Edited version of your private ruling

Authorisation Number: 1012546323688

Ruling

Subject: Australian resident for domestic tax law purposes

Resident of Australia for the purposes of each of Australia's double tax agreements in force at 1 July 2013

Question 1

Is the entity an "Australian resident" in terms of subsection 995-1(1) of the Income Tax Assessment Act 1997 and in turn a "resident of Australia" in terms of subsection 6(1) of the Income Tax Assessment Act 1936?

Answer

Yes.

Question 2

Is the entity a resident of Australia for the purposes of each of Australia's double tax agreements which were in force at 1 July 2013?

Answer

Yes.

This ruling applies for the following periods:

The income years ending 30 June 2014, 2015, 2016, 2017 and 2018

The scheme commences on:

The scheme has commenced

Relevant facts and circumstances

The entity was established by Commonwealth enactment

The central management and control of the entity is in Australia. All meetings of the entity occur within Australia. All members of the entity are Australian residents and are appointed by the Commonwealth Government.

The entity is an exempt entity.

Assumption

The entity is not treated as a resident under the domestic tax law principles of any country with which Australia has concluded a double tax agreement which is in force at 1 July 2013, that is, the double tax agreements as listed in question 2 above

Relevant legislative provisions

Income Tax Assessment Act 1936 Subsection 6(1)

Income Tax Assessment Act 1997 Subsection 995-1(1)

International Tax Agreements Act 1953 Section 4

Reasons for decision

Question 1

Summary

We have considered the definition of Australian resident in subsection 995-1(1) of the Income Tax Assessment Act 1997 (ITAA 1997) and the definition of resident of Australia in terms of paragraph 6(1) of the Income Tax Assessment Act 1936 (ITAA 1936) with respect to a company.

It is concluded that the entity is an Australian resident.

Detailed reasoning

The term "company" is defined in subsection 6(1) of the Income Tax Assessment Act 1936 (ITAA 1936) as having the meaning given by subsection 995-1(1) of the Income Tax Assessment Act 1997 (ITAA 1997).

Subsection 995-1(1) of the ITAA 1997 defines a company to mean, amongst other things, a body corporate.

As the entity is a body corporate it is a company for the purposes of both the ITAA 1936 and the ITAA 1997.

The entity was established in Australia pursuant to an Act of the Commonwealth Parliament that received Royal assent in Australia from the Governor General. This means that the entity was incorporated in Australia.

The terms "resident" or "resident of Australia" are defined in subsection 6(1) of the ITAA 1936.

Since the entity is a company that was incorporated in Australia, it is a resident or resident of Australia for the purposes of the ITAA 1936.

The term "Australian resident" is defined in subsection 995-1(1) of the ITAA 1997 as meaning a resident of Australia for the purposes of the ITAA 1936.

As the entity is a resident of Australia for the purposes of the ITAA 1936 it is therefore an Australian resident for the purposes of the ITAA 1997.

Question 2

Summary

We have considered each of Australia's double tax agreements which were in force at 1 July 2013. In each agreement we have identified the article dealing with residence and where a company is a dual resident the applicable "tie-breaker" provision therein. Further, as a result we have found common features of the "tie-breaker" provisions which allow those provisions to be grouped into three categories depending upon the "tie-breaker" tests employed to determine residency. Where a double tax agreement does not have a tie-breaker provision we have looked to the particular specific definitions contained in the agreement in order to answer the question.

Detailed reasoning

In answer to question 1 above it has been determined that the entity is a resident of Australia for the purposes of the ITAA 1936 and that it is therefore an Australian resident for the purposes of the ITAA 1997.

Although the entity is considered to be an Australian resident for the purposes of Australian domestic tax law it is possible that in particular circumstances the entity could simultaneously be a resident of a foreign country for the purposes of that country's domestic law. In other words the entity would have dual residence status.

In the situation where Australia has a double tax agreement (DTA) with the foreign country and both treat the entity as a resident in accordance with their respective domestic tax law then the DTA may contain a provision for the entity to be treated as a resident of only one country for the purposes of the DTA. This is known as the "tie-breaker" provision.

Each bilateral DTA negotiated by Australia has its differences so that the definition of resident and the "tie breaker" provision in each DTA differs accordingly. However, each operates in the same way so that a dual resident company will be treated as a resident of only one country for the purpose of the DTA.

Generally the "tie breaker" provision in the DTA will use one or more of the following criteria to determine the residency status of a dual resident company:

· the place of effective management and control

· the place of its head or main office

· the place it was incorporated, created, registered or organised

The following has been found from an examination of the facts provided:

· the central management and control of the entity is in Australia;

· the entity was incorporated in Australia;

· all meetings of the entity are held in Australia; and

· all members of the entity are Australian residents and are appointed by the Commonwealth Government.

Accordingly, with the exception of the United States of America Convention, the Turkish Convention and the Chilean Convention, in the event the entity is considered to be a dual resident of Australia and a country with which Australia has concluded a DTA, the "tie-breaker" rule in the respective DTA will operate to deem the entity to be a resident of Australia for DTA purposes.

Furthermore on the basis of the assumption that the entity is not treated as a resident under the domestic law principles of any country with which Australia has concluded a DTA it follows that the entity could not be classified as a resident of a foreign country and therefore the entity could only be a resident of Australia for the purposes of a DTA.

United States of America Convention (USA Convention)

The USA Convention does not contain a "tie-breaker" rule for companies so the three broad criteria discussed above are not relevant and thus the USA Convention must be considered separately.

Taxation Ruling TR 2001/13 "Income tax: Interpreting Australia's Double Tax Agreements" (TR 2001/13) provides guidance on the interpretation of the USA Convention.

In TR 2001/13 at paragraphs 12 and 13 is a discussion under the heading "Resolution of dual residence and dual source cases" which relates to "tiebreaker" rules. Footnote 6 to TR 2001/13 regarding the USA Convention which was then in force is relevant. The current USA Convention is not materially different and thus the comments are applicable in this case.

"The United States Convention (…) is an exception in that it only has such 'tie-breaker rules' for individuals, not companies. This is because the terms 'United States corporation' and 'Australian corporation' are defined to effectively exclude the application of the Convention to dual resident companies. The tie-breaker rules do not of themselves directly affect whether the person is a resident of a country at domestic law - for such purposes the 'person' remains a domestic law resident of each of the countries. …"

Although a company that is a resident of Australia for Australian tax law purposes could also be classified as a resident of the United States of America under United States tax law it is assumed that the entity will not be treated as a resident under the domestic law principles of the United States of America. Therefore it follows that the entity could not be classified as a resident of the United States of America and thus the entity could only be a resident of Australia for the purposes of the USA Convention.

Turkish Convention

The Turkish Convention does not contain a "tie-breaker" rule for companies so the three broad criteria discussed above are not relevant and thus the Turkish Convention must be considered separately.

The reasoning contained in Taxation Ruling TR 2001/13 in respect of the USA Convention above can also be applied here. This is because the terms "Turkish company" and "Australian company" are defined to effectively exclude the application of the Turkish Convention to dual resident companies.

Although a company that is a resident of Australia for Australian tax law purposes could also be classified as a resident of Turkey under Turkish law it is assumed that the entity will not be treated as a resident under the domestic law principles of Turkey. Therefore it follows that the entity could not be classified as a resident of Turkey and thus the entity could only be a resident of Australia for the purposes of the Turkish Convention.

Chilean Convention

The Chilean Convention does not contain a "tie-breaker" rule for companies so the broad criteria discussed above are not relevant and thus the Chilean Convention must be considered separately.

However, the Chilean Convention is also different from the USA Convention and the Turkish Convention so the analysis in respect of those conventions does not apply here.

In Article 3 of the Chilean Convention it is stated that "the term 'company' means any body corporate or any entity that is treated as a company or body corporate for tax purposes" and that "the term 'person' includes an individual, a company and any other body of persons". Therefore as the entity is a body corporate it is a company and thus a person for the purposes of the Chilean Convention.

Article 4 of the Chilean Convention contains the definition of the term "resident of a Contracting State" as follows:

1 For the purposes of this Convention, the term "resident of a Contracting State" means any person who, under the laws of that State, is liable to tax therein as a resident of that State or by reason of domicile in that State, and also includes that State and any political subdivision or local authority thereof. This term, however, does not include any person who is liable to tax in that State in respect only of income from sources in that State.

Paragraph 2 of Article 4 contains the tie-breaker provisions for an individual.

Paragraph 3 of Article 4 reads as follows:

3 Where by reason of the provisions of paragraph 1 a person other than an individual is a resident of both Contracting States, the person shall not be entitled to any benefits provided by the Convention except that the provisions of Article 24 shall apply.

Article 24 is a special provision relating to non-discrimination.

As the entity forms an integral part of the Australian Government it is the Contracting State, Australia, in terms of the Chilean Convention.

This interpretation is in accordance with the Commentaries on the OECD Model Tax Convention (as it read on 22 July 2010).

Although a company that is a resident of Australia for Australian tax law purposes could also be classified as a resident of Chile under Chilean law it is assumed that the entity will not be treated as a resident under the domestic law principles of Chile. Therefore it follows that the entity could not be classified as a resident of Chile and thus the entity could only be a resident of Australia for the purposes of the Chilean Convention.