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The opinion is sought on whether the business profits earned by the US-based manufacturer from sales within Australia are taxable in Australia. The answer reside inside the provisions of conventions between the United States of America and Australia for the avoidance of double taxation. In particular Article 7 of the USA-Australia Treaty states that business profits of an enterprise shall be taxable only within the State in which it is incorporated / based. However, such profits could be taxable in the other State if it carries on business in the other State through its permanent establishment (PE) in that other State.
According to Article 5 of the Treaty, PE is any form of fixed place of business through which business of the enterprise is carried on whether wholly or partially. This ‘place of business’ may include an office, branch, place of management, or factory, workshop etc. In the instant case, the US based manufacturer has effectively been operating in Australia through a serviced office through which its sales representative is able to engage with public and obtain new orders from customers. In our view, this would constitute a fixed place of business in Australia as the same has not been expressly excluded from sub-section (3) of Article 5.
In view of above, the profits of US enterprise to the extent of orders procured in Australia (i.e. by the PE in Australia) shall be taxable in Australia, and the US-based entity would be able to claim foreign tax credits on those profits under the US tax laws.
Dear Indianna,
You have informed us that the 22 hectares of land that is the subject matter of the CGT event has always been used by yourself for generating taxable income (rather than being your main residence). Hence it’s disposal will result in CGT event and give rise to capital gains tax. CGT introduced on 20 September 1985, therefore gain made on disposal of assets acquired before 1985 are disregarded and treated as exempt for the purpose of CGT computation.
PART 1 – The issues involved in both cases are as follows:
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