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Edited version of your written advice
Authorisation Number: 1012980899636
Date of advice: 7 March 2016
Ruling
Subject: Are fees classed as royalties
Question 1(1)(a)
Will fees paid by the Applicant which are referable to the obligation of the Applicant relating to proprietary software modules and components be royalties as defined in subsection 6(1) of the Income Tax Assessment Act 1936 (ITAA 1936)?
Answer
No.
Question 1(1)(b)
Will fees paid by the Applicant which are referable to the obligation of the overseas Supplier under the Agreement relating to documentation be royalties as defined in subsection 6(1) of ITAA 1936?
Answer
No.
Question 1(1)(c)
Will fees paid by the Applicant which are referable to the obligation of the overseas Supplier relating to delivery, installation and integration of a customised system be royalties as defined in subsection 6(1) of the ITAA 1936?
Answer
No.
Question 1(2)(a)
Will fees paid by the Applicant which are referable to a licence in respect of software be royalties as defined in subsection 6(1) of the ITAA 1936?
Answer
No.
Question 1(2)(b)(i)
Will fees paid by the Applicant which are referable to a licence in respect of documentation, to the extent they relate to use of the documentation, be royalties as defined in subsection 6(1) of the ITAA 1936?
Answer
No.
Question 1(2)(b)(ii)
Will fees paid by the Applicant which are referable to a licence in respect of documentation, to the extent they relate to reproduction of the documentation be royalties as defined in subsection 6(1) of the ITAA 1936?
Answer
Yes.
Question 1(2)(c)
Will fees paid by the Applicant which are referable to a licence as it relates to intellectual property be royalties as defined in subsection 6(1) of the ITAA 1936?
Answer
No.
Question 1(3)
Will fees paid by the Applicant which are referable to the obligation of the overseas Supplier relating to maintenance services be royalties as defined in subsection 6(1) of ITAA 1936?
Answer
No.
Question 1(4)
Will fees paid by the Applicant which are referable to the obligation of the overseas Supplier to provide any and all assistance requested by the Applicant to implement the system be royalties as defined in subsection 6(1) of ITAA 1936?
Answer
No.
Question 1(5)
Will fees paid by the Applicant which are referable to the obligation of the overseas Supplier to, in conjunction with the Applicant, develop rules for items that the Applicant desires to launch on the system be royalties as defined in subsection 6(1) of ITAA 1936?
Answer
No.
Question 1(6)
Will fees paid by the Applicant which are referable to the obligation of the overseas Supplier to, in conjunction with the Applicant, carry out user acceptance testing be royalties as defined in subsection 6(1) of ITAA 1936?
Answer
No.
Question 2
Will the Applicant be required, under sections 12-280 and 12-300 of Schedule 1 to the Taxation Administration Act 1953 (TAA 1953), to withhold tax from fees paid to the overseas Supplier, excluding any part of those fees that relate to reproduction of the documentation,?
Answer
No.
Question 3
Will the Applicant be required, under sections 12-280 and 12-300 of Schedule 1 to the TAA 1953, to withhold tax from fees paid to the overseas Supplier, to the extent that those fees relate to reproduction of the documentation?
Answer
Yes.
This ruling applies for the following periods:
• Income year ended 30 June 2016
• Income year ended 30 June 2017
• Income year ended 30 June 2018
• Income year ended 30 June 2019
• Income year ended 30 June 2020
• Income year ended 30 June 2021
• Income year ended 30 June 2022
• Income year ended 30 June 2023
Reasons for decision
The private binding ruling considered whether or not various fees paid under an agreement by the Applicant to the overseas Supplier were royalties for the purposes of subsection 6(1) of the ITAA 1936 and if so whether tax had to be withheld under sections 12-280 and 12-300 of Schedule 1 to the Taxation Administration Act 1953 (TAA 1953).
The Commissioner of Taxation ruled that the fees considered as part of questions 1(a) to 1(2)(b)(i) and 1(2)(c) to 1(6) (i.e. excluding question 1(2)(b)(ii) which covers fees paid that relate to a licence in respect of documentation, to the extent they relate to reproduction of the documentation) were not royalties for the purposes of subsection 6(1) of the ITAA 1936 and the Applicant did not have to withhold tax under sections 12-280 and 12-300 of the Schedule 1 to the TAA 1953 from those fees paid to the overseas Supplier.
The Commissioner of Taxation also ruled that the fees considered as part of question 1(2)(b)(ii), which covered fees paid that relate to a licence in respect of documentation, to the extent they relate to reproduction of the documentation, were a royalty for the purposes of subsection 6(1) of the ITAA 1936 and the Applicant will have to withhold tax under sections 12-280 and 12-300 of the Schedule 1 to the TAA 1953 from those fees paid to the overseas Supplier.