Changing Australian Environment and Tax Implications

The dynamic tax landscape in Australia, especially concerning international corporates, reflects a shifting tax base and challenges related to royalties, service fees, and more. Explore how recent decisions impact tax structures and cross-border transactions, incorporating insights from Tech Mahindra and PwC.

• Australian tax
• International corporations
• Royalty payments
• Tax implications
• Tech Mahindra

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Uploaded on Feb 22, 2025 | 0 Views

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Presentation Transcript

1. Changing Australian environment Contraction of tax base = Attempted expansion of tax from international corporates MAAL DPT PE Royalty Service fee/royalty embedded royalty Tech Mahindra PwC 1

2. Tech Mahindra Tech Mahindra Limited v Commissioner of Taxation [2016] FCAFC 130 Tech Mahindra Limited v Commissioner of Taxation [2015] FCA 1082 What does the decision tell us? If an Indian entity performs services in India (payments for which fall within the extended definition of royalty in the treaty) for an Australian buyer- Then, because the payments are within the royalty definition, they are deemed by the treaty to be Australian sourced income. But they are not royalties under Australian domestic law, simply Australian sourced services income And the Indian company will pay tax on the profit (calculated using the Australian assessable income rules) from the contracts in Australia. Even though it pays no withholding tax, and has no PE PwC 2

3. Tech Mahindra Why? Because of Article 23: Article 23 Source of income (1) Income, profits or gains derived by a resident of one of the Contracting States which, under any one or more of Articles 6 to 8, Articles 10 to 20 and Article 22 may be taxed in the other Contracting State, shall for the purposes of the law of that other State relating to its tax be deemed to be income from sources in that other State. (2) Income, profits or gains derived by a resident of one of the Contracting States which, under any one or more of Articles 6 to 8, Articles 10 to 20 and Article 22 may be taxed in the other Contracting State, shall for the purposes of Article 24 and of the law of the firstmentioned State relating to its tax be deemed to be income from sources in that other State. PwC 3

4. Unresolved issues Identification of affected Application of article 23 Calculation of profit attributed Treatment of flow through/subcontract models PwC 4

5. Tech Mahindra Structure Indian Head Co India Australia Australian Permanent Establishment Services Australian Customers Payment for services (Australian bank account controlled by Indian Head Co) April 2018 PwC 5

6. Australian subsidiary structure Indian Head Co India Intercompany service fee Statements of work (which allow the Aus sub to procure services from other Group Co s) Australia Australian Subsidiary Australian Customer Services Key differences from TM: Invoices 1. Contracting parties Payment for services 2. Invoices 3. Payment April 2018 PwC 6

7. Australian PE Structure Indian Head Co India Cost + 7% markup Australia Australian Permanent Establishment Australian Customers Services Key differences from TM: Services 1. Recipient of services (end customers) End User Customers 2. Payment April 2018 PwC 7