On 13 November 2015, the Treasurer, The Hon Scott Morrison MP, announced that Australia and Germany had signed a “new 21st Century tax treaty, which will reduce tax impediments to increased bilateral trade and investment and improve the integrity of the tax system”. Whilst the treaty is not yet in force, as of October 2016, the ratification process is moving swiftly in both Germany and Australia. The treaty replaces one of Australia’s oldest treaties, signed in 1972. The rest of Australia’s treaties will also be updated in due course, or otherwise modified by the multilateral instrument, being developed as part of the OECD Base Erosion and Profit Shifting (BEPS) process. The new treaty is modelled on the OECD’s BEPS guidance incorporating the BEPS treaty recommendations as they relate to international tax. The measures within the treaty will impose a number of additional tax requirements on taxpayers. For example, there is more likely to be a taxable presence, or a permanent establishment (PE), in Australia in more circumstances than is presently the case. This potentially means more profits declared in Australia, more Australian tax payable and more compliance. However, a significant question remains: even if there is an expanded category of agency PEs, what is the profit to be attributed to that deemed PE? That issue is not clear at present. These changes will have a wide ranging impact on business, including for multinational companies in the consumer business space that engage in the importation of goods or inputs into manufacturing, local manufacture , storage and logistics, and sales. The new treaty will extend the current deemed agency PE beyond a “contract concluding agent” to include the case where a dependent person in Australia “habitually plays the principal role leading to the conclusion of contracts that are routinely concluded without material modification by the [foreign] enterprise”. Thus, a deemed PE can arise where the local representative in Australia only negotiates on behalf of an overseas entity and does not formally conclude contracts for that overseas entity. The new treaty also narrows the specific exceptions to the definition of PE, again broadening the scope of what is considered to be a PE. Tax treaties deem certain specific activities to be expressly excluded from the scope of PE, however, these exceptions will be narrowed by making each exception subject to the condition that the relevant activity must be preparatory or auxiliary in nature for the enterprise. Further, the preparatory or auxiliary will be tightened by an anti-fragmentation rule to limit the specific activity exceptions where related activities are split between different legal entities or different places. On the positive side, the new treaty also incorporates reduced withholding tax rates on dividends, interest and royalties (subject to various conditions) reducing the cost of accessing foreign investment and technology. Multinational companies that previously would not have had a taxable presence in Australia may now need to reconsider how their businesses are conducted and whether their activities may inadvertently give rise to a tax presence in Australia. At the same time, such companies will also need to be considering the potential operation of the Australian multinational anti-avoidance law (MAAL), already in force from 1 January 2016, and which has a similar role to the expanded scope PE in the new treaty. For example, this may impact direct B2B wholesale businesses where contracts are entered into directly by the overseas seller with the Australian buyer but local representatives of the overseas seller have engaged in negotiation activity. On the other end of the spectrum, where overseas businesses are well represented in Australia with import, manufacturing, and logistics functions, etc. the diversity of functions spread between the overseas entity and local operations may themselves give rise to risk. These functions may be amalgamated under the new treaty to give the overseas entity a tax presence in Australia. This is a significant change in position and may impact how businesses have set up their operations in Australia. Businesses will need to review and potentially restructure their business model, legal entity structure and supply chain, in light of all the changes in the treaty (including reduced withholding tax rates), to ensure they do not have an unexpected exposure to additional tax in Australia.