background image
Treaty between Australia and India – No PE in Australia for supply chain activities — Orbitax Tax News & Alerts

On 13 July 2007, The Australian Taxation Office (ATO) released Interpretative Decision ATO ID 2007/143, which deals with supply chain activities of an Indian resident in Australia and whether such activities amount to a permanent establishment in Australia. By way of background, interpretative decisions are explanations provided by the ATO, which, however, are not binding on the ATO.

The facts considered in the Interpretative Decision are as follows: a company resident in India and otherwise not carrying on any activities in Australia (supplier), signed a contract with an Australian customer for a supply of goods to the customer. Under the contract, the supplier is required to transport, at its own expense, goods to Australia, and keep the goods in Australia until a delivery is requested by the customer. The title to the goods is not passed to the customer until the delivery takes place.

As the supplier does not have any presence in Australia, including any staff or equipment, the supplier entered into a Third Party Logistics (TPL) contract with a related company, also resident in India. Under the contract, the related party is responsible for performing all supply chain activities for the supplier in Australia, including arranging storage of the goods in Australia, by subcontracting unrelated providers in Australia. Further, the related party is legally and economically independent from the supplier, it cannot act on behalf of the supplier and the supplier does not exercise control over the activities of the related party.

The query is whether such activities give rise to a PE for the supplier in Australia.

The Interpretative Decision answers this question in the negative. The supplier does not have a fixed place of business in Australia and therefore Art. 5(3) of the tax treaty between Australia and India will have no application. Further, Art. 5(4) will exclude from the scope of a PE facilities used solely to store goods. Also, as the relevant party cannot act on behalf of the supplier, Art. 5(5)(b) will also have no application. Lastly, Art. 5(7) clarifies that even though the supplier controls the TPL provider who carries on a business in Australia, the supplier will not be deemed to have a PE in Australia merely by virtue of such control.