The Australian Tax Office has now released a new draft ruling TR 2017/D2 and has withdrawn its preceding ruling TR 2004/15 on the tax residence of foreign incorporated companies.
Following the decision in Bywater Investments Limited & Ors v Commissioner of Taxation; Hua Wang Bank Berhad v Commissioner of Taxation [2016] HCA 45; 2016 ATC 20-589 the Commissioner has formed the view that the position expressed in former TR 2004/15 on when a company carries on business in Australia can no longer be sustained. At [57] the majority of the High Court rejected the contention that to be a resident of Australia, a company must have its central management and control in Australia and in addition it must also carry on its business operations in Australia.
Therefore, if a company carries on business and has its central management and control in Australia, it will necessarily carry on business in Australia. That is so even when the only business carried on in Australia consists of that central management and control, and its trading operations are conducted outside Australia.
The draft ruling incorporates a number of changes from the standard ATO rulings template with the intent of providing more practical and streamlined advice. The ruling sets out the Commissioner’s view as to the principles relevant to applying the central management and control test of residency.
