Tuesday, March 22, 2005

Australia - ISP does not constitute a PE

An interesting ruling from the Australian Tax Authorities concluded that where the sole presence of an enterprise in Australia is a website hosted by an Australian ISP, the enterprise does not (in principle) have a permanent establishment in Australia.

The Commissioner of Taxation issued in March 2005 a final taxation determination (TD 2005/2) regarding whether a resident of Australia's tax treaty partner has a permanent establishment (PE) in Australia solely from the sale of trading stock through an internet website hosted by an Australian resident internet service provider (ISP). TD 2005/2, which was previously released in draft form as TD 2004/D27, provides that where the ISP is acting as a mere conduit, the business profits article of the relevant treaty will apply. The non-resident will not, by virtue of the website alone, have a PE in Australia.

This determination is based on the following three assumptions:
(1) the taxpayer, as a resident of Australia's treaty partner, is entitled to the benefits of the relevant treaty;
(2) the ISP is carrying on a business as an ISP, is dealing at arm's length with the taxpayer and does not provide other services to the taxpayer in addition to the hosting arrangement which may give rise to a PE of the taxpayer; and
(3) any income from the sale is covered by the business profits article of the relevant treaty and not some other article.

Give a look at the taxation determination (TD 2005/2)


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