Issue
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)?
Decision
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.
Facts
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.
Reasons for Decision
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.