Residency

1 Is Company A a resident of Australia under subsection 6(1) of the Income Tax Assessment Act 1936

: 1 Yes. Question 2 Is Company A a 'prescribed dual resident' of Australia for income tax purposes under subsection 6(1)? Answer: 2 No. This ruling applies for the following period : 30 June 20xx The scheme commences on: 1 July 20xx

Company 1: 1.  Company 1 is an Australian incorporated company. 2.  Individual A, an Australian resident, is the sole director, and company secretary, of Australian Fitness. All other members of the company's executive management team also live in Australia and are Australian tax residents. 3.  The current shareholders of Company 1 are Australian resident trusts. 4.  Company 1 customer base is located in Australia. 5.  Company 1 sources its products from manufacturers located in X and arranges shipment to its Australian warehouses before distribution to its customers. 6.  Company 1 's employees are all located in Australia. Its executive team holds weekly meetings and quarterly shareholder meetings. All strategic decisions for the Company 1 group, including those related to Company A (discussed below), such as the declaration of dividends, are exclusively made by the Australian management team during board and shareholder meetings.

a.  Company 1 holds weekly executive meetings and quarterly shareholder and board meetings. During these meetings, the operations, management decisions and strategic operations of Company A are on the agenda. All relevant decisions concerning these matters are made at these meetings. b.  The board of Company 1 has never met in X. Company A: 7.  Company A's primary business activity is wholesaling of products to international distributors. The company sources most of its product from manufacturers located in X and usually does not sell to Australian third-party customers or to other entities within the Company 1 group. 9.  It was decided that Company A should be established in X, rather than undertaking its activities directly by Company 1 for commercial reasons, which include: a.           ; Marketing positioning as manufacturer, not reseller:

Company A does not undertake any manufacturing activities. However, structuring the company as a distribution entity allows Company A to present itself as a manufacturer of the equipment rather than purely a reseller. This distinction has helped Company A build its credibility and strengthen the brand's market position, especially in competitive international markets. b.           ; Strategic proximity and factory relationships: By having Company A based X, it facilitated closer operational and logistical ties with the X factories producing the goods. This arrangement improved coordination, communication, and efficiency, particularly in managing direct shipments from X to overseas distributors. c. Streamlined international distribution: It is considered simpler to manage and optimise international sale and distribution flows, especially for goods not entering Australia, with Company A being based in X and operating in X. This structure has supported smoother and more cost-effective exports to overseas markets.

10.  Company A has customers in various markets outside of X. The company effectively operates as a distributor for the products it sources from third party manufacturers based in X and arranges direct shipment from these manufacturers to the end customer. 11.  Company A does not have any employees. The company engages third-party contractors for basic administrative tasks such as data entry and external quality control to inspect products at the manufacturing sites (which are usually in X). 12.  Australian based employees of AusCo Company 1 execute all the sales contracts entered into by Company A on behalf of the company. This involves Australian based employees of Company 1: a.            accepting and approving purchase orders of the provision of quotes or sales orders, and b.           processing all purchase or supply orders entered into by Company A in sourcing goods. 13.  Additionally, Company A does not directly employ any managers. All operational management decisions of the company are made by Australian based Company 1 staff.

14.  Company A's activities are undertaken with a profit-making purpose, and meaningful profits have historically been derived. Company A's most recently lodged Australian income tax return for the year ending 30 June 2024 reported total revenue of $xxx and a net profit of $xxx. Board of Directors of Company A: 15.  Individual B is the sole director of Company A and is a resident of X. They are a professional personal director and company secretary, engaged on a fee-for-hire bases under an arrangement in X. Individual B's role as director and company secretary in X is limited to administrative tasks, including: a.            overseeing corporate governance activities include managing the share register, preparing board resolutions and ensuring compliance with statutory obligations b.            managing information request responses from banks and liaising with them in respect of any transactional queries c.            completing the formalities associated with board meeting at the office and managing the completion of Minutes d.            maintaining the Significant Control Register and ensuring it is compliant with X law

e.            lodgment of annual X company tax returns as required f.            lodgment and calculation of the annual profits tax computation, and g.            compliance with local business and registration requirements. 16.  Individual B's role exists solely to satisfy legal requirements for companies incorporated in X. They have no other connection to Company 1. Company A's board meetings are held in X due to a legal formality designed for Individual B to maintain minutes of decisions that are directed by Company 1 a.            The Minutes of Company 1's board meetings confirm when high-level strategic decisions relating to Company A are made. Where required, email correspondence is then typically provided to Individual B to mechanically implement such decisions (for example, the payment of dividends). 17.  Individual B also offers identical services to other companies incorporated in X.

18.  Individual B does not influence or make decisions in respect of Company A's business operations, nor strategic direction. They do not independently make decisions to declare dividends from Company A. These decisions are made by the directors and senior management employees of Company 1. Individual B merely endorses these decisions without independent input. They have no effective contact or communication in respect of the ordinary business operation with various personnel employed by Company 1 who undertake the operations that comprise of Company A's business. 19.  Individual B also maintains Company A's 'X X Register' in X. Accounting records: 20.  Company A's accounting records are maintained exclusively by the finance staff of Company 1, who are located in Australia. No such activities are undertaken by Individual B in X. 21.  The Company 1 team is also responsible for liaising with their Australian tax agent in lodging the Company A's Australian income tax return annually. Taxation and residency: 22.  Only profits and income sourced within X are subject to taxation, such that it operates what is known as a X tax system.

23.  Company A lodges annual 'X Tax Returns' in X. In these returns, it excludes all its ordinary business income on the basis that none of Company A's income is sourced in X. This is because the contract for sale is entered into in Australia, whilst the customers are located in other foreign jurisdictions and the products are shipped directly from XX manufacturers to these customers. 24.  The XX Revenue Department (X Revenue) recently reviewed Company A's tax affairs for the 20xx to 20xx income years. Company 1's staff exclusively liaised and corresponded with XX Revenue as part of this review and as such, Individual B was not involved in any such capacity. 25.  XX Revenue found that Company A's profits were not assessable in XX due to these profits not being sourced in XX. 26.  Company A lodges Australian income tax returns and includes all its worldwide income in its assessable income. The most recent income tax return lodged by the company was for the year ended 30 June 20xx. Declaration and payment of dividends:

27.  As explained above, decisions to declare dividends for Company A are made during the board meetings of Company 1 held in Australia. Individual B does not independently make decisions on whether to declare dividends from Company A, nor do they consider whether paying dividends is in the company's best interest. They merely implements the decision and facilitates payment as and when directed.

Income Tax Assessment Act 1936 subsection 6(1)

Question 1: Is Company A a resident of Australia under subsection 6(1)? Detailed reasoning: EXPLANATION OF THE LEGISLATION: RESIDENCY FOR TAXATION PURPOSES 1.  With regards to a company, subsection 6(1) provides that the term 'resident' means: a company which is incorporated in Australia, or which, not being incorporated in Australia, carries on business in Australia, and has either its central management and control in Australia, or its voting power controlled by shareholders who are residents of Australia. 2.  Consequently, for a company incorporated outside of Australia, it must be carrying on a business in Australia and have either central management and control in Australia or its voting power is controlled by Australian resident shareholders. Carrying on a business: 3.  Determining whether an entity's activity amount to the carrying on of a business involves considering the general indicators of when a business exists. While no single indicator is determinative and the determination is based on the 'large or general impression gained' [2] , the prospect of profit is highly significant when assessing if an activity has the character of a business.

4.  Whilst each case must turn on its own particular facts, the courts have found that the following indicators are relevant in considering whether a business is being carried on [3] : a.            whether the activity has a significant commercial purpose or character; this indicator comprises many aspects of the other indicators b.            whether the entity has more than just an intention to engage in business c.            whether the entity has a purpose of profit as well as a prospect of profit from the activity d.            whether there is repetition and regularity of the activity e.            whether the activity is of the same kind and carried on in a similar manner to that of the ordinary trade in that line of business f.            whether the activity is planned, organised and carried on in a businesslike manner such that it is directed at making a profit g.            the size, scale and permanency of the activity, and h.            whether the activity is better described as a hobby, a form of recreation or a sporting activity. Does a company carry on business in Australia?

5.  Guidance on the Commissioner's views regarding the central management and control test of residency of companies is found in Taxation Ruling 2018/5 - Income tax: central management and control test of residency (TR 2018/5). Paragraphs 6 to 8 of TR 2018/5 state: 6.  To be resident under the central management and control test of residency, a company must carry on business in Australia. 7.  If a company carries on business and has its central management and control in Australia, it will carry on business in Australia within the meaning of the central management and control test of residency. 5 8.  It is not necessary for any part of the actual trading or investment operations of the business of the company to take place in Australia. This is because the central management and control of a business is factually part of carrying on that business. 6 A company carrying on business does so both where its trading and investment activities take place, and where the central management and control of those activities occurs. 7 Central management and control:

9.  Where it has been established that a company is carrying on a business, for the company to be an Australian resident pursuant to subsection 6(1), it is necessary it has central management and control in Australia or that the business is otherwise carried on in Australia and the company's voting power is controlled by shareholders who are Australian residents. 10.  Paragraph 10 of TR 2018/5 explains that: Central management and control refers to the control and direction of a company's operations. 9 It does not refer to a physical location in which the control and direction of a company is located, and may ultimately be exercised in more than one location. 10 11.  Moreover, TR 2018/5 states that control and direction in subsection 6(1) refers to where the company's high-level decisions regarding the company's general policies, the directions of its operations and types of transaction it will enter are made. [4] Therefore, the concept of control and direction is different to the day-to-day conduct and management of its activities and operations. 12.  Paragraph 16 of TR 2018/5 gives examples of activities that can exercise central management and control:

•           setting investment and operational policy including: ­                setting the policy on disposal of trading stock, and/or the use and development of capital assets ­                deciding to buy and sell significant assets of the company ­                appointing company officers and agents and granting them power to carry on the company's business (and the revocation of such appointments and powers) ­                overseeing and controlling those appointed to carry out the day-to-day business of the company, and ­        matters of finance, including determining how profits are used and the declaration of dividends. 13.  Examples of activities that are not those of central management and control are provided in paragraph 17 of TR 2018/5: •           keeping a company's share register, including registering transfers of shares •           keeping and adopting a company's accounts •           where a company pays dividends, and •           the minimum acts necessary to maintain a company's registration.

14.  Importantly, paragraph 19 of TR 2081/5 states that who holds central management and control is a question of fact. Solely identifying who has legal authority to control and direct a company is not sufficient. Rather, what is critical is determining who actually control and directs the company's operations. 15.  To determine who controls and directs the company's operation, all relevant facts and circumstances need to be considered. [5] Paragraph 26 of TR 2018/5 states '...if an outsider is more than merely influential, and actually dictates or controls the decisions made by the directors, the outsider will exercise central management and control of the company'. Paragraphs 27 and 28 follow by stating: ...In Bywater , the High Court observed that this turns on whether the people said to make the decisions of the company, actually consider

whether to do what they are told, or are advised to do, and make a decision to do it because it is in the best interests of the company. If they do, they are the relevant decision maker and exercise central management and control of the company. If they do not, and merely mechanically implement or rubberstamp company decisions already made by others based on what they are told or advised to do, the person who gave the instruction is the real decision-maker and exercises central management and control of the company. It is relevant to consider whether the directors would refuse to follow advice or directions of outsiders that are improper or inadvisable. If they would, it is more likely the directors are the real decision makers. If not, it is more likely the outsider who exercises central management and control. 16.  Consequently, where the high-level decisions are made is a matter of fact and substance, it is not merely where they are recorded or formalised. [6]

Additionally, for the purposes of the central management and control test, it will only be exercised if it is done in that place to a substantial degree, sufficient to conclude that the company is carrying on a business there. [7] 17.  Paragraph 35 of TR 2028/5 explains that no single factor will determine the location of a company's central management and control and provides the following factors as likely to influence a decision of who control and direct the operations of a company: •             where those who exercise central management control do so, rather than where they live •             where the governing body of the company meets •             where the company declares and pays dividends •             the nature of the business and whether it dictates where control and management decisions are made in practice •             minutes or other documents recording where high-level decisions are made. 18.  Other factors with lessor weight in indicating where central management and control is exercise which have been considered by the courts are explained in paragraph 37 of TR 2018/5 and include:

•               where those who control and direct the company's operations live •               where the company's books are kept •               where its registered office is located •               where the company's register of shareholders is kept •               where the shareholder's meetings are held •               where its shareholders reside Voting Power in Australia: 19.  Alternatively, if a company carries on a business in Australia and has its voting power controlled by Australian resident shareholders, it will satisfy subsection 6(1). Application to your circumstances: 20.  Company A was not incorporated in Australia. The company was incorporated in XX and its registered office is in XX. 21.  Company A's primary business activity is the wholesaling of fitness equipment to international distributors. The company sources most of its product from manufacturers located in X and usually does not sell to Australian third-party customers or to other entities within the Company 1 group.

22.  Company A has customers in various markets outside of X. The company effectively operates as a distributor for the products it sources from third party manufacturers based in X and arranges direct shipment from these manufacturers to the end customer. 23.  Considering the general indicators of carrying on a business: a.            Company A's activity has a significant commercial purpose and character, it is undertaken for commercial reasons and in a commercially viable manner b.            Company A has more than an intention to engage in business and has a purpose of making a profit. Moreover, in at least the year ended 30 June 20xxx, the company made a net profit of $xxx c.            there is repetition and regularity in Company A's activities d.            Company A sales and procurement activities are conducted systematically by Australian-based employees of Company 1, using email communications to manage orders and approvals. The company operates in a structured, business-like manner, involving regular contract formation, order processing, and fulfillment, and

e.            Company A's activities are not better described as a hobby, a form of recreation or a sporting activity. 24.  Given the above, Company A is carrying on a business. Central management and control: 25.  The sole director of Company A is Individual B, who is a XX resident. Individual B is employed on a fee-for-hire basis such that his responsibilities are limited to the following administrative and compliance related activities: a.            overseeing corporate governance activities include managing the share register, preparing board resolutions and ensuring compliance with statutory obligations b.            managing information request responses from banks and liaising with them in respect of any transactional queries c.            completing the formalities associated with board meeting at the office and managing the completion of Minutes d.            maintaining the Significant Control Register and ensuring it is compliant with XX law e.            lodgment of annual XX company tax returns as required f.            lodgment and calculation of the annual profits tax computation, and g.            compliance with local business and registration requirements.

26. ; As such, Individual B's responsibilities are primarily ensuring the adherence to corporate regulation obligations in XX are met by Company A and that the company also meets local tax compliance requirements. 27.  All strategic decisions related to Company A are exclusively made by the Australian management team during board and shareholder meetings, which are held solely in Australia: a.            Company 1 holds weekly executive meetings and quarterly shareholder and board meetings. During these meetings, the operations, management decisions and strategic operations of Company A are on the agenda. All relevant decisions concerning these matters are made at these meetings. b.            The board of Company 1 has never met in XX.

28.  Individual B does not participate in high-level or strategic decision making of Company A. They do not influence or make decisions in respect of Company A's business operations, nor strategic direction. They do not independently make decisions to declare dividends from Company A. These decisions are made by the directors and senior management employees of Company 1. Individual B merely endorses these decisions without independent input. They have no effective contact or communication in respect of the ordinary business operation with various personnel employed by Company 1 who undertake the operations that comprise of Company A's business. 29.  Consequently, the central management and control of Company A is exercised in Australia. Consistent with paragraph 7 of TR 2018/5, as the company also carries on a business and has central management and control in Australia, Company A will be taken to be carrying on a business in Australia. Voting power :

30.  Company A's sole shareholder is Company 1, an Australian resident company. Moreover, 100% of the shareholders of Company 1 are Australian resident trusts such that the effective voting power and ultimate control of Company A is held by Australian residents. Conclusion : 31.  As Company A carries on a business in Australia and has both central management and control and voting power held by Australian resident shareholders, the company satisfies the conditions for Australian residency as provided in subsection 6(1). Question 2: Is Company A a 'prescribed dual resident' of Australia for income tax purposes under subsection 6(1)? EXPLANATION OF THE LEGISLATION: Prescribed dual resident: 32.  Subsection 6(1) provides that the term 'prescribed dual resident' is defined as: ...a company that satisfies either of the following conditions: (a)          the first condition that: (i)           the company is a resident of Australian within the meaning of subsection 6(1); and (ii)          there is an agreement (within the meaning of the International Tax Agreements Act 1953 ) in force in respect of a foreign country; and

(iii)           the agreement contains a provision that is expressed to apply where, apart from the provision, the company would, for the purposes of the agreement, be both a resident of Australia and a resident of the foreign country; and (iv)           that provision has the effect that the company is, for the purposes of the agreement, a resident solely of the foreign country; (b)           the alternative condition is that the company: (i)           is a resident of Australia within the meaning of subsection 6(1) for no other reason than that it carries on business in Australia and has its central management and control in Australia; and (ii)           it also a resident of another country; and (iii)           its central management and control is in another country. 33.  Guidance on the Commissioner's views on the tax implications from the recommencement of X sovereignty over XX in 19XX is found in Taxation Ruling TR Information supplied. Paragraph 6 of TR XX/XX states: information suppled 34.  With regards to the implications of XX being a SAR with X sovereignty and the operation of the Australia-X Double Taxation Agreement (DTA), paragraphs 3 and 4 of TR XX/XX state that:

information supplied Application to your circumstances: 35.  For Company A to be a prescribed dual resident, the company needs to satisfy either the first condition in paragraph 6(1)(a) or the alternative condition in paragraph 6(1)(b). First condition - paragraph 6(1)(a): 36.  As explained in Question 1, Company A is an Australian resident company and sub-paragraph 6(1)(a)(i) is satisfied. 37.  Although a DTA between Australia and X is in force, paragraphs 3 and 4 of TR X/X state that due XX being a X it will continue to be regarded as an X X. Consequently, there is no agreement within the meaning of the International Tax Agreements Act 1953 in force between Australia and XX such that subparagraph 6(1)(a)(ii) is not satisfied. Alternative condition - paragraph 6(1)(b): 38.  For Company A to meet the alterative condition in paragraph 6(1)(b), it must satisfy all of the following three conditions: a.            be a resident of Australia for no other reason that carrying on a business in Australia and having central management and control in Australia b.            be a resident of another country, and c.            have central management and control in another country.

39.  As explained in Question 1, the central management and control of Company A is exercised in Australia and therefore it does not have central management and control exercised in another country such that subparagraph 6(1)(b)(iii) is not satisfied. This means that all three conditions in paragraph 6(1)(b) cannot be satisfied. 40.  Neither the first or the alternative condition in subsection 6(1) are satisfied and Company A is not a prescribed dual resident. > [1] All future legislative references are to the Income Tax Assessment Act 1936 , unless otherwise stated. [2] Martin v FC of T (1953) 90 CLR 470 at 474; 5 AITR 548 at 551. [3] See also paragraph 13 of Taxation Ruling TR 97/11 Income Tax: am I carrying on a business of primary production ? and paragraph 21 of Taxation Ruling TR 2019/1 Income tax: when does a company carry on a business? [4] See paragraph 11 of TR 2018/5. [5] Paragraph 22 of TR 2018/5. [6] Paragraph 30 of TR 2018/5. [7] Paragraph 31 of TR 2018/5.