Permanent Establishment Risk in Commissionaire Structures: Why a Legal Opinion Matters
If your Australian business operates under a Commissionaire structure with a Hong Kong parent company, you could be exposed to permanent establishment risk under Australian tax law.
Understanding Permanent Establishment Risk
The Australian Taxation Office (ATO) has taken a firm stance on what constitutes a permanent establishment (PE), particularly where a local entity acts on behalf of a foreign principal. Following the OECD/G20 BEPS Action 7 updates, the ATO now adopts a broad interpretation of the dependent agent permanent establishment (DAPE) provisions.
This makes it more likely that arrangements involving a related party collecting payments or performing key commercial functions in Australia will be considered a PE.
What Triggers PE Risk in Commissionaire Structures?
Commissionaire arrangements are often used to simplify international operations, but they can raise red flags with tax authorities. PE risk may arise where:
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The Australian entity habitually concludes contracts or collects revenue for the Hong Kong parent
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There is economic or legal dependence on the overseas entity
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The Commissionaire acts similarly to an agent without bearing sufficient risk
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Functional activity in Australia exceeds what is considered “preparatory or auxiliary”
Why You Need a Legal Opinion
To address permanent establishment risk, Chris Garlick strongly recommends obtaining a formal legal opinion. This legal advice would:
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Assess PE risk under both Australian domestic law and the Australia–Hong Kong Double Tax Agreement
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Include a detailed functional analysis of your Australian entity’s responsibilities and risks
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Review and comment on the terms of your Commissionaire Agreement
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Provide strategic recommendations to reduce PE exposure and meet ATO expectations
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Serve as a defensive legal document should the ATO review your structure
Protecting Your Structure Before the ATO Acts
Ignoring permanent establishment risk can lead to costly tax liabilities, penalties, and reputational damage. A proactive review and legal strategy can reduce the risk of audit, ensure compliance, and support your international expansion plans.
Need clarity on your Commissionaire arrangement?
📞 Contact Chris Garlick to request a legal opinion tailored to your cross-border structure.