Taxation Determination

TD 94/44

Income tax: how does the time threshold in the substantial equipment provision of the permanent establishment article of the Australia-Spain Double Taxation Agreement ('the DTA') operate?

Please note that the PDF version is the authorised version of this ruling.

FOI status:

may be releasedFOI number: I 1217410

This Determination, to the extent that it is capable of being a 'public ruling' in terms of Part IVAAA of the Taxation Administration Act 1953 , is a public ruling for the purposes of that Part. Taxation Ruling TR 92/1 explains when a Determination is a public ruling and how it is binding on the Commissioner. Unless otherwise stated, this Determination applies to years commencing both before and after its date of issue. However, this Determination does not apply to taxpayers to the extent that it conflicts with the terms of a settlement of a dispute agreed to before the date of issue of the Determination (see paragraphs 21 and 22 of Taxation Ruling TR 92/20).

1. Under Article 5(4)(b) of the DTA, where certain substantial equipment is used continuously for more than twelve months, or activities continue for more than twelve months a 'permanent establishment' shall be deemed. The twelve month time limit is consistent with limits included in many of Australia's other DTAs.

2. However, the drafting approach used in the Agreement is unique among Australia's DTAs. Article 5(4)(b) provides that:

'(4) An enterprise shall be deemed to have a permanent establishment in one of the Contracting States and to carry on business through that permanent establishment if:

(a)
. . .

(b)
a structure, installation, drilling rig, ship or other like substantial equipment is used:

(i)
for the exploration for, or exploitation of, natural resources; or

(ii)
in activities connected with that exploration or exploitation,

in either case if used continuously or those activities continue for a period of more than twelve months.'

3. One issue is whether the phrase 'activities continue for a period of more than twelve months' is meant to apply to both subparagraphs (i) and (ii), or whether it is confined to 'activities' referred to in subparagraph (ii). As the twelve month threshold is expressed to apply 'in either case', the view is taken that it qualifies both subparagraphs (i) and (ii).

4. Another issue is whether the twelve month threshold applies to both continuous use of substantial equipment and continuing activities. The Explanatory Memorandum could be read as applying the twelve month time threshold only to activities connected with the exploration for, or exploitation of, natural resources continuing for more than twelve months and not to cases where equipment is used continuously. However, the provision will be administered in a manner consistent with the actual wording of Article 5(4)(b) of the DTA, that is, by applying the twelve month time threshold both to equipment used continuously and equipment used in activities continuing for that period.

Commissioner of Taxation
17/5/94

Previously issued as Draft TD 94/D16

References

ATO references:
NO NAT 94/1878-4

ISSN 1038 - 8982

Subject References:
Australia-Spain Double Tax Agreement;
definition of permanent establishment

Legislative References:
Income Tax (International Agreements) Act 1953,
Income Tax (International Agreements) Act 1953 Section 11ZD,
Income Tax (InternationalAgreements) Act 1953 Schedule 39

Copyright notice

You are free to copy, adapt, modify, transmit and distribute material on this website as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products).