Remuneration or other income for personal (including professional) services in relation to the tax treaty with Singapore

Is income derived by the taxpayer from conducting finance training courses in Singapore 'remuneration or other income for personal (including professional) services' for the purposes of Article 2(1)(k)(iii) of the tax treaty between Australia and Singapore contained in Schedule 5, as amended by Schedule 5A, to the International Tax Agreements Act 1953 (the Singapore Agreement)?

No. The income derived by the taxpayer from conducting finance training courses in Singapore is not 'remuneration or other income for personal (including professional) services' for the purposes of Article 2(1)(k)(iii) of the Singapore Agreement.

The taxpayer is a resident company for Australian income tax purposes and is treated solely as an Australian resident under the Singapore Agreement.

The taxpayer is carrying on a business of globally providing services to the project finance sector. The taxpayer's business includes conducting finance training courses in Singapore.

The taxpayer derives income from conducting the finance training courses in Singapore (Singapore course fee income).

The income generated by the taxpayer is business income that is covered by Article 5 (the business profits article) and the exclusion in Article 2(1)(k)(iii) of the Singapore Agreement does not operate to take it out of this article. Specifically, Article 2(1)(k)(iii) of the Singapore Agreement excludes 'remuneration or other income for personal (including professional) services' from, relevantly, the 'profits of an Australian enterprise' for the purposes of Article 5 of the Singapore Agreement.

Same words used in Articles 11 and 12 of the Singapore Agreement

Although not in the exact sequence, the very words 'remuneration or other income for personal (including professional) services' are used in Articles 11 and 12 of the Singapore Agreement - these articles apply to 'remuneration or other income' derived by individuals in respect of 'personal (including professional) services' (see Articles 11(1) and 12(1) of the Singapore Agreement).

The specific choice (or adoption) of these same words in Article 2(1)(k)(iii) of the Singapore Agreement is unlikely to be accidental. That is, it is likely to be deliberate and suggests that the provision is only concerned with ensuring that the category of income dealt with in Articles 11 and 12 is excluded from Article 5 (business profits article) of the Singapore Agreement. Furthermore, it would be curious if the particular words used in one Article of the Singapore Agreement (Article 11) had a different meaning in another Article (Article 2(1)(k)(iii) of the Singapore Agreement) and were used for a quite different purpose - used in a provision to perform the function of a substantial carve-out to Article 5 of the Singapore Agreement. It is more likely that words have the same, or a consistent, meaning throughout the entire Singapore Agreement. Use of word 'remuneration' and Article 12(2) and 12(3) of the Singapore Agreement

The use of the word 'remuneration' to describe a sub-category of enterprise profits appears inapposite. It seems inapt to speak of an enterprise being in receipt of 'remuneration'. The word is not defined in the Singapore Agreement and does not have a fixed technical meaning under Australian domestic law. In the Butterworths Australian Legal Dictionary , 'remuneration' is relevantly defined as follows: Payment, reward, or recompense for services rendered: Chalmers v Commonwealth (1946) 73 CLR 19. Remuneration is a quid prop quo; the consideration a person receives in exchange for his or her service, generally in the form of wages or salaries: R v Postmaster General [1876] 1 QBD 658.

In Chalmers v. Commonwealth (1946) 73 CLR 19 at 37, Williams J stated that the 'ordinary meaning of remuneration is pay for services rendered'. Accordingly, as the term is generally used to describe receipts by an individual from employment or provision of independent personal services, it seems an awkward use of language to have it describe an excluded sub-category of business profits. Furthermore, contrary to a construction that payments for personal services are 'excluded' from the profits of an enterprise under Article 2(1)(k)(iii), Article 12(3) of the Singapore Agreement specifically contemplates 'inclusion' in the profits of an enterprise 'contracts or obligations to provide' the 'services of public entertainers' (see Article 12(2) of the Singapore Agreement which defines these). Additionally, Article 12 of the Singapore Agreement specifically draws a clear distinction between 'remuneration' and 'profits of an enterprise' - Article 12(2) is expressed to apply to the 'remuneration or other income' of individual public entertainers, whereas Article 12(3) is expressed to separately apply to the 'profits' of enterprises 'arising from ... contracts' providing the 'services of public entertainers'. Adjoining subparagraphs

Additionally, the majority of the other subparagraphs in Article 2(1)(k) of the Singapore Agreement play a technical reconciliation role, specifically: • the terms of subparagraph 2(1)(k)(i) suggest fairly clearly that it is intended to ensure that the income falling under Articles 8, 9 and 10 (dividends, interest and royalties) is not dealt with under Article 5; • although subsequently introduced under the Singapore protocol, the terms of subparagraph 2(1)(k)(ii) suggest fairly clearly that it is intended to ensure that the income falling under Article 4A (income from real property) is not dealt with under Article 5; and • the terms of subparagraph 2(1)(k)(iv) suggest fairly clearly that it is intended to ensure that the income falling under Article 7 (income from shipping or aircraft) is not dealt with under Article 5. History of Article 2(1)(k)(iii) of the Singapore Agreement UK Agreement of 1967

The origins of this specific provision can be traced back to Article 5(7)(b) of the original UK Agreement of 1967 (now superseded by the 2003 United Kingdom Convention and Notes), a provision in the business profits article which read as follows: The term "industrial or commercial profits" means income derived by an enterprise from the conduct of a trade or business, including income derived by an enterprise from the furnishing of services of employees or other personnel, but it does not include - (a) dividends, interest, royalties (as defined in Articles 8, 9 and 10) or rents other than dividends, interest, royalties or rents effectively connected with a trade or business carried on through a permanent establishment which an enterprise of one of the territories has in the other territory; or (b) remuneration for personal (including professional) services; or (c) income arising from, or in relation to, contracts or obligations to provide the services of public entertainers or athletes referred to in Article 13.

In the notes on Article 5(7)(b) in the explanatory memorandum to the UK Agreement of 1967 it relevantly states: The term [industrial or commercial profits] will not include - • dividends, interest, royalties or rents not effectively connected with a trade or business carried on through a permanent establishment; • remuneration for personal ( including professional ) services ; • income derived from, or in relation to, the furnishing of the services of public entertainers or athletes. Articles 8, 9 and 10 deal with the taxation of dividends, interest and royalties while the taxation of remuneration for personal and professional services is dealt with in articles 11 and 12 . Income derived from, or in relation to, the furnishing of the services of public entertainers and athletes may be taxed in the country of source whether or not the particular enterprise has a permanent establishment in that country. Although income derived from the operation of ships or aircraft is 'industrial or commercial profits' the application of this article to income of that kind is governed by paragraph (9) (emphasis added).

The above indicates that Article 5(7)(b) of the UK Agreement of 1967 is merely a technical reconciliation provision, designed to confirm that the income falling within Articles 11 and 12 is not dealt with under the business profits article. It seems unlikely that the terms of Article 5(7)(b) would have been picked up and transposed into the Singapore Agreement in Article 2(1)(k)(iii) but intended to have a substantially different meaning and therefore operation. Explanatory memorandum to the Singapore Agreement

The following notes on Article 2(1)(k)(iii) of the Singapore Agreement in the explanatory memorandum also indicate that this provision is merely a technical reconciliation provision: 'Profits of a Singapore enterprise' and 'profits of an Australian enterprise': Article 5 of the agreement provides for the taxation of business profits of an Australian or Singapore enterprise. These profits, which are described as 'industrial or commercial profits' in other agreements are to be taxed only in the country of residence, except where the profits are attributable to a permanent establishment (as defined in article 4) in the other country. The definition defines 'profits' for these purposes as meaning, broadly, business profits, as distinct from remuneration for personal services or investment income such as dividends, interest or royalties or rents . The term includes, however, dividends, interest or royalties that are effectively connected with a trade or business carried on through a permanent establishment (emphasis added).

Explanatory memorandum to the Japanese Agreement of 1969

Also the explanatory memorandum to the Japanese Agreement of 1969, which was passed at the same time as the Singapore Agreement, is consistent with the above. The Japanese Agreement of 1969 contains an equivalent provision, Article 4(5)(c), which excludes from the 'industrial or commercial profits' of an enterprise 'remuneration for personal (including professional) services'. The following paragraph on Article 4(5) in the explanatory memorandum to the Japanese Agreement of 1969 (at pages 13-14) also indicates that Article 4(5)(c) is merely a reconciliation provision: Paragraph 5 of the article defines the term 'industrial or commercial profits' as meaning profits derived from the conduct of a trade or business. Dividends, interest, rents or royalties that are effectively connected with a trade or business, carried on through a permanent establishment are treated as 'industrial or commercial profits'. However, such income not so connected is specifically excluded from the term, as is income from operation of ships or aircraft and remuneration for personal (including professional) services. Other articles govern the taxation of the excluded classes of income (emphasis added).

Conclusion

Based on the above text, context and history of Article 2(1)(k)(iii) of the Singapore Agreement it is considered that this subparagraph is merely a technical reconciliation provision designed to confirm that the income derived by individuals falling within Articles 11 and 12 is not dealt with under Article 5 (business profits article) of the Singapore Agreement.

The income derived by the taxpayer from conducting finance training courses in Singapore is not income derived by individuals falling within Articles 11 and 12 of the Singapore Agreement.

Therefore, as Article 2(1)(k)(iii) of the Singapore Agreement operates as a technical reconciliation provision, the Singapore course fee income is not 'remuneration or other income for personal (including professional) services' for the purposes of this subparagraph.

Accordingly, Article 2(1)(k)(iii) of the Singapore Agreement does not exclude the Singapore course fee income from the profits of the taxpayer's Australian enterprise for the purposes of Article 5 (business profits article) of the Singapore Agreement. Note: this ATO ID applies to a company that is a resident of Australian for income tax purposes. The treaty may apply differently to a taxpayer that is not a company.

Date of amendment Part Comment 22 November 2013 Reason for decision Note added at the end for clarity.

Date of amendment | Part | Comment

22 November 2013 | Reason for decision | Note added at the end for clarity.