The Australian Taxation Office has updated its guidance on the taxation of permanent establishments, outlining how Australia's double tax agreements apply to the attribution of profits and when Pillar Two top-up tax may apply.
The Australian Taxation Office (ATO) updated its guidance on the taxation of permanent establishments (PEs) on 24 June 2026, outlining when enterprises may be subject to tax in Australia or overseas under Australia’s double tax agreements (DTAs).
Taxation under DTAs
The guidance explains that an enterprise can be taxed in Australia even if it is not resident in the country. Similarly, an Australian enterprise may be taxed overseas despite not being resident in the foreign jurisdiction. In both cases, taxation arises where the enterprise carries on business through a permanent establishment, with tax applying only to the profits attributable to that permanent establishment under the relevant DTA.
Definition of a permanent establishment
The ATO said a permanent establishment is generally defined in Australia’s DTAs as a fixed place of business through which an enterprise carries on all or part of its business. The definition typically includes a branch, office or workshop and may also extend to the furnishing of services for specified periods.
The guidance also states that each place of business meeting the relevant DTA definition constitutes a separate permanent establishment.
Attribution of profits
Where a permanent establishment exists, the profits attributable to that PE must be calculated using certain arm’s length principles. The ATO referred taxpayers to Taxation Ruling TR 2001/11 Income tax: international transfer pricing for further information on Australia’s attribution rules.
GloBE permanent establishments
The ATO also noted that Pillar Two top-up tax may apply to a permanent establishment where the arrangement meets the definition of a Global Anti-Base Erosion (GloBE) permanent establishment.
