Money
Issue No. 2 - September/October 2001
taxing times
SIX MONTHS IS ‘PERMANENT’, ACCORDING TO ATO DRAFT RULING
Foreign businesses operating in Australia could become subject to tax compliance after only six months’ presence, following a draft ruling issued on 15 August by the Australian Tax Office.
The draft ruling (TR 2001/D6) provides for the first time a guideline on when an operation becomes a permanent establishment for taxation purposes. In a nutshell the ATO believes that most foreign businesses present in Australia for six months or more should pay Australian tax.
While the six-month definition provides a useful guideline, it appeared the ATO had chosen the term arbitrarily as the guideline appears to be inconsistent with many of Australia’s double tax treaties, suggesting that certain operations lasting six, nine or even 12 months would not be considered permanent, in the absence of specific deeming provisions.
In general, a foreign business with a ‘permanent establishment’ in Australia was subject to Australian tax on income connected with the permanent establishment.
The concept of permanent establishment is also relevant for certain tax rules applicable to Australian businesses operating overseas.
The draft ruling was technically only binding for withholding tax and other limited purposes as it is not strictly applicable for determining whether foreign businesses operating in Australia are subject to Australian income tax under our double tax treaties.
It is unfortunate the ATO has not taken the opportunity to confirm that it will apply a similar interpretation to treaties, as this is probably the most important area in which the concept of ‘permanent establishment’ is relevant.
The ATO will hopefully address this issue during the period of consultation leading up to a final determination.
ATO ABOUT-FACE ON TREATMENT OF WEBSITE COSTS, BUT NOT WITHOUT A CATCH.
The ATO has backed down on...
