income is attributable to a fixed base available to that resident in the country. Article 7 Business profits – This Article is concerned with the taxation by one country of business profits derived by an enterprise carried on by a resident of the other country. The taxing of these profits depends on whether they are attributable to the carrying on of a business through a permanent establishment in that country. If a resident of one country carries on business through a permanent establishment (as defined in Article 5 (Permanent in the other country, the country in which the Establishment)) permanent establishment is situated may tax the profits of the enterprise that are attributable to that permanent establishment. [Article 7, paragraph 1] If an enterprise which is a resident of one country derives business profits in the other country that are not attributable to a permanent establishment in that other country, the general principle of this Article is that the enterprise will not be liable to tax in the other country on such profits. Determination of business profits Profits of a permanent establishment are to be determined for the purposes of this Article on the of arm's length dealings. The provisions in the Swiss Convention correspond to international practice and corresponding provisions in Australia’s other tax treaties. [Article 7, paragraphs 2 and 3] No deductions are allowed in respect of expenses which would not be deductible if the permanent establishment were an independent enterprise which incurred the expense. [Article 7, paragraph 3] No profits are to be attributed to a permanent establishment merely because it purchases goods or merchandise for the enterprise. Accordingly, profits of a permanent establishment will not be increased by any profits attributable to the purchasing activities undertaken for the head office. It follows, of course, that any expenses incurred by the permanent establishment in respect of those purchasing activities will not be deductible in determining the taxable profits of the permanent establishment. [Article 7, paragraph 4] In determining what constitutes business profits, payments received as a consideration for the use of, or the right to use industrial, commercial or scientific equipment would be covered by this Article and, in the case of Australia, be taxed on a net basis. [Protocol, paragraph 7] Subparagraph 5a) of the Protocol excludes the application of Article 7 to profits that are derived from an enterprise carrying on any form of insurance business, other than life insurance. Therefore, each
income is attributable to a fixed base available to that resident in the country. Article 7 – Business profits This Article is concerned with the taxation by one country of business profits derived by an enterprise carried on by a resident of the other country. The taxing of these profits depends on whether they are attributable to the carrying on of a business through a permanent establishment in that country. If a resident of one country carries on business through a permanent establishment (as defined in Article 5 (Permanent Establishment)) in the other country, the country in which the permanent establishment is situated may tax the profits of the enterprise that are attributable to that permanent establishment. [Article 7, paragraph 1] If an enterprise which is a resident of one country derives business profits in the other country that are not attributable to a permanent establishment in that other country, the general principle of this Article is that the enterprise will not be liable to tax in the other country on such profits. Determination of business profits Profits of a permanent establishment are to be determined for the purposes of this Article on the of arm's length dealings. The provisions in the Swiss Convention correspond to international practice and corresponding provisions in Australia’s other tax treaties. [Article 7, paragraphs 2 and 3] No deductions are allowed in respect of expenses which would not be deductible if the permanent establishment were an independent enterprise which incurred the expense. [Article 7, paragraph 3] No profits are to be attributed to a permanent establishment merely because it purchases goods or merchandise for the enterprise. Accordingly, profits of a permanent establishment will not be increased by any profits attributable to the purchasing activities undertaken for the head office. It follows, of course, that any expenses incurred by the permanent establishment in respect of those purchasing activities will not be deductible in determining the taxable profits of the permanent establishment. [Article 7, paragraph 4] In determining what constitutes business profits, payments received as a consideration for the use of, or the right to use industrial, commercial or scientific equipment would be covered by this Article and, in the case of Australia, be taxed on a net basis. [Protocol, paragraph 7] Subparagraph 5a) of the Protocol excludes the application of Article 7 to profits that are derived from an enterprise carrying on any form of insurance business, other than life insurance. Therefore, each
C2014-031_Explanatory-Memorandum-Revised-Tax-Treaty-Switzerland.docx