Double Taxation Assignment Sample

Selling Goods without A Physical Presence in Australia

1. As Australia and Germany have entered into a tax treaty the obligation is different from other countries who have not entered into a tax treaty. If it appoints an unrelated company as its distributor. Then its tax liability would depend upon different facts. It would be classified under the heading of selling goods without a physical presence in Australia. To come under this classification it needs to be ensured that the company 

• Should not appoint an agent
• Should not have a permanent establishment in Australia
• Should not employ staff in Australia.

As Germany has a treaty with Australia the company will not be required to pay Income tax in Australia. Income tax is required to be paid in Australia only if the company has a permanent establishment in Australia.

Similarly, the company will not be required to pay Capital gains tax as capital gains tax is payable only on assets that are taxable in Australia.

As far as good and service tax is considered if any sales, importation or purchase is involved then the company will have a liability of 10% as goods and services tax on the product sold and consumed in Australia.

As the company doesn't have employees the company doesn't need to pay superannuation, fringe benefits tax and PAYG withholding.

As the company is selling the good to the Australian resident on a free on board basis, this will be considered as an importation by the Australian entity, which means that the German company will not have any tax obligation and obligation lies with the Australian entity. [1]

2. The royalty paid by a resident (in this case the Australian company) to a non-resident (in this case the German company) would attract withholding tax. The withholding tax is 30% in the case of Australia. The withholding tax can be reduced based on the treaty between Australia and Germany. The withholding tax can be reduced by up to 15%.[2]

Considering that the employees of the German company will work in Australia for training purpose for a period of 6 months to 12 months thus based on 183 days test a person arriving in Australia from foreign country need to show that the employee's place of abode is outside Australia and he has no intention to taking a permanent residence In Australia. Thus here the important thing to prove would be whether the employees have decided to make Australia their permanent home. The employer is supposed to withhold the tax and send it to tax authorities if the 183 days test is satisfied.

If the employee is taxed twice then based on the treaty of double taxation he can obtain relief either by tie-breaker test or by allocating exclusive right over certain types of income. The employee can receive an exemption from foreign income by offset in domestic law, or by obtaining credit in terms of foreign income paid.[3]

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