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Edited version of your written advice
Authorisation Number: 1012875770504
Date of advice: 9 September 2015
Ruling
Subject: Pay As You Go Withholding obligations
Question and Answer
Are you as a non-resident company subject to Australian withholding tax for services performed by your Director during their time in Australia?
No
This ruling applies for the following period
Period ended 30 June 2015
The scheme commences on
1 July 2014
Relevant facts and circumstances
Your company is not an Australian registered company.
The central management of your company is located outside Australia. Your company has no branch, office, factory or agent representing it in Australia.
Your company does not have a Permanent Establishment in Australia.
Your company conducts business internationally.
Your company provided services in Australia on a contract basis.
Your company provides these services to Australian companies which are registered for GST.
Many of the services provided to Australian companies are rendered when your employee is in Australia, otherwise they are co-ordinated and performed elsewhere when more cost effective.
The Director of the Company alone provided services whilst in Australia on site. The Director is a Resident of another state for taxation purposes.
The Director of the Company remained in Australia for an aggregate period of more than 183 days within the financial year (period of ruling).
The company engages contractors in Australia and outside Australia to deliver specialised services.
The contractors are paid from outside Australia.
Your company will not be employing any individuals in Australia.
Relevant legislative provisions
Section 10-5(1) of Schedule 1 of the Taxation Administration Act 1953
Section 12-1 of Schedule 1 of the Taxation Administration Act 1953
Section 12-35 of Schedule 1 of the Taxation Administration Act 1953
Reasons for decision
Payments and other transactions subject to PAYG withholding are called "withholding payments"
A non-resident employer who pays an Australian resident for work performed overseas is subject to withholding obligations if the non-resident employer has a sufficient connection with Australia, ie if the non-resident carries on an enterprise or income-producing activities in Australia and has a physical presence in Australia.
As you only employ a non-resident in Australia, your withholding obligation will be determined by the Articles of Australia's Agreement for the Avoidance of Double Taxation with the another state (DTA) as your non-resident employee is a foreign resident for taxation purposes.
Article 15 of the DTA gives taxing rights to Australia where a non-resident exceeds an aggregate stay of 183 days in a financial year. You indicate that your non-resident employee did remain in Australia in excess of 183 days within the financial year. Whilst this identifies a taxing right to Australia, it does not automatically impart a withholding obligation to a non-resident employer.
Taxation Determination TD 2011/1 states a non-resident entity that pays an Australian resident for work performed overseas must withhold an amount in accordance with section 12-35 of Schedule 1 to the Taxation Administration Act 1953 (TAA) if the non-resident entity has a sufficient connection with Australia. Note that the requirement to withhold in section 12-35 is subject to specific exceptions set out in section 12-1 of Schedule 1 to the TAA.
The nature of a sufficient connection is a matter of statutory interpretation having regard to the Pay As You Go (PAYG) withholding provisions in the TAA. Where a non-resident entity pays an Australian resident for work performed overseas, the non-resident will have a sufficient connection to Australia if they have a physical business presence in Australia. A non-resident entity will have a physical business presence in Australia if the non-resident carries on an enterprise or income producing activities (or part of such enterprise or activities) in Australia and has a physical presence in Australia.
Whilst this determination deals with a non-resident employer and a resident employee, given that a non-resident employee has a more contingent connection to income tax withholding, it stands to reason that this view should be upheld. Therefore the non-resident employer does not have a withholding obligation in Australia.
As you have indicated that the company has no Permanent Establishment in Australia this consideration does not apply. As the company has an insufficient connection with Australia it has no withholding obligations.