ATO ruling hits IT industry

IT companies will be forced to think twice before setting up shop in Australia after the tax office introduced a new ruling last week which will apply to foreign companies operating here.

The Australian Taxation Office (ATO) ruling broadens local tax liability on foreign companies which have a "permanent establishment" in Australia.

In the current economic climate Deloitte Touche Tohmatsu transfer pricing group partner Andrew Fisher said the ruling could be the "straw that breaks the camel's back".

He said the ATO ruling (TR 2001/11) will have significant implications for local arms of IT multinationals.

It is a disincentive, he said, for companies wanting to operate in Australia, particularly specialist software firms.

"When companies set up shop they look to minimise tax expenses when choosing a location; this ruling will just hinder IT presence in Australia," Fisher said.

"This will hit hardware and software suppliers which have a sales support presence in Australia."

The ATO said the tax is an "arm's length amount", which Fisher said is in the range of two to eight per cent.

Fisher said the ruling is also retrospective.

The ATO spokeswoman was unwilling to comment on details of the ruling, but pointed Computerworld to the ATO Web site for additional information.

However, no specific information is at the site, which states that the "ruling applies to years before and after date of issue".