Andersen Consulting, our Global Mobility Tax team assists employers and employees plan and manage the tax implications of international secondments – whether they are moving to Australia or being seconded offshore. An essential part of this process is considering whether the assignment creates what is known as a ‘permanent establishment’ (PE).
This is important because Australia’s Double Taxation Agreements (DTAs) typically provide that, where a foreign enterprise conducts business in Australia, Australia will only have the right to tax the profits of those business activities if they are attributable to a PE in Australia. The converse is true of Australian enterprises conducting business overseas.
Each DTA contains a definition of permanent establishment. While each is unique, the following questions are a helpful starting point for assessing PE risk:
- Are your secondees genuine employees or are they independent contractors acting in the ordinary course of their own business?
- Where will your secondee be working? Does the enterprise own, lease or otherwise have access to a fixed place of business such as an office, factory or workshop?
- Is the assignment in connection to a building site or construction or installation project that lasts more than nine months? Will the secondee be carrying on supervisory or consultancy activities in connection with this site or project?
- Will your secondee have, and habitually exercise, the authority to conclude contracts on behalf of the business or to play the principal role leading to the conclusion of contracts? What level of involvement and oversight will the business have?
- Will your secondee’s activities in the overseas country form an essential an significant part of the business as a whole, or will they merely be done in preparation or in support of these core activities?
At Andersen in Australia, we have extensive experience helping our clients navigate the complexities of international tax. If you would like guidance on the income tax implications of sending staff on an overseas secondment, please get in touch with one of our advisors.