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Can a non-resident company operating through a permanent establishment in Australia, satisfy the residency conditions for the transfer of a tax loss under Subdivision 170-A of the Income Tax Assessment Act 1997 (ITAA 1997)?

No. A non-resident company operating through a permanent establishment in Australia cannot satisfy the residency conditions for a loss company and income company under Subdivision 170-A of the ITAA 1997.

Foreign Company has a permanent establishment operating in Australia returning a net taxable income. Its central management, control and its voting power is outside of Australia.

Foreign company also has a 100% subsidiary resident company (Sub Pty Ltd) which has a prior year tax loss.

Sub Pty Ltd wishes to transfer the prior year tax loss to Foreign Company.

Tax losses can only be transferred between members of the same wholly-owned company group if certain conditions are met, including the residency conditions of subsection 170-40(1) of the ITAA 1997 for an income company, and subsection 170-35(1) of the ITAA 1997 for a loss company.

As Foreign Company has its central management, control and its voting power outside of Australia it is a non resident for tax purposes. Therefore, it cannot satisfy the conditions of subsection 170-40(1) of the ITAA 1997 and accordingly, cannot make a loss transfer agreement pursuant to section 170-50 of the ITAA 1997.