Tax Law Case Study: Residency and Taxation Liability

This case study delves into key aspects of taxation law, focusing on permanent establishment, taxation of UK enterprises in Australia, and residency tests. It defines permanent establishment according to Article 5.1 of the model convention, including scenarios like business conducted through agents and construction projects. The study examines the double taxation convention between Australia and the UK, highlighting methods to avoid double taxation. It also differentiates between independent and dependent agents. Furthermore, the case study analyzes residency tests, including domicile and the 183-day rule, and their implications on determining tax liability, as illustrated by the Applegate case. The study concludes by examining the taxation of rental income and applying tests for companies, providing a comprehensive overview of tax law principles and their practical application.

Taxation law case study

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
QUESTION 1...................................................................................................................................1
a) Meaning of term permanent establishment........................................................................1
b) Taxation of profits earned by UK enterprises in Australia................................................2
c) Contracts made by independent Agents.............................................................................3
QUESTION 2...................................................................................................................................3
CONCLUSION................................................................................................................................4
REFERENCES................................................................................................................................5

INTRODUCTION
Taxation law is a very essential law for a nation. This law lays down rules and
regulations for determination of tax liabilities of individuals and business organisations. The tax
is governed and regulated by government. The tax collected is a revenue for the government and
this revenue is used for development of facilities and infrastructure of the nation for public. In
present report a discussion of the taxation regulation is related with applicability of tax and
determination of tax liability for different scenario is presented.
QUESTION 1
a) Meaning of term permanent establishment
Permanent establishment: According to model convention article 5.1, this term can be
defined as a place from where a person/person or a business carry out its business including
commonwealth, a state or authority of commonwealth (Residency -superannuation test, 2018). In
other words, it is the main place from where a business is carried on, either by an individual
person or by a group of people or by business organisation. Permanent establishment includes
 A place from where a business is carried by someone through an agent.
 A place where a person carrying on the business is installing or using the substantial
machinery or equipment’s.
 A place where an individual is engaged in carrying on a construction project.
 A person on carrying in a business of selling goods, manufacturing, assembling,
processing, packaging and distribution of goods to another person on the order places the
later. The management is carried out by former person carrying out the above-mentioned
activities. The federal court has stated that taxpayer was titled for deduction in interest
that was incurred for a loan which were taken for the purpose to invest in a project
(O'Connell & Young, 2017). Also, repayment of associated loan that were provided to
them for meet out proceeds of various sales of associated products. There are various
claims which were done for deductions of amount of interest in the year of 1998, 1999,
2000 and 2001 income years.
The ruling of permanganate establishment is defined in section 6 of Taxation Administration
Act, 1953. The ruling is applicable to Australian resident carrying on a concern out of Australia
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and a non-resident who are carrying on an enterprise in Australia. This section defines various
aspects related with permanent establishments:
1. According to section 6(1) of the permanent establishment, this concept is used in
Australia's tax treaties (Maurer and et.al., 2017). The definition of PE is not only
relevant for the income tax purpose, but it also defines certain provision, elements and
definitions.
2. This clearly defines the meaning of ‘a place at or through which' a concern is carried out.
This definition is not concerned with the fact that whether business is carried on or not.
It just deals with the place of the enterprise.
3. With the applicability of this section, tax liability arises through division 358 of schedule
1 of the TAA 1953. This also determines the facts and cases where tax liability does not
arise.
4. This is applicable to the tax treaties, this means Australia has a double tax agreement
with many countries. It does not specifically deal with the tax treaty definitions.
5. Section 6(1) defines that ruling for permanent establishment does not have any territorial
imitation. This means this ruling is applicable to activities carried out in Australia and
outside Australia as well.
b) Taxation of profits earned by UK enterprises in Australia
A double taxation convention came in to force on 17th December 2003 between Australia
and UK. The effects of convention were:
1st April 2004 for fringe benefit tax
 1st July 2004 for tax holding in income earned by the non-residents.
The purpose of this treaty of Australia was to provide a relief for the double taxation paid
by the non-resident individual person and concern organisations. Before this agreement the
business organization organisation must pay tax on both countries, one of which is a resident and
other needs to be person carrying business as a non-resident. It was a burden on the enterprise as
it must pay tax on the same income twice (Permanent establishment, 2018). With the
incorporation of this treaty the tax payer got a relief and it was a boon to all the non-resident
business persons and organisations.
Double taxation can be avoided by two methods:
1. Determination of permanent establishment of the enterprise in Australia.
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2. By calculation of a foreign income tax offset.
c) Contracts made by independent Agents
Types of agent:
Independent: According to article 5.6 of the model convention, an independent agent is
the one who have an independent status of its own and conclude the contract on the behalf an
organisation as a broker like, commission agent and any other independent agent (Ross, Walker
& Walker, 2017). A business carrying in its operation through an independent agent is not
deemed to have a permanent establishment in Australia.
Dependent: Dependent agents are the one who holds a power and exercises them to
conclude contracts on the behalf of an organisation. Article 5.5 of the model convention tests so
that a business does not have a fixed place of business enterprise, it deems to have a permanent
establishment, if it carries out an enterprise through dependent agent. A concern deemed to have
a PE in Australia, is liable to adhere the convention on double tax agreement.
QUESTION 2
a) Determination of liability for taxation on baseball skills
4 tests of residency:
Resides: This means to dwell permanently where person need to be judged on the merits of a
judge. For this physical presence in the year of income in Australia is essential. The person needs
to have an intention to stay for a longer period in Australia. The frequency and duration of the
stay is also checked in Australia.
Domicile: The domicile of a person is place of common (Street and et.al., 2017). In eyes of law
it is considered as their permanent home. This also requires a physical presence and intension to
stay permanently. 183 days: This is a test for those who are coming to Australia from other
nations. In a period of 12 months a person stays in Australia for more than 183 days. Super
saturation: This is a test for certain government employees of Australia.
Applegate case: A solicitor was transferred to Vila to set up a branch if the business. He was
transferred for an indefinite period but with an intension of going back to Australia (Price, 2017).
With this he has not left any assets in the nation and gave up his Sydney flat on lease. He
retained his Australian health fund and his wife returned to Australia to give birth to their child.
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He returned to Australia due to ill health after 2 years. The question was raised on his being
resident.
Reasons: As the tax payers was a non-resident for calculation of tax liability he was not
assessable to Australian tax authorities and for income earned from activities in Vila. The
appellant was not liable for mining company which was registered in Victoria and sustained up
to outbreak of war with Japan. The companies completely cut off from access to mines. Both
firms use to derive their revenue from operations of mining which were prior to that they were
fallen under hands of enemy.
b) Determination of liability for taxation on rental income
With regards to equal interest in a court which provides response for commissioning
various argument which taxpayer was not having on the business of blueberry growing business.
It was true that there was no evidence that guest visited blueberry farm or had any participation
in a business for signing documents such as paying of money, returning income as well as
claiming deduction.
3 tests for company
1. Incorporation test
2. Central management and control test
3. controlling shareholders test
Applicability:
The organization which has expenditure incurred in central administration. While having
assessment, the commissioner deducted from income that was assessable and treated every
balance as taxable income. It was similar method of assessing that has been adopted in previous
years, when income was completely derived from other mining operation. However, company
claimed that complete expenditure of Melbourne office was incurred in obtaining assessable
financial gain for gaining income. Therefore, it was very important to assess every criterion to
acknowledge the incurred tax and associated income.
CONCLUSION
This can be concluded that for determination of tax liability applicability of PE is
essential. For a business organisation and individuals can take benefits of DTA residential status
is needed to be established. To establish a residential status an individual and organisation need
to pass certain tests. These are the tests which are established by the national government.
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REFERENCES
Books and Journals
Maurer, L, and et.al., (2017). A Brave New Post-BEPS World: New Double Tax Treaty Between
Germany and Australia Implements BEPS Measures. Interfax. 45(4). 310-321.
O'Connell, G., & Young, A. (2017). Alternative assets insights: The future of stapled
structures. Taxation in Australia. 51(11). 635.
Price, J. (2017). Potential introduction of corporate whistleblowing bounties: What are the
implications? (Doctoral dissertation, University of New Brunswick, Canada).
Ross, M., Walker, J., & Walker, J. (2017). Multinationals targeted down under. Taxation in
Australia. 52(1). 22.
Street, J. M and et.al., (2017). Community perspectives on the use of regulation and law for
obesity prevention in children: a citizens’ jury. Health Policy. 121(5). 566-573.
Online
Residency -superannuation test. 2018. [Online]. Available through:
<ttps://www.ato.gov.au/Individuals/International-tax-for-individuals/In-detail/
Residency/Residency---the-superannuation-test/>.
Permanent establishment. 2018. [Online]. Available through
:<http://law.ato.gov.au/atolaw/view.htm?DocID=TXR/TR20025/NAT/ATO/00001>.
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