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Border closures, COVID, and permanent establishments

June 2021

One of the features of Australia's response to the COVID pandemic was the closure of its borders – and that has raised some tax issues for foreign companies and permanent establishment.

It is perhaps an unintended consequence of border measures, however one of the tax issues that has arisen for some foreign companies in Australia is whether the continued presence of their employees could cause the company to have a permanent establishment in Australia for tax purposes. If so, then the company could be exposed to Australian income tax.

The ATO has indicated that it will not be applying compliance resources to determine if foreign businesses have a permanent establishment in Australia if:

  • They did not otherwise have a permanent establishment in Australia before the effects of COVID-19
  • The temporary presence of employees in Australia continues to solely be as a result of COVID-19 related travel restrictions
  • Those employees temporarily in Australia will relocate overseas as soon as practicable following the relaxation of international travel restrictions, and
  • The entity has not recognised those employees as creating a permanent establishment or generating Australian source income in Australia for the purpose of the tax laws of another jurisdiction.

This relaxed approach will be applied until 31 December 2021.

Speak to our international tax team

If you believe that your company is potentially affected by the permanent establishment exposure, speak to our international tax team on 02 9957 4033. We can engage with the ATO on your behalf to determine whether the ATO's compliance approach could provide relief.

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Disclaimer

This article is provided for information purposes only and correct at the time of publication. It should not be used in place of advice from your accountant. Please contact us on 02 9957 4033 to discuss your specific circumstances.

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