merchandising and the user preferences in that location. Company B is an associate of Company A.
Company B is an independent contractor and shall have no authority to represent Company A as an agent or otherwise nor shall Company B have the authority to assume or create any obligation of any kind on behalf of Company A.
Moreover, Company B in substance does not act as agent of Company A nor have an implied authority to conclude contracts on behalf of Company A.
Relevant legislative provisions
International Tax Agreements Act 1953
Reasons for decision
Article X(w) of the Country A treaty states that a 'permanent establishment' means a 'fixed place of business through which the business of an enterprise is wholly or partly carried on'.
Pursuant to Article X(x), a permanent establishment includes a place of management, a branch, an office, a factory, a workshop and the like.
Article X(y) of the Country A treaty provides that Company A will be deemed to have a permanent establishment in Australia if all of the following conditions are satisfied:
· Company B acts on behalf of Company A in Australia;
· Company B is not an agent of independent status;
· Company B has authority to conclude contracts on behalf of Company A and
· the authority is habitually exercised.
Unless there is something more, it cannot be concluded that a company has a permanent establishment in Australia from the mere fact that a company has a subsidiary in Australia: Article X(z) of the Country A treaty.
Company A does not own, rent or otherwise have at its disposal premises in Australia either in the form of a physical office or in the form of computer servers and equipment.
Further, there are no signs or other indicia at Company B's premises which indicate that the premises constitute an office of Company A.
In a typical year, a few employees or directors of Company A could be expected to visit Australia for periods of about one week. Company A does not have any employees resident or located in Australia for any length of time that would indicate a degree of permanence.
The employees of Company B perform activities for the direct benefit of Company B in its role as an entity which provides services for a fee to Company A under the Consultancy Agreement. In such circumstances, the employees of Company B would be regarded as employees of Company B (not of Company A).
On the facts as presented in your private ruling application, Company B does not have the requisite authority to conclude contracts on behalf of Company A, either in form or in substance.
Having regard to the above, it is considered that Company A does not have a permanent establishment in Australia under Article X of the Country A treaty.