ATO Interpretative Decision

ATO ID 2005/116 (Withdrawn)

Income Tax

• This ATO ID is withdrawn as it is no longer required following the publication of Draft Taxation Ruling TR 2019/D1 Income Tax: income of international organisations and persons connected with them that is exempt from income tax on 27 March 2019.
  This document has changed over time. View its history.

Issue

Is the income received by an Australian resident taxpayer from a consultancy to the World Health Organisation (WHO) in the Philippines assessable under subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997)?

Decision

Yes. The income received by an Australian resident taxpayer from a consultancy to the WHO in the Philippines is assessable under subsection 6-5(2) of the ITAA 1997 as it is not exempt from tax under the International Organisations (Privileges and Immunities) Act 1963 (IO(P&I)A).

Facts

The taxpayer is an Australian resident for tax purposes.

The taxpayer provided services as a short-term consultant for United Nations agency, the WHO in the Philippines.

The taxpayer's contract was for ten days in 2003-04 income year.

The taxpayer was paid less than $10,000 with no tax deducted for this short term contract.

The taxpayer's letter of acceptance states that they accept the appointment as a consultant under the terms and conditions as stated in their offer and the 'information for consultants leaflet'.

Reasons for Decision

Subsection 6-5(2) of the ITAA 1997 provides that the assessable income of an Australian resident includes ordinary income derived from all sources, whether in or out of Australia, during the income year.

Income from professional services is ordinary income for the purposes of subsection 6-5(2) of the ITAA 1997.

However, subsection 6-15(2) of the ITAA 1997 says that if an amount is exempt income then it is not assessable income.

Section 6-20 of the ITAA 1997 provides that an amount of ordinary income is exempt income if it is made exempt from income tax by a provision of the ITAA 1997 or another Commonwealth law.

The IO(P&I)A is a Commonwealth law under which an international organisation, and persons engaged by it, may be accorded certain privileges and immunities including an exemption from tax.

Subsection 5(1) of the IO(P&I)A provides that the Specialised Agencies (Privileges & Immunities) Regulations 1986 (SA(P&I) Regs) may declare an organisation to be an organisation to which the IO(P&I)A applies. The WHO is listed as a Specialized Agency in Column 2 of the Schedule to the SA(P&I) Regs.

Subsection 3(1) of the IO(P&I)A defines the term 'international organisation to which this Act applies' to mean an organisation that is declared by the regulations to be an international organisation to which the IO(P&I)A applies, and includes a body established by such an organisation.

Regulation 3 of the SA(P&I) Regs says that each Specialized Agency is an international organisation to which the IO(P&I)A applies, therefore the WHO is an international organisation to which the IO(P&I)A applies.

Entitlement to exemption under the IO(P&I)A depends on whether the taxpayer was engaged as an independent consultant or as a person who held an office in the WHO.

The taxpayer confirmed that they were engaged as a short term consultant.

Under subregulation 8(1) of the SA(P&I) Regs a person who holds an office, other than a high office, in a Specialized Agency such as the WHO, has the privileges and immunities specified in Part I of the Fourth Schedule to the IO(P&I)A, including income tax exemption on salaries and emoluments received from the organisation. The taxpayer is not entitled to the privileges and immunities specified in Part 1 of the Fourth Schedule to the IO(P&I)A as they did not hold an office in the WHO.

Regulation 9 of the SA(P&I) Regs applies to the taxpayer's engagement as a consultant and they are entitled to the privileges and immunities specified in paragraphs 1, 2, 3, 4, 5 and 6 of Part 1 of the Fifth Schedule to the IO(P&I)A, however, income tax exemption is not available for persons serving on a committee or performing a mission (such as independent consultants) for the WHO.

In determining liability to Australian tax on foreign sourced income received by a resident, it is necessary to consider not only the income tax laws but also any applicable double tax agreement contained in the International Tax Agreements Act 1953 (Agreements Act).

Section 4 of the Agreements Act incorporates that Act with the Income Tax Assessment Act 1936 (ITAA 1936) and the ITAA 1997 so that those Acts are read as one.

Schedule 14 to the Agreements Act contains the double tax agreement between Australia and the Republic of the Philippines (the Philippine Agreement). The Philippine Agreement operates to avoid the double taxation of income received by Australian and Philippine residents.

Article 14(1) of the Philippine Agreement provides that income derived by an Australian resident in respect of professional services or other independent activities of a similar character shall be taxable only in Australia unless the taxpayer:

(a)

has a fixed base regularly available in the Philippines for the purpose of performing their activities, or

(b)

in a year of income or taxable year, as the case may be, stays in the Philippines, for a period or periods aggregating 183 days for the purpose of performing their activities, or

(c)

derives, in a year of income or taxable year, as the case may be, from residents of the Philippines gross remuneration in that State exceeding ten thousand Australian dollars or its equivalent in Philippine pesos from performing his activities.

If Article 14(1)(a), 14(1)(b) or 14(1)(c) of the Philippine Agreement applies, the income may be subject to tax in the Philippines, but only so much as is attributable to activities undertaken in the Philippines.

Article 14(3) of the Philippine Agreement states that the term 'professional services' includes services performed in the exercise of independent scientific, literary, artistic, education or teaching activities as well as in the exercise of the independent activities of physicians, lawyers, engineers, architects, dentists and accountants.

It is considered that the contract income derived by the taxpayer in the Philippines constitutes 'professional services' as defined under Article 14(3) of the Philippine Agreement.

Australia has sole taxing rights under Article 14(1) of the Philippine Agreement to tax the income the taxpayer derived in the Philippines for the following reasons:

•

they are a resident of Australia for income tax purposes

•

they did not have a fixed base regularly available in the Philippines to perform your services

•

the income received by them was less than $10,000, and

•

they were not in the Philippines for at least 183 days in the income year.

Accordingly, the income derived by an Australian resident taxpayer as a consultant to the WHO in the Philippines is assessable under subsection 6-5(2) of the ITAA 1997.

Year of income:  Year ended 30 June 2004

Legislative References:
Income Tax Assessment Act 1997
   subsection 6-5(2)
   section 6-15
   section 6-20

Keywords
Diplomatic privileges & immunities
International law
International tax
Philippines

Siebel/TDMS Reference Number:  4255979

Business Line:  Public Groups and International

Date of publication:  6 May 2005

ISSN: 1445-2782