Corporate Tax Masterclass - Greenwoods · Corporate Tax Masterclass Practical application of the...

© Tim Kyle, Greenwoods & Freehills 2014

Disclaimer: The material and opinions in this paper are those of the author and not those of The Tax Institute. The Tax Institute did not review the contents of this paper and does not have any view as to its accuracy. The material and opinions in the paper should not be used or treated as professional advice and readers should rely on their own enquiries in making any decisions concerning their own interests.

Corporate Tax Masterclass Practical application of the New Part IVA

Written and presented by: Tim Kyle Director Greenwoods & Freehills

NSW Division

11 September 2014 Swissotel, Sydney

Practical application of the New Part IVA

© Tim Kyle, Greenwoods & Freehills 2014 2

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CONTENTS

1 Introduction .................................................................................................................................... 5

2 Part IVA overview ........................................................................................................................... 6

2.1 The behavioural spectrum ........................................................................................................ 6

2.2 Where should the line fall? ....................................................................................................... 6

2.2.1 The structural distinction .................................................................................................... 6

2.2.2 Extrinsic materials .............................................................................................................. 7

2.3 Where does the line fall? .......................................................................................................... 8

2.4 What really gets the ATO’s goat? ............................................................................................. 9

2.4.1 Sources of understanding .................................................................................................. 9

2.4.2 Themes emerging .............................................................................................................. 9

3 Tax benefit .................................................................................................................................... 11

3.1 Overview ................................................................................................................................. 11

3.2 The 2013 amendments ........................................................................................................... 11

3.2.1 The replacement approach .............................................................................................. 13

3.2.2 The qualification approach .............................................................................................. 13

3.2.3 Practical differences arising from the competing approaches ......................................... 14

3.3 Interaction with the scheme element ...................................................................................... 14

3.4 The annihilation limb ............................................................................................................... 15

3.4.1 Automatic application in loss/outgoing/FITO situations? ................................................. 15

3.4.2 Is certainty a gateway to the annihilation limb? ............................................................... 17

3.4.3 Other potential barriers to the application of the annihilation limb .................................. 18

3.5 The reconstruction limb........................................................................................................... 18

3.5.1 How is reasonableness of alternative determined? ......................................................... 19

3.5.2 When is reasonableness determined? ............................................................................ 21

3.5.3 Can there be more than one reconstruction counterfactual? .......................................... 21

3.5.4 Statutory constraints on the reasonable alternative ........................................................ 23

3.5.5 “Substance” ..................................................................................................................... 24



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3.5.6 “Result or consequence” ................................................................................................. 25

3.5.7 Disregarding Australian income tax results ..................................................................... 26

3.6 The statutory “choice principle” provisions ............................................................................. 27

3.7 The primary statutory choice principle .................................................................................... 27

3.8 The secondary statutory choice principle ............................................................................... 30

3.9 Where are we on tax benefit? ................................................................................................. 32

4 Purpose ......................................................................................................................................... 33

4.1 “Objective” purpose ................................................................................................................. 33

4.1.1 Preliminary ....................................................................................................................... 33

4.1.2 The “why” is determined by the “how” ............................................................................. 33

4.1.3 Changes of plans ............................................................................................................. 34

4.2 The commercial/tax purpose interplay .................................................................................... 35

4.3 Where tax benefit arises under a reconstruction provision ..................................................... 37

4.4 Avoiding unintended outcomes ............................................................................................... 38

4.5 Abuse is not a cumulative requirement ................................................................................... 38

4.6 Conclusion .............................................................................................................................. 39

5 Example #1: Pre-sale dividend ................................................................................................... 40

5.1 The pre-sale dividend fact pattern .......................................................................................... 40

5.1.1 The (bare bones) fact pattern .......................................................................................... 40

5.1.2 Potential complicating matters ......................................................................................... 40

5.2 Why is Part IVA even relevant? .............................................................................................. 41

5.3 What features will interest the ATO? ...................................................................................... 41

5.4 Scheme ................................................................................................................................... 42

5.5 Tax benefit .............................................................................................................................. 43

5.5.1 The annihilation limb ........................................................................................................ 43

5.5.2 The reconstruction limb ................................................................................................... 44

5.6 Purpose ................................................................................................................................... 45

5.6.1 The s.177D(2) matters ..................................................................................................... 45



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6 Example #2: share/asset sale ..................................................................................................... 48

6.1 The share/asset sale fact pattern ........................................................................................... 48




6.3 Scheme ................................................................................................................................... 49

6.4 Tax benefit .............................................................................................................................. 49



6.5 Purpose ................................................................................................................................... 51

7 Example #3: Funding choices..................................................................................................... 53

7.1 The funding choices fact pattern ............................................................................................. 53




7.3 Scheme ................................................................................................................................... 54

7.4 Tax benefit .............................................................................................................................. 55



7.5 Purpose ................................................................................................................................... 56

Tim Kyle Practical application of the New Part IVA


1 Introduction

The purpose of this paper is to remove the new(ish) Part IVA from its theoretical shackles and apply it

in practice: a valiant (and likely foolhardy) task given the myriad of statutory construction issues raised

by the 2013 amendments1.

The hope is that, by doing so, we may better understand the impact of the 2013 amendments - and

better prepare ourselves for the challenges they pose.

To this end:

sections 2 to 4 provide context and set out the main statutory construction issues likely to

emanate from the 2013 amendments; and

sections 5 to 7 of this paper contain worked examples of how Part IVA might apply to three real

world situations.

The focus of this paper is on s.177D, to the exclusion of ss.177E, 177EA and 177EB.

Full citations for the familiar Part IVA cases referred to in this paper are set out in the appendix.

1 Tax Laws Amendment (Countering Tax Avoidance and Multinational Profit Shifting) Act 2013



2 Part IVA overview

2.1 The behavioural spectrum

It’s relatively rare that the actuating subjective motivation for conducting a transaction (in the sense of

why bother to do it at all) was to achieve an advantageous Australian income tax outcome.

However, it can certainly be said that taxpayers always have any eye firmly on the costs associated

with transactions - and Australian income tax is undoubtedly one cost to which regard will be had.

To that end, it may often be said that various steps within a particular transaction (ie, which form a

subset of the overall transaction) were introduced - or perhaps altered - with an eye at least partly to

Australian tax.

At one end of the spectrum, it may be that these changes were motivated principally by a desire to

accommodate non-tax issues. But at the other end of the spectrum it may be that at least some of the

changes were motivated by a desire to produce an advantageous Australian tax outcome.

Most fact patterns fall somewhere between these ends of the spectrum.

The overwhelming challenge in relation to Part IVA is determining where “the line” falls.

2.2 Where should the line fall?

This is obviously different to the question “where does the line fall”, but it is an interesting point at

which to start.

2.2.1 The structural distinction

The Australian tax system draws a structural distinction between:

permissible tax planning/mitigation – to which Part IVA does not apply;

tax avoidance – to which Part IVA does apply; and

impermissible tax evasion – to which criminal sanctions apply.

But how should these respective behaviours be delineated? The answer involves questions of

statutory construction.



2.2.2 Extrinsic materials

The explanatory memorandum and second reading speech that accompanied the introduction of Part

IVA provide an indication of what Parliament intended. We are all familiar with the comforting

statements to the effect that:

Part IVA was directed towards “blatant, artificial or contrived” schemes; and

arrangements of a normal business or family kind, including those of a tax planning nature are

beyond the scope of Part IVA.

These comforting statements were repeated word for word in the explanatory memorandum to the

2013 amendments (2013 EM).

But, unhelpfully, these statements do not appear in the text of Part IVA. Consequently, they may be

of (extremely) limited utility.

In this regard, the judicial appetite for resort to extrinsic material - such as explanatory memoranda

and second reading speeches – waxes and wanes.

The period following CIC Insurance Ltd v Bankstown Football Club Ltd (1997) 187 CLR 384 was

marked by a greater focus on the role of context (including extrinsic material) in statutory construction.

However, this approach has been superseded (at least for the time being) by the more “black letter

law” approach reflected in Alcan (NT) Alumina Pty Ltd v Commissioner of Territory Revenue (2009)

239 CLR 27. There, Hayne, Heydon, Crennan and Kiefel JJ stated at [47]:

“This Court has stated on many occasions that the task of statutory construction must begin

with a consideration of the text itself. Historical considerations and extrinsic materials cannot

be relied on to displace the clear meaning of the text. The language which has actually been

employed in the text of legislation is the surest guide to legislative intention. The meaning of

the text may require consideration of the context, which includes the general purpose and

policy of a provision, in particular the mischief it is seeking to remedy.” [Footnote references

omitted]

Later in their joint judgment (at [51]), their Honours quoted with evident approval these observations

made by Gleeson CJ in Carr v Western Australia (2007) 232 CLR 138 at [6]:

“[I]t may be said that the underlying purpose of an Income Tax Assessment Act is to raise

revenue for government. No one would seriously suggest that s 15AA of the Acts

Interpretation Act has the result that all federal income tax legislation is to be construed so as

to advance that purpose. Interpretation of income tax legislation commonly raises questions

as to how far the legislation goes in pursuit of the purpose of raising revenue. In some cases,

there may be found in the text, or in relevant extrinsic materials, an indication of a more

specific purpose which helps to answer the question. In other cases, there may be no

available indication of a more specific purpose. Ultimately, it is the text, construed according

to such principles of interpretation as provide rational assistance in the circumstances of the

particular case, that is controlling.”



This resistance to considering extrinsic materials is more likely to produce consequences unintended

by Parliament – but its adherents are unrepentant on the basis that remediating those consequences

is exclusively a matter for Parliament: Commissioner of Taxation v Multiflex Ltd (2011) 197 FCR 580.

Interestingly, the current approach to statutory construction is reminiscent of the approach of

O’Loughlin J at first instance in Peabody in 1992 - who rejected outright a taxpayer entreaty that

regard should be had to whether the transaction was “blatant, artificial or contrived”.

It is also interesting that it is difficult to recall any court expressly relying on explanatory memoranda in

construing Part IVA.

2.3 Where does the line fall?

The words of Part IVA themselves do not provide a clear delineation between acceptable tax planning

and unacceptable tax avoidance. Even the 2013 EM observes at paragraph 1.10 that the words of

the provisions are “inexact … in legal terms”.

Moreover, taxpayers are at an inherent disadvantage in Part IVA cases:

parties enter into transactions based on their current understanding of the judicial approach to

the application of Part IVA;

the judicial approach to the application of Part IVA shifts over time, being impacted by the

“cultural and attitudinal factors” prevailing at the time of the particular judicial decision2 - which

may be many years after the transaction is implemented; and

consequently, what may have been regarded as acceptable tax planning at the time of

implementation may turn out to be unacceptable tax avoidance when later reviewed by the

courts.

Of course, this is true of all tax provisions – but it is fair to say that Part IVA is subject to particularly

large swings in judicial approach.

However, if we are working on a transaction today, accurately predicting the future approach of courts

is beyond us.

One important risk minimisation strategy is to ensure as best as possible that a proposed transaction

is likely to be acceptable to the ATO - based on their current approach to the administration of Part

IVA.

This of course requires an understanding of what the ATO finds unacceptable.

2 Grant Wardell-Johnson, The “New” Part IVA, The Tax Institute 7th Annual Tax Forum



2.4 What really gets the ATO’s goat?

2.4.1 Sources of understanding

An understanding of the ATO approach to the administration of Part IVA can be gleaned from a

number of sources such as:

case law

private rulings - although experience indicates that private Part IVA rulings can be short on

analysis and the publicly available edited private rulings are almost always so redacted that

they provide little guidance on Part IVA;

public rulings – of which there are few dealing specifically with Part IVA;

practice statements – however the current PS LA 2005/24 is now almost a decade old and

provides little real world guidance. An update is expected, although the precise timing is

unclear;

taxpayer alerts – which are typically confined to a very specific style of transaction;

other ATO publications - such as the consolidation reference manual;

consultation forums – the minutes of the 18 July 2013 NTLG consultative workshop on Part IVA

amendments3 (NTLG minutes) being a rare example; and

presentations by senior ATO officers – although Part IVA presentations are rare.

2.4.2 Themes emerging

The features that really pique ATO interest (outside mass marketed schemes context) can perhaps be

categorised as follows. The categories were developed while preparing an article on the potential

application of Part IVA to group restructures – but they seem equally applicable in other situations.

Feature Examples

The taxpayer takes preparatory steps so that the beneficial effect of a primary taxing provision is activated

Futuris where the taxpayer took steps to activate value shifting

provisions to increase cost base in an entity before floating it.

RCI where a s.23AJ pre-sale dividend was facilitated by a

revaluation of assets

BAT where the asset sale occurred after the merger and

internal transfer so as to allow utilisation of losses

3 http://www.ato.gov.au/Tax-professionals/Consultation--Tax-practitioners/In-detail/Technical-and-special-purpose-working-

groups/NTLG-consultative-workshop-on-Part-IVA-amendments/



Other non-case law examples include:

• where a corporate group takes steps to include or exclude particular entities from the consolidatable group before making a consolidation choice – as discussed in the ATO consolidation reference manual

• where a taxpayer takes preparatory steps in order to utilise CGT roll-overs – especially where successive rollovers are used

The taxpayer takes preparatory steps so that the detrimental effect of a primary taxing provision is not activated

CPH where the deduction quarantining provisions were

circumvented

AXA where the cost base transfer provisions in the scrip for

scrip CGT rollover rules were circumvented

Peabody where the minority interests were devalued, ensuring

that a subsequent sale (had it occurred) would not activate

s.26AAA

Tax consequences arise without a real change in financial position

RCI where all but $20m of the $318m dividend was satisfied by

the issue of a promissory note

Noza where the asset acquisition was routed through Australia,

leaving back to back RPS in place - and the RPS dividends

were satisfied by the issue of promissory notes

A (simpler) commercially equivalent transaction produces a worse tax outcome

News Australia where a share transfer (rather than a buy-back

and fresh issue) would not have produced a capital loss

But of course even where the ATO challenges a transaction, a rigorous examination of the tax benefit

and purpose requirements is required. This inquiry may reveal that Pt IVA does not apply.



3 Tax benefit

3.1 Overview

Part IVA has always been about taxing a taxpayer on the basis of something they didn’t actually do.

To explain:

The tax benefit inquiry is a two-step process.

The first step involves identifying a permissible counterfactual (ie, what the taxpayer didn’t do)

but instead would have done or might reasonably be expected to have done absent the

scheme (ie, what the taxpayer actually did).

The second step involves identifying the tax consequences that flow to the taxpayer from the

counterfactual.

A tax benefit arises if those tax consequences are less advantageous than those flowing to the

taxpayer from the scheme.

And, where the purpose element is satisfied and Part IVA is activated, the taxpayer is made to

suffer the less advantageous tax consequences arising under the counterfactual.

Importantly, Part IVA has no operation if either:

no permissible counterfactual can be identified; or

the tax consequences that flow to the taxpayer from the counterfactual are no less

advantageous than those flowing to the taxpayer from the scheme.

This section 3 considers:

whether identification of a permissible counterfactual is now merely a “tick and flick” exercise –

that is, whether, regardless of the relevant fact pattern, there will now always be a permissible

counterfactual so that the only meaningful task is to quantify the relevant tax benefit; or

whether identification of permissible counterfactual(s) under the tax benefit inquiry is still a

substantive cumulative requirement of Part IVA.

3.2 The 2013 amendments

As we know, each head of the existing s.177C definition of “tax benefit” is expressed on the basis of

“what would have happened or might reasonably have been expected to have happened”. This

composite phrase was considered by many to identify different regions on the spectrum of certainty as

to alternative outcome in which an acceptable counterfactual must lie.

The motivations for the 2013 amendments are well documented.



In essence, over the last 5 years, the ATO struggled to establish that a tax benefit arose in a number

of group restructures and other fact patterns. For example, in a number of instances, courts held that

corporate groups would have done nothing rather than suffer large tax liabilities associated with group

restructures.

The ATO convinced the then Government that these outcomes were inappropriate and that legislative

change was required to address this “perceived weakness”.

New s.177CB was introduced. On its face, it does two things:

First, it bifurcates the composite phrase “what would have happened or might reasonably have

been expected to have happened” (and so the sufficient certainty spectrum) in s.177C into two

separate limbs:

the “annihilation limb” in s.177CB(2); and

the “reconstruction limb” in s.177CB(3)

Secondly, it provides (broadly) that a decision under s.177C that adverse tax consequences

arise to the taxpayer from what would have occurred or might reasonably be expected to have

occurred absent the scheme “must be based on a postulate” that is determined under the

annihilation limb or the reconstruction limb.

The drafting of the second aspect of s.177CB is highly unusual. Initial points to note include:

The existing tax benefit definition in s.177C was not repealed – and indeed was left untouched.

An alternative postulate produced under the annihilation limb or the reconstruction limb is not

expressly deemed (or defined) to be the thing that “would have happened or might reasonably

have been expected to have happened” absent the scheme.

Nevertheless, an undeniably strong link is drawn between the existing s.177C tax benefit

definition and the alternative postulate(s) produced under the annihilation limb or the

reconstruction limb.

This drafting technique raises a number of threshold statutory construction issues which courts will

need to resolve.

A number of articles touch on these issues. The most fulsome discussion is in the Mark Brabazon SC

article “The Hatter’s watch: Tax benefit in Part IVA”4 which provides a detailed analysis of the

“intolerable wrestle of words and meanings” associated with the introduction of s.177C.

Reviewing the literature, two approaches emerge as the main contenders for the way in which courts

may construe the relationship between s.177C and s.177CB: the replacement approach and the

qualification approach.

As will be seen, the replacement approach will tend to favour the ATO while the qualification

approach will tend to favour taxpayers.

4 (2014) 43 AT Rev 150



3.2.1 The replacement approach

Under the replacement approach, the s.177CB inquiry completely replaces the existing s.177C

inquiry.

A court may well be attracted to the replacement approach on the basis of the strength of the link that

the provisions draw between the existing s.177C tax benefit definition and the alternative postulate(s)

produced under the annihilation limb or the reconstruction limb.

In that regard, parts of the 2013 EM do indicate that the replacement approach was intended.

However, as we have seen, there are serious questions about the extent to which regard can

permissibly be had to extrinsic material in the statutory construction process.

The consequence of courts adopting the replacement approach would be that:

an alternative postulate produced under the annihilation limb or the reconstruction limb

automatically qualifies as a permissible counterfactual for the purpose of determining whether

a tax benefit arises;

it would not be necessary to perform a second step of testing that postulate to see if it

satisfies the requirements in existing s.177C case law; and

that is, on the replacement approach, existing case law on the meaning of tax benefit would

be otiose.

3.2.2 The qualification approach

Alternatively, it may be that courts will be satisfied that Parliament deliberately chose to both leave

s.177C untouched and not expressly give s.177CB a deeming or definition role - and will respect that

choice by giving the existing s.177C definition of tax benefit a continuing role.

However, the precise role that s.177C would continue to play is far from clear.

Two possibilities are considered below.

The “qualification lite” approach would give primacy to alternative postulates produced under the

annihilation and reconstruction limbs. Nevertheless, courts may have resort to the existing s.177C tax

benefit definition in certain circumstances. One such circumstance may be where the reconstruction

limb produced more than one alternative postulate. In those circumstances, a court might conclude

that only the single alternative postulate which is the next most likely to have happened absent the

scheme is the permissible counterfactual. This issue is discussed further in section 3.5.3 below.

It must be said that the full scope of the “qualification lite” approach is yet to be explored. Rather, the

existing s.177C tax benefit definition may have a roving commission – with courts having resort to it in

order to produce more appropriate outcomes than those achieved under the replacement approach.

This approach respects the intention evident in the 2013 EM that s.177CB was introduced in order to

both constrain and expand the range of postulates that can qualify as a permissible counterfactual.



Mark Brabazon identifies a “qualification heavy” approach - which I will have badged the constraint

approach in this paper. Under this constraint approach, two cumulative requirements must be

satisfied in order for there to be a permissible counterfactual. The first step is to determine whether

an alternative postulate arises under the existing s.177C tax benefit definition. If it does, then the

second step is to determine whether that alternative postulate also satisfies either/both the

annihilation limb or the reconstruction limb. Presumably the same results would be produced if the

order of the steps were reversed.

It is difficult to discern a clear statutory construction basis for dismissing the constraint approach.

Nevertheless, in light of extrinsic materials such as the 2013 EM, it is clearly not the intended outcome

– as it greatly reduces the circumstances in which a counterfactual can arise.

For that reason, in the balance of this paper, references to the qualification approach are to the

“qualification lite” approach described above.

3.2.3 Practical differences arising from the competing approaches

Resolution of these competing approaches is far from an arid intellectual exercise. It has real

significance for how Part IVA matters will be conducted. By way of example, the ramifications of this

issue include:

whether more than one reconstruction limb counterfactual is permissible – and, if so, whether it

is open to the ATO to choose the counterfactual that produces the greatest quantum of tax

benefit – see further section 3.5 below; and

whether certainty as to alternative outcome is a gateway to the annihilation limb – see further

section 3.4 below.

The ATO nails its colours firmly to the mast in the NTLG Minutes. The ATO vigorously believes in the

replacement approach: the stated ATO view is that the reconstruction limb now requires an “entirely

different inquiry" to that undertaken under the existing s.177C tax benefit definition. However, no

reasoning is given for this conclusion and there are valid arguments in support of the qualification

approach.

3.3 Interaction with the scheme element

It is noteworthy that precise delineation of the relevant scheme matters more than it did before the

2013 amendments.

To this end:

Where it applies, the annihilation limb operates by excising the scheme from the other events or

circumstances that actually happened or existed.

It may be the case that the annihilation limb can only be activated where the scheme is a subset of

the “events or circumstances that actually happened or existed” – see further section 3.4 below.



If so, this would mean that the annihilation limb will only apply where a narrow scheme is delineated –

as too broad a scheme will necessarily incorporate all the relevant “events or circumstances that

actually happened or existed”.

In (overly) broad terms, the reconstruction limb produces a counterfactual that is (subject to

certain constraints) commercially equivalent to the scheme actually entered into.

The task of identifying a commercially equivalent transaction to a particular scheme is made easier

the more broadly the scheme is delineated.

Clearly if the ATO ran the broad and narrow schemes as alternatives both limbs could

potentially be activated.

It is clear from the NTLG Minutes that the ATO sees a tactical advantage for itself in the bifurcation of

the composite phrase - and reserves its right to argue both limbs in the alternative.

delineation of scheme determines (un)availability of the statutory “choice principle”.

The primary and secondary statutory “choice principle” in s.177C(2) and s.177C(2A) respectively are

discussed in section 3.6 below. As will be seen, the application of these provisions depends on:

in the case of the primary statutory choice principle: the scheme was not entered into or

carried out by any person for the purpose of creating any circumstance or state of affairs

the existence of which is necessary to enable the statutory choice to be made; and

in the case of the secondary statutory choice principle: the scheme consists solely of the

making of the agreement or election.

Clearly the ambit of the scheme will be critical to whether these provisions are activated. The

broader the scheme, the less likely activation will be.

3.4 The annihilation limb

Section 177CB(2) provides as follows:

“A decision that a tax effect would have occurred if the scheme had not been entered into or

carried out must be based on a postulate that comprises only the events or circumstances

that actually happened or existed (other than those that form part of the scheme).”

On its face, the annihilation limb involves a stunningly simple mechanical exercise: take the

events/circumstances that actually happened and excise the scheme from them. No element of

speculation or independent thought required.

Three points of particular interest in relation to the annihilation limb are discussed in the following

sections.

3.4.1 Automatic application in loss/outgoing/FITO situations?

A range of potential tax benefits are identified in s.177C.



The categorisation of the relevant benefit may well be critical to the application of the annihilation

limb.

“Negation” category benefits

Conceptually, the annihilation limb lends itself particularly well to being applied in cases where Part

IVA is directed towards negating a particular tax advantage that arises from something that did in fact

occur, such as:

a taxpayer incurs an outgoing which produces a deduction – and Part IVA operates by

cancelling that deduction;

a taxpayer transfers an asset which produces a capital loss – and Part IVA operates by that

cancelling a capital loss; and

a taxpayer pays foreign tax which produces a FITO – and part IVA operates by cancelling a

FITO.

The reasoning goes like this: if these benefits arise under the scheme, then if you excise the scheme,

the element that is necessary to generate the benefit is not present – and so the benefit would

necessarily not have arisen.

For example, if the relevant scheme comprises a taxpayer contributing $100 to an employee

remuneration trust, then if the contribution had not been made (because it has been notionally

excised by the annihilation limb) then the Australian corporate would obviously not have had the $100

outgoing that generates the s.8-1 deduction – therefore a $100 tax benefit arises.

Indeed, there is a concern that the annihilation limb may so readily apply to this type of benefit that its

application effectively becomes automatic.

However, there are still important potential barriers to the application of the annihilation limb (see

below).

“Imputation” category benefits

The other category of tax benefits is where Part IVA is directed towards imputing something which did

not in fact occur, such as:

treating income as arising where none actually arose; and

treating a withholding tax liability as arising.

The annihilation limb may also have some role – albeit a more limited role - to play in imputation

benefit cases

The 2013 EM indicates that the annihilation limb can apply in income cases where there is a

sheltering of income already in existence (eg, a Spotless “switching” scenario): see the 2013 EM at

paragraphs 1.83, 1.84 and example 1.2.

But, that fact pattern aside, it is more difficult to identify circumstances where the annihilation limb

applies to imputation category benefits.



Accordingly, the reconstruction limb is more readily applicable to imputation category benefits.

3.4.2 Is certainty a gateway to the annihilation limb?

The annihilation limb corresponds to the “would have” end of the certainty spectrum described in the

existing s.177C tax benefit definition. That is, before the 2013 amendments, it was necessary to be

certain what would have happened absent the scheme in order to activate that part of the compound

expression in s.177C.

Under the replacement approach, the annihilation limb could be activated without courts being

satisfied as to what would have happened absent the scheme.

However, under the qualification approach, courts could conceivably give the existing s.177C tax

benefit definition a continuing role by making certainty of alternative outcome the gateway to the

application of the annihilation limb. If so, courts would have to be satisfied as to what would have

happened absent the scheme before the annihilation limb can be applied – putting the Commissioner

at an evidentiary disadvantage which would likely prove a significant barrier to the application of the

annihilation limb.

However, is this outcome likely? It does suffer some challenges.

First, the annihilation limb operates exclusively by excising the scheme from the events or

circumstances that actually happened or existed. As the 2013 EM puts it at paragraph 1.79:

“… the speculation that is permitted about any other state of affairs that might have come

about if the scheme had not been entered into or carried out is limited to the removal of the

scheme”

Secondly, no part of the 2013 amendments themselves specifically refers to certainty of alternative

outcome as a gateway to the annihilation limb.

Thirdly, it is difficult to identify clear support for that outcome in the 2013 EM. Rather, there is

abundant material in the 2013 EM to support the contrary argument: that certainty as to alternative

outcome is not necessary in order to trigger the annihilation limb.

Finally, complete logical disjunction between the certain alternative outcome and the alternative

postulate produced by the annihilation limb is almost inevitable in imputation benefit cases and may

often arise even in negation benefit cases.

An example can perhaps illustrate this point:

a taxpayer rents factory A and claims rental deductions;

had the taxpayer not rented the factory, evidence establishes with absolute certainty that the

taxpayer would have borrowed to buy factory B;

the annihilation limb operates by excising the relevant scheme from the transaction actually

implemented;



where the scheme comprises renting factory A, renting factory A is excised and the annihilation

limb produces a postulate whereby the taxpayer would have done nothing (ie, no renting or

buying); and

so it can be seen that the outcome of the annihilation limb (ie, doing nothing) has absolutely no

regard to the certain alternative outcome (ie. borrowing to buy factory B).

In light of the above, it is difficult to fathom why certainty of alternative outcome should be the

gateway to the annihilation limb.

3.4.3 Other potential barriers to the application of the annihilation limb

Although not provided for in the legislation itself, the 2013 EM introduces qualifications to the

circumstances in which the annihilation limb can be applied that have nothing to with the certainty of

alternative outcome.

The 2013 EM indicates that the annihilation limb will not apply:

in cases where deletion of the scheme would not necessarily leave a coherent state of affairs

for the tax law to apply to — where a prediction is required about facts not in existence and/or

about facts which are in existence not being in existence: 2013 EM at paragraph 1.39;

if annihilation would be inconsistent with the non-tax results and consequences sought for the

taxpayer by the participants in the scheme: 2013 EM at paragraph 1.40;

if the scheme in question produces material non-tax results or consequences for the taxpayer:

2013 EM at paragraphs 1.82, 1.89 and 1.93.

These are potentially extremely significant qualifications.

However, the ability to rely on them does suffer the statutory construction challenge of relying upon

extrinsic materials such as EMs.

3.5 The reconstruction limb

Section 177CB(3) and (4) provides as follows:

“(3) A decision that a tax effect might reasonably be expected to have occurred if the

scheme had not been entered into or carried out must be based on a postulate that is a

reasonable alternative to entering into or carrying out the scheme.”

(4) In determining for the purposes of subsection (3) whether a postulate is such a

reasonable alternative:

(a) have particular regard to:

(i) the substance of the scheme; and



(ii) any result or consequence for the taxpayer that is or would be

achieved by the scheme (other than a result in relation to the

operation of this Act); but

(b) disregard any result in relation to the operation of this Act that would be

achieved by the postulate for any person (whether or not a party to the

scheme).”

That is, the reconstruction limb involves the statutory command that a decision that a tax effect might

reasonably be expected to occur if the scheme had not been entered into or carried out must be

based on a postulate that is a reasonable alternative to entering into or carrying out the scheme –

albeit having “particular regard to”/“disregarding” the matters set out in s.177CB(4).

This raises a number of interesting points.

3.5.1 How is reasonableness of alternative determined?

The focus of the reconstruction limb is on “a reasonable alternative” that satisfies certain criteria.

Reasonableness is a standard to which the legislature often has resort, and which creates fertile

ground for dispute. Reasonableness, like beauty, is often in the eye of the beholder.

Nevertheless, it is tolerably clear that:

reasonableness imports an objective test, determined from the perspective of a hypothetical

representative third party.

reasonableness is not determined in a complete vacuum. Rather, regard must be had to the

objectively established prevailing factual circumstances.

Consequently, the “reasonable alternative” test removes from the reconstruction limb

counterfactual identification task subjective considerations (ie, what the relevant parties may

have actually done or not done instead of the scheme actually entered into) to the maximum

extent possible. But of course there is often a blurring of objective and subjective

considerations: the “no tax no tax risk” policy considered in News Australia being a good

example.

the outcome of testing any particular alternative postulate for reasonableness is binary: either

the alternative satisfies the reasonableness threshold or it does not.

What is less clear is how exactly the task of assessing reasonableness is to be performed in the

context of the reconstruction limb. Of course, reasonableness must be determined having regard

to/disregarding the matters identified in ss.177CB(3) and (4). But what is reasonableness really

testing?

Two potential competing interpretations emerge: sufficient commercial equivalence and sufficient

plausibility.



Sufficient commercial equivalence

The literature on the 2013 amendments largely proceeds on the basis that reasonableness is directed

towards determining whether the particular alternative postulate is sufficiently similar in its commercial

outcomes to the scheme actually entered into.

Support for the sufficient commercial equivalence interpretation can be found in the fact that particular

regard is required to be had to substance and results/consequences of the scheme - which can be

seen as synonymous with the commercial features of the scheme. Why else bother having particular

regard to these things?

Moreover, support for the sufficient commercial equivalence interpretation can be found in the 2013

EM which refers to a qualifying reasonable alternative achieving for the taxpayer non-tax results and

consequences that are “substantially the same as” / “comparable to” those achieved by the scheme

itself: see paragraphs 1.102 and 1.110.

The logical consequence of the sufficient commercial equivalence interpretation is that an alternative

postulate with substance or results/consequences that are markedly different from those of the

scheme cannot be a permissible counterfactual.

An obvious issue is divining the point beyond which differences make the alternative postulate

unreasonable.

Interestingly, the sufficient commercial equivalence interpretation may well have unintended

outcomes: it precludes from being permissible counterfactuals certain alternatives that would have

been permissible counterfactuals under the existing s.177C tax benefit definition – and which many

would think should appropriately continue be permissible counterfactuals.

Example 2 in section 6 below illustrates this point well: on the sufficient commercial equivalence

interpretation, an asset sale by the subsidiary should not be a permissible counterfactual to a share

sale by the parent because of the vastly difference in results/consequences for the subsidiary.

Sufficient plausibility

Mark Brabazon raises another interpretation which I have taken the liberty of expressing this way: that

reasonableness is directed towards determining whether a hypothetical representative third party

would conclude that it is entirely plausible that the parties would have entered into the particular

alternative postulate instead of the scheme actually entered into.

This interpretation is potentially open on the face of s.177CB(3). After all, once particular regard has

been given to substance and results/consequences of the scheme there is no statutory directive that

the alternative postulate must share substantially all of these features.

An obvious issue with the sufficiently plausible interpretation is the degree of plausibility required.

The threshold may be relatively low: the alternative postulate may only have to be “entirely plausible”

– as a more stringent marker such as “likely” or “probable” would come close to replicating the

existing s.177C case law test for a permissible counterfactual.



3.5.2 When is reasonableness determined?

The gestation process for transactions may be lengthy.

In that context, it may well be that a particular alternative is properly characterised as being

reasonable at a particular point in that process – yet not reasonable at a later point due to changing

circumstances.

The decision in AXA illustrates this point.

There, the relevant transaction was the culmination of a long process with the object of the taxpayer

divesting AXA Health. Part of the way through that process, the taxpayer signed an underwriting

agreement with MBL, which entitled MBL to a multi-million dollar fee. After that point, an alternative

involving a direct sale of AXA Health would have been improbable because it would not have

generated such a material fee for MBL. However, before entry into the underwriting agreement, this

consideration did not impact the direct sale alternative.

So at what point was the reasonableness of the direct sale alternative to be tested?

The court looked only at a single point in time on or around 3 June 2002, which was after entry into

the underwriting agreement – rendering the direct sale alternative unreasonable and so not a

permissible counterfactual.

A separate but related issue arose in AXA. The transaction was to occur around the time that the

Macquarie group consolidated on 1 October 2002. The transaction documents were signed in June

2002 and suggested that the sale of AXA Health might occur at any time between August 2002 and

mid October 2002 (ie, a post-consolidation completion was possible). Given this, the court held that

an alternative under which AXA Health became a wholly-owned subsidiary of MBL was not a


3.5.3 Can there be more than one reconstruction counterfactual?

The drafting of s.177CB(3) raises a significant practical issue.

That issue is perhaps be teased out using an example. Let’s assume that:

there are 5 different postulates, each of which satisfies the "reasonable alternative"

requirements;

the most likely of them (in a prediction sense) would produce a tax benefit of $100;

the least likely of them (in a prediction sense) would produce a tax benefit of $1,000; and

the others would produce tax benefits between $100 and $1,000.

Can the ATO issue a Part IVA determination on the basis of the postulate that produces the highest

tax benefit (even if the least likely)?

If so, how does the taxpayer discharge the onus of proving that an amended assessment giving effect

to the Part IVA determination is excessive?



These issues are not addressed in either the 2013 amendments or the EM. Moreover, the NTLG

Minutes do not provide any meaningful guidance as to the ATO views.

Rather, as will be seen, the answers depend on whether the courts adopt the replacement approach

or the qualification approach.

And as will also be seen, taxpayers will be at a significant tactical disadvantage if the courts adopt the

replacement approach.

Under the qualification approach

As discussed in section 3.2 above, one potential consequence of courts adopting the replacement

approach may be that where there are a number of alternative postulates that are reasonable, only

one of them can constitute a permissible counterfactual – being the one that is the next most likely of

those alternative postulates to happen absent the scheme. This echoes the existing s.177C case law

which very strongly suggested (although, it might be said, without conclusively determining the issue5)

that the counterfactual was the single most reliable prediction of what the relevant parties would have

done absent the scheme.

It would follow that any other less likely alternative postulate is incapable of qualifying as the


If so, under the qualification approach, a taxpayer can discharge the onus of proof by establishing that

the ATO asserted counterfactual is not, from among the reasonable alternative postulates, the one

that would be regarded as the next most likely to happen if the scheme were not implemented.

Under the replacement approach

As discussed in section 3.2 above, the consequences of courts adopting the replacement approach

include that the existing case law on the meaning of tax benefit would be rendered otiose. That is, the

task of arriving at a reconstruction counterfactual would involve a “clean slate” application of statutory

construction principles.

In that regard, primacy would be given to the text of the reconstruction limb.

It can be argued that, on its face, s.177CB(3) is capable of being satisfied by any number of

alternative postulates – so long as each of them satisfies the "reasonableness" threshold.

In this regard, it will be recalled that s.177CB(3) utilises the double indefinite article:

"A decision that a tax effect might reasonably be expected to have occurred if the scheme

had not been entered into or carried out must be based on a postulate that is a reasonable

alternative to entering into or carrying out the scheme." [Emphasis added]

Had Parliament intended that there be only one permissible counterfactual, it was open to it to utilise

the double definite article:

“… based on the postulate that is the reasonable alternative to entering into or carrying out

the scheme."

5 See the Full Federal Court decision in RCI at paragraph 138 and the AXA special leave decision



If multiple counterfactuals are permissible, then the ATO has a clear tactical advantage:

the ATO can identify a postulate that supports the highest tax benefit - and amend the

taxpayer’s assessment accordingly;

it is insufficient to discharge the onus of proof for the taxpayer to establish that a different

postulate (which produces no tax benefit or a smaller tax benefit) is more likely to have

occurred; and

rather, the taxpayer can only discharge the onus of proof by establishing to the court’s

satisfaction that the amended assessment is predicated on a postulate that does not satisfy the

s.177CB(3) reasonableness requirement. This may prove a considerable challenge for

taxpayers.

Can the ATO pick the alternative that produces the highest tax benefit? If so, the ATO would certainly

have a significant tactical advantage.

A number of barristers I have spoken with expect that the Federal Court would resist this outcome.

3.5.4 Statutory constraints on the reasonable alternative

The statutory directions in s.177CB(4) to have regard to/disregard certain matters are designed to:

turn the reconstruction limb from an “entirely unconstrained” inquiry into a more constrained

inquiry; and

remove Australian income tax considerations from the counterfactual identification task.

Accordingly, the amendments involve a simultaneous expansion and contraction of the range of

circumstances in which postulates may be counterfactuals.

This section focuses on these statutory constraints – and the extent to which they impede a postulate

being a permissible counterfactual.

In this regard, s.177CB(4) requires that “particular” (albeit not exclusive) regard is be had to:

the “substance” of the scheme; and

any “result or consequence” for the taxpayer that is or would be achieved by the scheme (other

than a result “in relation to” the operation of the Tax Acts).

Parliament’s choice to constrain the range of permissible counterfactuals by reference to these two

matters is interesting.

It may be (as discussed in section 3.5(b) above) that the test is intended to require that the postulate

be sufficiently commercially similar to the implemented scheme. Support for this interpretation can be

found in the 2013 EM which refers to a qualifying reasonable alternative achieving for the taxpayer

non-tax results and consequences that are “substantially the same … as those achieved by the

scheme”/“comparable to those achieved by the scheme itself”: see paragraphs 1.102 and 1.110.

However, a sufficient commercial similarity requirement does not appear on the face of s.177CB(4).



Rather, detailed attention must turn to the terms actually employed by Parliament – see sections 3.5.5

and 3.5.6 below.

Of course, the matters identified in s.177CB(4) - while very important in formulating a reconstruction

limb counterfactual - do not represent the universe of matters that can permissibly be considered.

Accordingly, it is always open to a court to conclude that a reconstruction limb counterfactual arises

even if either/both of the s.177CB(4) matters (if considered alone) indicate that the particular

alternative postulate is unreasonable.

3.5.5 “Substance”

A number of observations can be made about Parliament’s choice to constrain the range of

permissible counterfactuals by reference to the “substance” of the implemented scheme:

the “substance” of a scheme can be described as its commercial and practical effect – as

opposed to its legal form: see PS LA 2005/24 at paragraph 95;

however, substance - like reasonableness - has the appearance of objectivity but can be

remarkably difficult to pin down: the main issue is the depth of field that the observer chooses

to apply – that is, whether a deep or a shallow focus should be applied in determining the

substance of the scheme;

a key question is to what extent the legal mechanics should be respected in determining

substance;

for example, is the substance of a sale and lease back transaction a secured loan over the

relevant asset? Clearly there is a degree of commercial equivalence between these two

transactions – but there are also real commercial and practical differences between them (as

well as legal differences) which means that they are not perfectly fungible;

the scheme’s substance is also relevant to determining whether the requisite dominant purpose

is present: the s.177D(2)(b) matter is “the form and substance of the scheme”; and

there is an existing body of case law demonstrating the approach taken by courts in

determining what is meant by the “substance” of a scheme in the s.177D(2)(b) context.

It must be acknowledged that there are some differences between the s.177D(2) and the s.177CB(3)

inquiries. Nevertheless, given the substantial similarity of context, both refer to substance and both

are elements in Part IVA, it can reasonably be expected that courts will have regard to that case law

in determining whether a postulate satisfies the s.177CB(3) requirement.

If so, case law suggests that a narrow focus is to be applied for s.177D(2)(b) purposes. A narrow

focus highlights any differences in legal mechanics between scheme and the postulate – potentially

precluding the postulate from being a permissible counterfactual.

The decisions in Eastern Nitrogen and News Australia reveal a narrow focus approach which may

potentially be applied to the s.177CB(3) inquiry.



Eastern Nitrogen

The transaction considered in Eastern Nitrogen was a sale and lease-back of an ammonia plant.

If he had applied a wide focus, Carr J could conceivably have said that the substance of the scheme

was a secured asset financing.

However, Carr J applied a narrow focus in holding at paragraph 101 that:

“… [t]he form and substance were the one and the same. The transaction was not dressed

up as something which it was not. It was a sale and lease-back both legally and in

substance.”

If a court applied such a narrow focus to testing reconstruction counterfactuals for the sale and lease-

back implemented in Eastern Nitrogen, any alternative postulate would have different legal mechanics

and so would be expected to have a different substance to a sale and lease-back – in which case it

may well fail the reasonable alternative test.

News Australia

In News Australia, the target company bought back its shares from the taxpayer then, later the same

day, a related US company subscribed for exactly the same number of shares in the target.

The ATO argued that the buy-back element of the scheme was not in substance a share buy-back

because there was only a temporary reduction in the target’s capital, which was replenished late the

same day – being consistent with the substance of a transfer.

If it had applied a wide focus, the AAT could conceivably have said that the substance of the scheme

was a transfer of shares.

However, the AAT applied a narrow focus in holding that this part of the scheme was a share buy-

back in both form and substance - as the taxpayer was removed from the target’s share register and

its shares cancelled.

If a court applied such a narrow focus to testing reconstruction counterfactuals for the scheme

implemented in News Australia, any alternative postulate would have different legal mechanics and so

would be expected to have a different substance to the implemented scheme – in which case the

alternative postulate may well fail the reasonable alternative test.

3.5.6 “Result or consequence”

The term “result or consequence” is undefined and does not appear to have a settled case law

meaning.

It is often the case that taxpayers enter into the transaction that, in the circumstances, best balances

the competing commercial considerations. Given this, it may well be that any alternative postulate will

produce results and consequences that are necessarily sub-optimal compared to the transaction as

implemented, even disregarding Australian income tax.

For example, an alternative postulate may:



produce worse accounting outcomes than the transaction implemented;

generate a material amount of foreign tax compared with the transaction implemented; or

cause the taxpayer to lose the comfort obtained under a foreign tax ruling.

If so, there will be a point at which the relative detriments of the potential alternative postulate render

it unreasonable as an alternative - in which case the reconstruction limb cannot apply.

The facts in Noza illustrate this point perfectly. In that case, the taxpayer claimed deductions for

dividends on RPS that were classified as debt under Australia’s debt-equity tax rules. The ATO

advanced a counterfactual under which all the companies in the chain instead issued ordinary shares.

However, one of the offshore companies had already negotiated a tax ruling with US tax authorities

on the basis that the share issues would be debt for US tax purposes, and the ATO was not able to

identify any instrument that could successfully straddle the debt-equity divide in both countries, for

both tax and commercial purposes. The ATO advanced counterfactual would have rendered that

ruling inapplicable and so was held not to be reasonable because of this consequence.

Futuris

Moreover, what is carved out is (effectively) Australian income tax. This means that regard can

permissibly be had to domestic stamp duty costs.

For example, in Futuris, the taxpayer wanted to float a portion of its business and, in order to do so,

transferred a number of assets to other group companies, tidied up cross shareholdings and

capitalised some existing debts. These transactions had the effect of triggering capital gains tax,

deferred in some cases by rollovers, and invoking the value shifting rules.

The court rejected one possible counterfactual – that all of the assets would have been transferred to

a new float vehicle – on the basis that it would have triggered a significant stamp duty liability. It may

well be that under the new Part IVA the ATO advanced counterfactual would be considered

reasonable because of this adverse consequence.

3.5.7 Disregarding Australian income tax results

The effect of the s.177CB(4)(b) statutory direction is that any result in relation to the operation of the

Act that would be achieved under a particular alternative postulate for any person must be

disregarded in determining whether the alternative postulate is reasonable.

The reason for the introduction of s.177CB(4)(b) is well documented: a desire, following the decisions

in Futuris and RCI, that the prospect of a large Australian income tax liability not be a barrier to

alternative postulates being permissible counterfactuals.

Some have argued that disregarding Australian income tax consequences does not require other

results associated with those consequences to be disregarded.

For example, the argument would be that if a pre-sale dividend were not paid so that a larger amount

of tax were paid on the sale, the vendor would have correspondingly less cash proceeds from the sale

– and this reduced cash position is a “result” to which particular regard can permissibly be had in



determining whether a sale alone (ie, absent the pre-sale dividend) is a reasonable alternative

postulate.

This argument is not particularly convincing. Apart from being the very thing to which the amendment

was directed, what is excluded from particular regard is “a result in relation to the operation of the [Tax

Acts]”. And one can easily imagine a court holding that a reduction of cash as a result of paying tax

fairly and squarely answers that description.

3.6 The statutory “choice principle” provisions

Many common transactions involve statutory “choices”. For example:

related companies transfer an asset between themselves and choose Subdivision 126-B roll

over of the capital gain; or

a wholly-owned company is interposed between a parent and subsidiary and the parent

chooses Subdivision 124-G roll over of the capital gain on disposal of shares in the subsidiary.

A tax benefit prima facie arising under either the annihilation limb or the reconstruction limb

“attributable” to such a choice is potentially disregarded under either:

the primary statutory “choice principle” provision in s.177C(2); or

the secondary statutory “choice principle” provision in s.177C(2A).

If so, no tax benefit arises and it follows that Part IVA is incapable of applying in the circumstances.

However, despite their importance, there is surprisingly little guidance on these provisions.

3.7 The primary statutory choice principle

The primary statutory “choice principle” provision applies to all of the different types of tax benefit (ie,

tax benefits in relation to income, deductions, capital losses and FITOs) other than withholding tax

benefits – an apparent oversight in the 2013 amendments.

More specifically, s.177C(2) provides that no qualifying tax benefit arises if three cumulative

requirements are satisfied:

Requirement #1: the qualifying benefit is “attributable to” the making by any person of an

agreement, choice, declaration, agreement, election, selection or choice, the giving of a notice

or the exercise of an option expressly provided for by the Tax Acts;

(there are of course interpretational issues around when the tax benefit is or is not attributable

to a statutory choice – although s.177C(3) provides that a tax benefit is taken to be “attributable

to” a statutory choice where, if the statutory choice had not been made, the tax benefit would

not have arisen – ie, a but/for test)



Requirement #2: the tax benefit is not attributable to the making of a choice under Subdivisions

126-B, 170-B (which are covered by the secondary choice principle) or 960-D (no choice

principle applies); and

Requirement #3: the scheme was not entered into or carried out by any person for the

dominant purpose of creating any circumstance or state of affairs the existence of which is

necessary to enable the statutory choice to be made.

Example: Subdivision 124-G roll over

Take the common example of a new company being interposed between existing companies in a

holding structure. The top company would otherwise make a capital gain on the interposition, but that

capital gain is rolled over under Subdivision 124-G.

The critical issue is whether it can properly be said that the relevant scheme was entered into or

carried out by any person for the dominant purpose of creating any circumstance or state of affairs the

existence of which is necessary to enable the Subdivision 124-G roll over relief to be chosen.

Whether the relevant scheme is broad or narrow will in turn be critical to this issue.

For example, the ATO has indicated in TR 97/18 that a shelf company is a pre-requisite to Subdivision

124-G roll-over relief (at least in the consolidated group context).

Experience indicates that the ATO will tolerate some existing activities in the shelf company provided

they are not of a trading nature.

The correctness of the ATO position is debatable. But compliance with this ATO imposed

requirement means that the availability of Subdivision 124-G rollover almost always requires either a

newly minted company or a shelf company. This in turn requires preparatory steps – either the

establishment or purchase of the relevant company.

Are these preparatory steps part of the relevant scheme? If so, the primary choice principle may well

be precluded.

The breadth of the definition of “scheme” clearly means that there is flexibility in the identification of

the relevant scheme in any particular situation.

However, compliance with ATO imposed requirements should not preclude Subdivision 124-G relief

because:

the ATO has ruled favourably a number of times on the availability of Subdivision 124-G roll-

over relief - and has not sought to apply Part IVA - in circumstances where an entity is brought

into existence or acquired in order to perform the role of interposed company; and

in TR 2005/19, the ATO expressed the view that preparatory steps precluded the primary

statutory choice principle from applying in the context of Subdivision 124-M roll-over relief.

However, the steps considered in that ruling were much more elaborate than merely

establishing/purchasing the interposed company.



In light of the above, it could reasonably be expected that the ATO would only seek to preclude the

application of the primary statutory choice principle to Subdivision 124-G roll over relief if “something

more” than mere acquisition/creation of the interposed company was present.

A public statement from the ATO to this effect would be welcomed.

Ashwick – loss transfer agreements

In Ashwick, the taxpayers claimed tax losses that had been transferred to them by other group

companies.

At first instance, at paragraph 237, the primary judge held that the primary statutory choice principle

applied. That is, no tax benefit arose because the deduction arose from the making of a choice to

transfer losses – and the scheme was not entered into with a purpose of enabling those agreements

to be made.

(The full Federal Court approached the matter somewhat differently, relying instead on a finding that

the scheme was not carried out with the necessary purpose of securing the tax benefit.)

Noza – MEC group formation choice

In Noza, the taxpayer bravely asserted that s.25-90 deductions arising to the taxpayer (as the

provisional head company of a MEC group) were “attributable to” the election to form a MEC group.

It is true that absent a MEC group the outgoings on the RPS that generated the s.25-90 deductions

would not have been deductible to Noza – rather, they would have been deductible to another group

company.

However, unsurprisingly, the Court held that these deductions arose from matters insufficiently

connected with the choice to form a MEC group – ie, the arrangements under which the relevant RPS

were issued.

A similar approach was taken in Walters v Commissioner of Taxation [2007] FCA 1270.

ATO views on the tax consolidation choice

A number of tax benefits arise following formation of a tax consolidated group – such as non-inclusion

of income in subsidiary member, deductions for the head company rather than subsidiary members,

tax cost step ups, utilisation of transferred losses etc.

The ATO’s consolidation reference manual considers the application of the primary statutory choice

provision in relation to a choice to consolidate.

The ATO view appears to be that, whenever any preliminary steps have been undertaken in order to

facilitate formation of the consolidated group, it would readily be concluded that the purpose of those

preliminary steps was to put the group into a position to make the tax consolidation choice – in which

case the primary statutory choice provision cannot apply.

Despite a number of Part IVA cases dealing with tax benefits arising from formation of a tax

consolidated group (eg, the debt creation and associated pumping up of ACA in Noza), has never

directly been raised.



But, as Tony Slater QC put it in his 2004 paper “Part IVA in Wonderland”:

“Absent the extraordinary advantages which flow from unlocking losses or reinflating cost

bases, the dominant purpose of the parties to a choice to consolidate and the steps taken to

make the choice possible will usually be to obtain the efficiencies resulting from consolidation

– the very advantages the Review of Business Taxation identified and recommended should

be facilitated.

It would be an excessively narrow view of the legislation, and an excessively wide reading of

the reasons in Spotless Services, to say that the efficiency benefits obtained were a mere

consequence of the tax benefits, so that a dominant purpose of obtaining the efficiency

benefit was necessarily also a dominant purpose of obtaining the tax benefits.”6

Although this point was made in the context of the purpose requirement, it should apply equally to the

primary statutory choice principle.

3.8 The secondary statutory choice principle

The secondary statutory choice principle is confined to benefits “attributable to” either:

a choice made under Subdivision 126-B (in relation to the rollover of certain capital gains on

transactions between members of a wholly owned but not tax consolidated group); or

an agreement made under Subdivision 170-B (in relation to transfers of net capital losses within

a wholly owned group that is not a tax consolidated group),

but only in circumstances where the scheme consists solely of the making of the agreement or

election.

As can be seen, the ambit of the relevant scheme is very important.

(Interestingly, and apparently by design, the statutory choice principle expressly does not apply to a

functional currency choice made under Subdivision 960-D.)

Example: Subdivision 126-B rollover

Subdivision 126-B rollover relief is commonly used.

This is because many restructures involve the movement of assets (by transfer or creation) from one

entity to another within a wholly owned group in circumstances where the participants are not

members of a wholly-owned group (eg, because one or more of them is a foreign resident).

Where that transfer would otherwise give rise to a capital gain, that capital gain can be rolled over

under Subdivision 126-B, subject to certain restrictions on the residence of the participants and the

type of CGT asset.

Importantly, a modified version of Subdivision 126-B also applies for CFC purposes: s.419.

6



Again, it may be that there were a number of preparatory steps which facilitate the relevant

transfer/creation. And so, again, whether the relevant scheme is broad or narrow will be critical to the

availability of the secondary statutory choice provision.

In this regard, the explanatory memorandum to the bill that introduced s.177C(2A) states that Part IVA

should not be applied to “normal” or “ordinary” roll over situations. There is no guidance as to what

those concepts mean. Moreover, the statutory interpretation issue about the relevance of explanatory

memoranda is reprised.

What is clear is that the secondary choice principle should apply where there is a transfer between 2

qualifying companies where the relevant asset was already held by the transferor and the companies

were already in the requisite relationship. However, the existence of any preparatory step (eg, a

preliminary asset transfer or creating the requisite relationship between the relevant companies)

raises the prospect that the secondary statutory choice provision does not apply to a Subdivision 126-

B roll over. However, it would be disappointing if the ATO took such a narrow approach.

Again, public ATO guidance on this issue would be welcomed.

BAT

In BAT, the taxpayer was about to be merged into the Rothmans corporate group - which had

available capital losses. The competition regulator required that certain of BAT’s assets be sold.

Those assets had latent capital gains.

BAT’s management deliberately sequenced events so that BAT became part of the Rothmans group,

BAT then transferred the assets to a Rothmans group company (electing Subdivision 126-B roll over

relief for the resulting gain), then the recipient group company sold the assets to an external buyer,

triggering the capital gain, which was then grouped with the Rothmans group losses. On this

sequencing, the disposal was effectively tax free – whereas a direct sale to the external buyer by BAT

pre-merger would have triggered a large taxable capital gain for BAT.

Part of BAT’s argument was that the scheme for Part IVA purposes consisted just of making the

Subdivision 126-B election to roll-over the capital gain on the assets – and so the secondary statutory

choice provision applied.

BAT lost this argument at first instance on the basis that its management was alive to the sequencing

issues for a long period of time:

“… the planning for and implementation of the scheme identified by the Commissioner and

described above, in relation to the making of the choice by the Taxpayer … commenced many

months before the actual disposal by the Taxpayer of the [assets] on 3 September 1999 and

continued for some time after that disposal. Thus, the scheme consisted of much more than the

mere making of the rollover choice or election.”

Although the precise reasoning is elusive, the conclusion that the secondary statutory choice principle

did not apply in the circumstances was upheld on appeal to the Full Federal Court.



3.9 Where are we on tax benefit?

The 2013 amendments have replaced concepts that were tolerably clear – although not to the ATO’s

liking – with a suite of new concepts that raise a number of statutory construction points, including:

Will the courts adopt the qualification approach or the replacement approach?

This will likely be relevant to whether there can be more than one counterfactual and how

taxpayers can discharge the onus of proof under the reconstruction counterfactual.

It is also relevant to whether certainty of alternative outcome is the gateway to the annihilation

limb.

However, the precise ambit of the qualification approach is still unclear.

How narrow or broad courts will draw their focus in determining the “substance” of the scheme

under the reconstruction counterfactual.

Whether reasonableness of a particular alternative under the reconstruction counterfactual is

determined by its plausibility as an alternative or its degree of commercial equivalence to the

implemented scheme.

As can be seen, a fair degree of judicial clarification will be required before the meaning of the 2013

amendments can be regarded as settled.

Finally, it is important to keep the statutory choice principle provisions in mind.



4 Purpose

The least predictable element in the operation of Part IVA is almost always determining the sole or

dominant purpose of one or more persons who entered into or carried out the scheme.

But the ATO has what can only be described as a mixed track record before the courts on the

purpose requirement.

The assessment of purpose is ostensibly unaffected by the 2013 amendments. Accordingly, all the

existing case law on Part IVA remains relevant to determining whether the requisite dominant purpose

is present.

4.1 “Objective” purpose

The objective nature of the purpose inquiry can often helpful to taxpayers – although it can work

against them in some circumstances.

4.1.1 Preliminary

Part IVA applies where “it would be concluded” that a scheme participant had the requisite dominant

purpose, having regard to the s.177D(2) matters: s.177D(1).

There is magic in the words: “it would be concluded”.

They import an objective test: Spotless Services, Consolidated Press Holdings, Hart.

That is, what was actually going on in the head of scheme participants is irrelevant to determining

whether the requisite dominant purpose is present.

Rather, the question posed by s.177D(1) can perhaps be restated this way:

In light of objective facts, would an independent and reasonable bystander conclude that a

scheme participant had the requisite dominant purpose having regard to the s.177D(2)

matters?

4.1.2 The “why” is determined by the “how”

Interestingly, it is a deliberate design feature of Part IVA that the s.177D(2) factors are the prism

through which the presence or absence of the requisite dominant purpose is determined.

Conceptually, an inquiry as to purpose asks why the parties entered into/carried out the scheme.

However, the s.177D(2) factors focus exclusively on "how" the scheme was implemented.



As Graeme Cooper put it7:

“… the relevant questions are, ‘what was done, and how was it done?’; not why was it done?’

So, once the facts have been adduced and proven to show what was done, the only remaining

question is, just how artificial were the steps involved? Was it easy to do or did it require

contrivance and artifice. Nothing else matters. In particular any inquiry into why the actor

behaved as she did – ie, whether [the] actor executed the scheme with a particular outcome in

mind – misses the point.”

This statement is supported by a long line of case law. Although, it must be said, judges do on

occasion often slip dangerously close to taking into account subjective intentions.

It is also the ATO view as expressed in PS LA 2005/24 and in the NTLG Minutes.

This view also supports the proposition that an examination of how the transaction was implemented

reveals why the transaction was implemented – without the need for regard to the counterfactual.

This approach makes sense given the new mantra that purpose is determined before tax benefit.

However, it does not sit well with certain case law observations that consideration of the s 177D(2)

factors involves comparing the scheme with the counterfactual: see para 92 and following of PS LA

2005/24 and the decision of Gageler J in Mills. See also paragraphs 1.24 and 1.25 of the 2013 EM.

4.1.3 Changes of plans

An illustration of the point made immediately above can be found in relation to changes of plans.

Real life is replete with changes of plans – as plans for a particular transaction are refined through an

evolution process.

For example, if a taxpayer proposed entering into transaction A, then subsequent due diligence

established that transaction A would have given rise to a particular unexpected adverse Australian tax

outcome. The taxpayer then either modifies or abandons transaction A and instead implements

transaction B in circumstances where transaction B gives rise to a lower tax cost than transaction A.

This happens all the time and taxpayers live in fear of the ATO discovering the "smoking gun" email

on the assumption that it will render the application of Part IVA a "laydown misère" because it

establishes both the tax benefit and purpose elements.

This issue was addressed in some detail in the NTLG Minutes. Interestingly, the ATO approach

attaches very little significance to the impact of changes of plans on the relevant transaction, the

taxpayer's objective purpose and the counterfactual.

Rather, the emphatic ATO view is that merely changing schemes to produce a more advantageous

tax result will not normally activate Part IVA - on the basis that the taxpayer's subjective purpose is

not relevant to the purpose requirement.

7 Graeme Cooper, Part IVA – with Small Business Slant, The Tax Institute 47th South Australian Convention



However, the ATO cautions that changing schemes may introduce elements of complexity and

contrivance which can activate s 177D(2) factors. Presumably an example would be if transaction B

involved inserting additional steps into transaction A for no readily identifiable commercial reason.

In terms of the impact on the other requirements of Part IVA:

Scheme requirement: the ATO view is that the relevant scheme is confined to just transaction B

as actually implemented. Restated, the ATO does not consider the relevant scheme to

comprise all of transaction A, obtaining tax advice, changing plans to transaction B and

implementing transaction B. It follows that any artificiality or contrivance in changing from

transaction A to transaction B is not, of itself, relevant to the purpose element.

Tax benefit requirement: As a taxpayer's subjective purpose is, strictly speaking, irrelevant to

the formulation of the objectively determined counterfactual, it will not automatically follow that

transaction A is a permissible counterfactual. However, it would be difficult for ATO officers

(and judges) to be so disciplined as to completely disregard transaction A in formulating the

counterfactual for transaction B – and so, as a practical matter, it will still have some relevance

to the counterfactual analysis.

So, the fact that a taxpayer has changed plans with the (subjective) purpose of producing a more

advantageous income tax result is not fatal from a Part IVA perspective – but obviously caution

should still be exercised.

4.2 The commercial/tax purpose interplay

A court must resolve the purpose question having regard to the matters in s.177D(2).

Typically, at least one matter will suggest an element of contrivance or artificiality. This suggests - on

the approach mandated by s.177D - that tax considerations had some part to play in the entering into

or carrying out at least some part of the scheme.

But courts will typically consider whether the contrivance/artificiality is explicable by non-tax

commercial considerations. The approach taken by the Full Federal Court in RCI is a good example

of this process. There, the sheer size of the dividend may have inclined towards a conclusion that the

requisite dominant purpose was present – however, the court accepted that this feature was

explicable by the non-Australian tax outcomes achieved by payment of the dividend (eg, the ability for

the Australian taxpayer group to recognise accounting future income tax benefits in respect of losses,

the increase in US tax deductions and so on).

In this regard, it is now well established that it is no answer to a Part IVA determination for a taxpayer

to prove that the transaction was undertaken with the dominant purpose of obtaining a commercial

gain.

That is, there is no dichotomy between a commercial transaction and a transaction to which Part IVA

applies.



So, in Spotless, the High Court held that:

“A particular course of action may be, to use a phrase found in the Full Court judgments, both

"tax driven" and bear the character of a rational commercial decision. The presence of the

latter characteristic does not determine the answer to the question whether, within the

meaning of Pt IVA, a person entered into or carried out a "scheme" for the "dominant

purpose" of enabling the taxpayer to obtain a "tax benefit".

However, it is very difficult to state with any clarity the precise dividing line between circumstances in

which:

on the one hand, the purpose of obtaining a tax benefit is subservient to a commercial purpose:

that is, the taxpayer wins because a court considers that an identified commercial purpose is

the dominant purpose – albeit that a tax benefit is secured: eg, News Australia, Noza; and

on the other hand, the overarching commercial purpose is subservient to the purpose of

obtaining a tax benefit: that is, the ATO wins because a purpose of securing a tax benefit on

the one hand and a purpose of securing an identified commercial gain on the other hand

represent a false dichotomy: eg, Spotless, Citigroup.

This is a perennial issue.

It is worth revisiting certain of the cases that have touched on this issue.

Spotless

In Spotless, the High Court held that the requisite dominant purpose was present in the

circumstances largely because the quantum of Cook Island sourced interest exceeded Australian

sourced interest only on an after tax basis (ie, in relative terms the scheme was cash negative on a

pre-tax basis).

Citigroup

Citigroup further highlights the significance from a Part IVA perspective of transactions being cash

positive on a pre-tax basis.

In Citigroup the taxpayer desired higher visibility in a Hong Kong bond market and embarked upon a

coupon-stripping transaction as the means of doing so. In the process, it raised about USD50m from

external parties.

The effect of the coupon strip was to trigger a liability to Hong Kong tax, the amount of tax being

based on the gross proceeds from the sale of the coupons and being payable in the year when the

strip occurred. In Australia, however, the amount of income would be spread over several years,

leading to a surplus foreign tax credit in the first year, which could be applied against the tax due on

other lightly-taxed foreign source income.

The core of the judgment appears to be the judge’s conclusion that securing the tax offset in Australia

was critical to making a profit on the transaction. The judge’s analysis was that:

the transaction was, at best, slightly profitable before tax;



loss-making after the Hong Kong tax was subtracted (but before the Australian tax offset was

factored in); and

slightly profitable again once the Australian tax offset was considered.

As the judge put it, “the post-tax position is negative or in loss … but applying foreign tax credit relief

in both situations …, the tables both disclose post-tax positive or profit situations.”

Noza

The taxpayer in Noza successfully relied on the timing of the various events to diminish the inference

that its dominant purpose was to avoid tax. The taxpayer’s evidence was that it had finalised the

relevant share issues and dividend flows at a point in time, and then happened to uncover a new and

significant accounting difficulty arising from US GAAP with respect to foreign exchange gains and loss

rules. And so, it was in order to solve an accounting problem that the then modified its plans in a way

that made the foreign exchange accounting issues disappear.

As it happened, those steps also triggered the circumstance that a large tax deduction arose in

Australia. But the Court was clearly not satisfied that the Australian tax effect had been deliberately

pursued:

“When then it is observed (1) that the transactions had been partly effected (2) a problem

emerged that required solution and (3) the solution chosen (which it was thought had very

favourable taxation consequences) was chosen to avoid disturbance of the arrangements that

had already been made and upon which the participants had relied in securing a favourable

Private Letter Ruling from the [US tax authorities], the conclusion that [Part IVA] is not engaged

must follow.”

4.3 Where tax benefit arises under a reconstruction provision

There are many “integrity” rules in the primary provisions (ie, outside Part IVA) which reconstruct

actual transactions.

Reconstruction provisions include:

market value substitution rules in the CGT and depreciation provisions;

the value shifting provisions;

the off-market buy back rules which recharacterise the purchase price;

s.47A which can recharacterise as a dividend certain transactions which move value out of a

CFC; and

s.45B which can recharacterise capital amounts as a dividend

Often reconstruction provisions are activated.

Typically these provisions apply in a way that is unfavourable to taxpayers.



But not always. Sometimes they operate beneficially for taxpayers. And if so, can part IVA apply to

reconstruct for tax purposes the (already reconstructed) tax outcome?

In short, it can.

In Futuris, as a result of a series of transactions, the taxpayer received an $82.9m step up in the cost

base of a subsidiary by (automatic) operation of the then value shifting rules – and so its capital gain

on sale of that subsidiary was $82.9m lower than it would otherwise have been.

The ATO asserted that the taxpayer obtained an equivalent tax benefit.

The taxpayer argued that it was nonsensical for a series of transactions which enlivened an anti-

avoidance rule to be undertaken for the sole or dominant purpose of securing a tax benefit. After all, it

does seem incongruous to suggest that, when a taxpayer succumbs to the effects of an integrity rule,

its intention is to gain a tax advantage.

However, the court held that the requisite dominant purpose was present because the transactions

were undertaken in order to activate the value shifting rules and reduce the subsequent gain on sale.

4.4 Avoiding unintended outcomes

Very often additional steps may be taken in order to ensure that inappropriate and unintended

outcomes do not arise under the primary taxing provisions.

But does this (subjective) purpose preclude the requisite dominant purpose being present?

Clearly the ATO thinks not: the approach revealed in the NTLG Minutes is that there is no "get out of

jail free" card if a taxpayer engages in an artificial or contrived scheme in order to avoid an unintended

or capricious outcome produced by the primary taxing provisions.

Further, the ATO position is that, where the elements of Part IVA are present, it does not have an

overarching discretion as to whether or not to apply Part IVA.

So, if a taxpayer takes steps to "work around" an outcome that is "undesirable or unintended", the

ATO will just mechanically apply the s 177D(2) factors.

4.5 Abuse is not a cumulative requirement

This issue is unhelpful to taxpayers.

Overview

General anti-avoidance rules in most common law jurisdictions are (very deliberately) only activated if

there is intentional abuse of tax policy. That is, abuse is a cumulative requirement for these rules.

However, abuse of tax policy is not a cumulative requirement of Part IVA.

Moreover, the ATO has indicated that it is not inclined to apply Part IVA in a more lenient way if tax

abuse is absent.



Example: pre-sale dividends

A more detailed analysis of a pre-sale dividend fact pattern is set out in section 5 below.

4.6 Conclusion

The purpose requirement is untouched by the 2013 amendments.

Accordingly, all the existing case law on Part IVA remains relevant to determining whether the

requisite dominant purpose is present.



5 Example #1: Pre-sale dividend

5.1 The pre-sale dividend fact pattern

5.1.1 The (bare bones) fact pattern

The subject fact pattern is as follows:

An Australian resident company (Parent) holds more than 10% of the issued shares in a

foreign resident company (Sub)

Parent has a cost base of $10 in its Sub shares

Sub pays a $40 dividend to Parent (Dividend)

the Dividend is s.23AJ (soon to be s.768-5) NANE income of Parent

after the Dividend is paid, Parent sells its shares in Sub to a purchaser for $60 (Purchaser)

(Sale)

Parent makes a $50 taxable capital gain from the Sale (being $60 - $10)

Parent’s capital gain is not disregarded to any extent by operation of Subdivision 768-G (ie, a

“worst case” fact pattern for Parent)

If Parent sold Sub absent the Dividend, Sub would have had an additional $40 of assets and so

it could be expected that Purchaser would have paid $100 to acquire the Sub shares – in which

case Parent would have made a $90 taxable capital gain

The slides that accompany this paper contain a diagrammatic representation of the fact pattern

5.1.2 Potential complicating matters

Of course real life fact patterns are never as simple as the subject fact pattern.

Many additional matters would be expected to impact the Part IVA analysis.

Examples of such additional matters include:

Sub’s dividend history

The time gap between the Dividend and the Sale

Whether the Sale and the Dividend occur under a single plan

Whether Sub revalues assets in order to be able to pay the Dividend



Whether some or all of the Dividend is left outstanding as a debt owing from Sub to Parent, or

is satisfied by Sub issuing Parent a promissory note (Unpaid Dividend Debt) – and, if so, how

Sub funds satisfaction of the Unpaid Dividend Debt

Whether Sub borrowed externally to fund the Dividend

Whether Purchaser is related to Parent and Sub (ie, the sale is part of a group restructure)

5.2 Why is Part IVA even relevant?

It is a long-standing structural feature of the Australian income tax system that Australian corporates

can repatriate dividends from foreign companies tax-free under s.23AJ. Up until 2004, capital gains

on sale of shares in foreign companies were fully taxable. Since then, capital gains may be reduced,

or even completely disregarded under Subdivision 768-G.

However, Subdivision 768-G deliberately operates on a more constrained basis than s.23AJ and so

there are still instances where a pre-sale dividend may be tax free but the sale of shares is taxable to

some extent.

Accordingly, this structural feature of the Australian income tax system still creates an incentive for

pre-sale dividends.

Where a taxpayer avails itself of a structural feature of the tax system, there is no abuse of the tax

system.

Moreover, it is difficult to discern any coherent policy concern about pre-sale dividends that are paid

out of profits (whether realised or unrealised) that accrued on Parent’s “watch”.

And of course, there are already existing specific s.177E dividend stripping provisions directed

towards unacceptable pre-sale dividends paid out of profits that accrued before the Australian

parent’s “watch”.

However, frustratingly, while abuse is a key element of the general anti-avoidance rules in many

overseas jurisdictions, it is not a cumulative requirement of Part IVA.

Rather, Part IVA is to be applied mechanically, without regard to the presence or absence of abuse.

5.3 What features will interest the ATO?

This section considers whether a pre-sale dividend will interest the ATO from a Part IVA perspective.

This is not a technical Part IVA question. Nevertheless, it is a question worth asking because it goes

to the risk profile of the transaction. The answer can help determine the appropriate risk management

approach for the transaction.

Some insights into the likely ATO approach can be derived from the RCI litigation, as well as the

NTLG Minutes.



Clearly, the pre-sale dividend in RCI attracted ATO ire.

Moreover, the ATO considered a number of pre-sale examples in the NTLG Minutes. The examples

dealt with a number of variables, including:

sales as part of a group restructure as opposed to a sale to an external purchaser; and

dividends paid out of realised as opposed to unrealised profits.

The ATO clearly considers that pre-sale dividends continue to be fertile ground for the application of

Part IVA.

Unfortunately, the ATO did not provide any guidance in the NTLG Minutes as to what particular

features they consider incline for or against activation of the s.177D(2) factors.

Instead, the (rather unhelpful) ATO view is that distinctions between group restructures and external

sales and between realised and unrealised profits are not "particularly decisive".

Against that background, it may well be that the simple fact pattern does not overly interest the ATO.

After all, companies typically pay dividends regularly to flush out recurrent profits, and those profits

typically represent only a modest proportion of the company’s market value and the timing of share

sales is typically impacted by commercial considerations rather than the timing of dividends.

However, matters that are likely to pique the ATO’s interest from a Part IVA perspective include the

following:

Parent can control the quantum and timing of Sub dividends

the quantum of the Dividend is unusual by reference to Sub’s dividend history (eg, RCI)

the timing of the Dividend is unusual by reference to Sub’s dividend history

the Dividend and the Sale occur close together

the Dividend would not occur without the Sale – ie, both take place under a single pre-ordained

plan

the Dividend gives rise to Unpaid Dividend Debt (eg, RCI)

accounting revaluations are required in order to create the profits (eg, RCI)

5.4 Scheme

The scheme could potentially encompass:

the Dividend, any preparatory steps and the funding mechanism (Narrower Scheme); or

the narrower scheme together with the Sale (Broader Scheme).

The ATO ran both schemes as alternatives in RCI.



The precise ambit of the scheme is most relevant to the tax benefit analysis below.

5.5 Tax benefit

The advent of the 2013 amendments means that generally different tax benefit considerations apply

from those ventilated in RCI.

In the circumstances, a finding of tax benefit hinges on Parent making a smaller capital gain than the

capital gain it would make:

if the scheme were excised under the annihilation limb; or

applying a reasonable alternative postulate under the reconstruction limb.

5.5.1 The annihilation limb

The s.177D(1) inquiry is whether the taxpayer obtained a tax benefit in connection with the scheme.

Therefore, the tax benefit need not arise under the scheme.

Therefore it is not necessary that the relevant scheme include the Sale. And so even the narrower

scheme is capable of generating a tax benefit.

As will be recalled, the annihilation limb operates by excising the relevant scheme from the other

events or circumstances that actually happened (other than those that form part of the scheme).

In summary, the annihilation limb more readily applies to the narrower scheme - but does not produce

a tax benefit.

Narrower scheme

The annihilation limb will excise the narrower scheme (ie, the Dividend, any preparatory steps and the

funding mechanism) from the “other events or circumstances that actually happened”.

There is perhaps a question as to whether there is any limit on the events/circumstances that are

relevant for these purposes. For example, is there any time limit or does a sale 10 years after a

dividend is paid still constitute relevant events/circumstances in relation to the dividend?

But that issue aside, removing the Dividend would be expected to produce an alternative postulate

comprising the Sale absent the Dividend.

However, importantly, it does not follow that a tax benefit arises. This is because the annihilation limb

is confined to excising the scheme – and does not permit any reconstruction of events.

Therefore, there is no ability to reconstruct the Sale price. It remains $60. And so Parent made a $50

capital gain under the transaction as implemented and would also make a $50 capital gain when the

annihilation limb is applied to the narrower scheme.

It follows that no tax benefit is revealed by applying the annihilation limb to the narrower scheme.



Broader scheme

The broader scheme includes the Sale. If the Sale is excised under the annihilation limb, no CGT

event happens to the Parent and it makes no capital gain.

So, Parent made a $50 capital gain under the transaction as implemented and would make no capital

gain when the annihilation limb is applied to the broader scheme.

It follows that no tax benefit is revealed by applying the annihilation limb to the broader scheme.

5.5.2 The reconstruction limb

As will be recalled, a tax benefit arises under the reconstruction limb if there is a reasonable

alternative to the implemented scheme, having particular regard to/disregarding the matters identified

in s.177CB(3) and (4).

In RCI, the Full Federal Court held that the tax benefit asserted by the ATO did not arise because a

sale without the pre-sale dividend would have generated Australian tax equal to a demonstrably

unreasonable 16% of the market capitalisation of the James Hardie group. Accordingly, it was not

what might reasonably be expected to have happened absent the scheme – and so was not the


This outcome cannot be replicated under the reconstruction limb because Australian income tax

issues must be disregarded.

Substance and result/consequence of the scheme for Parent

As will be recalled, particular regard must be had to the substance of the scheme and any result or

consequence of the scheme for the taxpayer.

No dividend alternative

It may well be that a court applies a narrow focus approach and holds that the substance of the

narrower scheme (ie, the Dividend) is a dividend – and that an alternative that does not involve a

dividend has such a different substance from the scheme that it cannot be regarded as a reasonable

alternative to the narrower scheme.

Similarly, on the broader scheme, the Sale without an antecedent dividend may have a different

substance, rendering this alternative postulate unreasonable (whatever the precise meaning of

reasonableness will be in this context).

Smaller dividend alternative

But what about an alternative comprising payment of a smaller dividend than the one actually paid?

For example, if the subsidiary in RCI had only paid a dividend equal to the $20m cash component of

the $318m dividend.

Does a smaller dividend quantum mean that the alternative postulate has a different substance from

the implemented scheme? Maybe not.



And on one view it produces the same results/consequences as the larger dividend actually paid.

However, on another view, if the quantum difference is substantial, the results/consequences may

well be regarded as sufficiently different.

For example, a $20m dividend would not have achieved a number of the important outcomes

identified by the taxpayer at paragraph 159 of RCI. In particular, it would not have allowed the

Australian group to generate significant assessable income and to preserve the substantial

accounting FITB. (Nor would it have reduced US taxable income through the introduction of debt in

the US - but this is an outcome for the US group rather than the taxpayer.)

At some point, these differences will cause the alternative postulate to be unreasonable – whether

reasonableness is properly construed as importing a plausibility or sufficient similarity requirement.

Moreover, it will be recalled that there is an issue as to which of the qualification approach or the

replacement approach courts will adopt. If it is the qualification approach, it would also be necessary

in order to be a permissible counterfactual that the alternative postulate be the most likely thing that

the taxpayer would have done if the scheme were not implemented. A smaller dividend may not

answer that description.

Nevertheless, in the interests of a more fulsome discussion, the balance of this section proceeds on

the basis that the reconstruction limb produces a counterfactual under which either a smaller dividend

is paid or no dividend is paid.

On that basis, a tax benefit arises to Parent in the form of the difference between the capital gain

arising from the Sale and the capital gain arising under the counterfactual.

It is then necessary to consider whether the requisite dominant purpose is present.

5.6 Purpose

An assessment of purpose in light of the s.177D(2) matters is impacted by the objective facts.

Accordingly, the potential impact of a number of additional matters beyond the bare bones fact pattern

are discussed below.

Notably, the RCI decision on the purpose element of Part IVA is unaffected by the 2013 amendments.

5.6.1 The s.177D(2) matters

It is necessary to consider the s.177D(2) matters in turn.

Matter #1: manner in which the scheme was entered into/carried out

There is nothing in the bare bones facts that suggests that this matter inclines either for or against the

requisite dominant purpose being present.

The main ATO contention regarding this matter in RCI was that, in order to pay the $318m dividend, it

was necessary for the assets of the foreign subsidiary to be revalued. This, the ATO submitted,

indicated an objective purpose of diminishing the capital gain on sale of the foreign subsidiary.



However, the Full Federal Court dismissed this contention on two bases:

first, at the time of the dividend, the project that led to the share sale was “not even on the

starting blocks”; and

secondly, in any case, the sale of the relevant shares (which occurred 7 months after the

dividend) was not a matter for the board of the foreign subsidiary: see paragraph 161.

An important takeaway from RCI is that the prospects of Parent’s success are increased dramatically

if it can be established either that a decision to sell had not been made at the time of the Dividend or

that the Dividend would have been paid regardless of whether the Sale was pursued.

But a note of caution: where Parent controls Subsidiary’s dividend policy, there may be danger in

relying on the Full Federal Court’s respect for the corporate veil alone.

Matter #2: form and substance of the scheme

The Full Federal Court in RCI applied a relatively narrow focus to determining the substance of the

scheme.

They held that the form and substance were the same: a significant repatriation of capital.

The Full Federal Court chose not to address the point raised by Stone J at first instance that only

$20m of the $318m dividend was paid in cash.

The repatriated profits were unrealised capital profits – but that was entirely permissible and appeared

to be of no significance for the Full Federal Court: see paragraph 165.

There is nothing in the bare bones fact pattern that inclines towards the requisite dominant purpose

being present.

Moreover, given the approach taken by the Full Federal Court in RCI, it is difficult to readily think of

additional facts that would produce a different result in relation to this matter.

Interestingly, this funding aspect of a pre-sale dividend was not explored in the examples considered

in the NTLG Minutes.

Matter #3: timing

The closer together the Sale and the Dividend occur, the more this matter might potentially incline

towards the requisite dominant purpose being present.

However, other factors may well impact the probative value of this matter. For example, an

unsolicited offer after the Dividend and a quick completion would not indicate that the requisite

dominant purpose is present.

Matter #4: tax result but for Part IVA

This matter draws attention to the $50 capital gain.

The Full Federal Court in RCI did not regard this matter as having any significant probative value.



Matters #5 and #6: changes in financial position from scheme

The Full Federal Court in RCI did not regard these matters as having much probative value.

However, at least where the Dividend is paid in cash (ie, no Unpaid Dividend Debt is involved), the

Dividend will typically produce commensurate changes in financial position.

Again, the Full Federal Court chose not to address the point raised by Stone J at first instance that

only $20m of the $318m dividend was paid in cash.

Matter #7: any other consequence for the taxpayer/connected entities

In RCI, the Full Federal Court noted that the $318m dividend generated significant assessable income

which allowed the Australian part of the group to preserve the substantial accounting FITB. The

Dividend also introduced debt into the US part of the group, reducing its US taxable income.

This matter inclines away from the requisite dominant purpose being present.

Matter #8: any connection between the parties

Even in RCI, where all the parties were members of the James Hardie group, the Full Federal Court

did not regard this matter as having much probative value.

Weighing up the matters

In RCI, the Full Federal Court held that the only matter that inclined towards the requisite dominant

purpose being present was the size of the dividend – which was out of step with another recent

dividend.

However, the Full Federal Court held that this feature was commercially explicable by the other

consequences referred to above in relation to matter #7.

On that basis, the Full Federal Court held that the requisite dominant purpose was not present.

Conclusion on the purpose requirement

Where the Dividend and the Sale do not occur close together in time or under a pre-ordained plan, it

may be very difficult for the Commissioner to succeed in establishing that the purpose requirement is

present in relation to a pre-sale dividend.

Nevertheless, the ATO has indicated in the NTLG Minutes that it may well continue to challenge pre-

sale dividend fact patterns. There, the ATO indicated that it prefers the reasoning of Stone J at first

instance to the reasoning of the Full Federal Court – and that:

“In the unlikely event that a case with facts that are materially indistinguishable from those of

RCI were to arise, presumably the result would be the same. All other cases would need to be

judged on their own merits.”



6 Example #2: share/asset sale

6.1 The share/asset sale fact pattern



An Australian resident company (AustCo) is wholly-owned by an Australian parent company

(Parent)

No tax consolidated group has been formed

Parent has a cost base in the AustCo shares of $100

AustCo carries on a business

AustCo has a tax cost in the business assets of $10

Purchaser is interested in AustCo’s business and approaches AustCo and Parent

After multi-disciplinary input (including from tax advisers), Parent sells Purchaser all the shares

in AustCo for $150 (Share Sale)

Parent makes a $50 capital gain

If AustCo has instead sold its business to Purchaser for $150 (Asset Sale), AustCo would have

made a $140 capital gain



A number of additional matters would be expected to impact the Part IVA analysis.

Examples of such matters include:

steps are taken for AustCo to sell the business but, on tax advice, plans are changed so that

Parent sells the AustCo shares instead; and

preliminary steps are taken under which certain AustCo assets are transferred to Parent before

the Share Sale.




Other than where tax consolidation applies, the Australian tax system respects the corporate veil.

Therefore Parent can sell AustCo shares and be taxed by reference to the difference between the

purchase price and Parent’s cost base in the AustCo shares. That is, Parent is not imputed with tax

on the difference between the purchase price and AustCo’s tax cost in the business assets.

This outcome is a structural feature of the Australian income tax system.

In that regard, the comments in in relation to the pre-sale dividend example about utilising structural

features of the Australian income tax system not constituting abuse of the system apply equally here.

Yet, despite abuse not being a cumulative requirement of Part IVA, it is difficult to conceive of a

compelling policy reason why the Share Sale should activate Part IVA.

6.3 Scheme

The scheme would appear to be confined to Parent selling AustCo shares under the Share Scheme.

It will be recalled that the ATO approach in the NTLG Minutes is that the relevant scheme is only the

transaction actually implemented. On this view, even if steps are taken for AustCo to sell the

business but, on tax advice, plans are changed so that Parent sells the AustCo shares instead, no

different scheme would be revealed.

This ATO view could perhaps be seen as concessional.

6.4 Tax benefit

A finding of tax benefit could conceivably involve either:

Parent tax benefit: Parent making a larger capital gain (eg, a $140 capital gain rather than a

$50 capital gain); or

AustCo tax benefit: AustCo making a $140 capital gain (with a s.177F compensating

adjustment for Parent).

Parent tax benefit unlikely

It is difficult to conceive how the Parent tax benefit could be produced.

The annihilation limb would apply to excise the scheme. That is, Parent’s sale of the AustCo shares

under the Share Sale would be disregarded. It follows that, without a sale, no capital gain at all would

arise to Parent under the annihilation limb.

Moreover, it is difficult to identify a reasonable alternative under the reconstruction limb that would

produce a higher amount of tax for Parent: neither the consideration provided by Purchaser nor

Parent’s cost base in the AustCo shares can readily be reconstructed.



Perhaps it could be said that Parent might have instead formed a tax consolidated group shortly

before the Share Sale, and that the tax cost push down/push up processes might have produced a

cost base for the AustCo shares that is less than $100. However, this appears unlikely on the bare

bone facts.

An argument that Parent should have formed a tax consolidated group when it first had a

consolidatable group (perhaps years ago) may be difficult to maintain: even an elastic concept like

“scheme” has its limits.

For these reasons, the possibility of a Parent tax benefit is not considered below.

AustCo tax benefit

Accordingly, in the circumstances, a finding of tax benefit is likely to hinge on AustCo making a capital

gain:

if the scheme were excised under the annihilation limb; or

applying a reasonable alternative postulate under the reconstruction limb.

The possibility of an AustCo tax benefit is considered below.


The scheme comprises the Share Sale. If the Share Sale were excised under the annihilation limb,

AustCo would make no capital gain.

So, AustCo makes no capital gain under the transaction as implemented and would also make no

capital gain when the annihilation limb is applied.

It follows that no AustCo tax benefit is revealed by applying the annihilation limb.


A tax benefit can arise under the reconstruction limb if there is a reasonable alternative to the

implemented scheme, having particular regard to/disregarding the matters identified in s.177CB(3)

and (4).

In the circumstances, the decisive issue is whether the Asset Sale is a permissible reconstruction limb

counterfactual.

An interesting point should be noted at this stage. AustCo is not an actor in the scheme. Yet tax

benefits can arise to taxpayers who are not parties to the relevant scheme. Moreover, if a tax benefit

arises to AustCo, then whether AustCo has its tax position reconstructed under Part IVA turns on the

dominant purpose of Parent and/or Purchaser - and the dominant purpose of AustCo is irrelevant to

the inquiry.

That is, Part IVA potentially applies to foist tax consequences on the unsuspecting AustCo.



As will be recalled, particular regard must be had to the substance of the scheme and any result or

consequence of the scheme for the taxpayer (ie, AustCo).

Substance of the scheme

It may well be that a court applies a narrow focus approach and holds that the substance of the Share

Sale is a share sale – and that, because the Asset Sale does not involve a share sale, it has a

completely different substance.

Result/consequence of the scheme for the taxpayer

It will be recalled that particular regard must be had to the result or consequence of the scheme for

the taxpayer (ie, AustCo).

The Share Sale produces few (if any) results and consequences of the Share Sale for AustCo: it

carries on the business both before and after the Share Sale and receives no consideration from

Purchaser.

In contrast, the Asset Sale would produce significant results and consequences for AustCo:

it would cease to carry on the business; and

it would receive consideration from Purchaser.

These results and consequences for AustCo are radically different.

Conclusion

Given the differences in substance and results/consequences, it is difficult to envisage that a court

would conclude that the Asset Sale is a sufficiently similar transaction to the Share Sale. Doing so

would necessarily involve a complete piercing of the corporate veil.

So, the Asset Sale would likely not be a permissible counterfactual if reasonableness imported a

“sufficiently similar” requirement.

It is easier to envisage a court concluding that the Asset Sale is an entirely plausible alternative to the

Share Sale. So, the Asset Sale could be a permissible counterfactual if reasonableness imported an

“entirely plausible alternative” requirement.

In the interests of a more fulsome discussion, the balance of this section proceeds on the basis that a

tax benefit arises to AustCo.

6.5 Purpose

When the s.177D(2) matters are considered individually in the context of the bare bones fact pattern,

it is difficult to conclude that any of those matters incline towards the requisite dominant purpose

being present.

Rather, it would generally be expected that a court would conclude that the dominant purpose of

Parent and Purchaser (being the parties to the scheme) was to dispose of the AustCo shares.



The purpose analysis might be slightly more complicated if preliminary steps were taken under which

certain AustCo assets are transferred to Parent before the Share Sale. If these preliminary steps

formed part of the scheme it would likely have two consequences:

it would make AustCo a party to the scheme, so that its objectively determined dominant

purpose becomes relevant to the Part IVA analysis; and

it might be that the first s.177D(2) matter – the manner in which the scheme was entered into or

carried out – inclines slightly towards the requisite dominant purpose being present on the

basis that an extra step in the transaction could conceivably be seen as indicative of artifice or

contrivance.

However, the extra step is readily commercially explicable on the basis that the relevant assets were

not part of the deal.

Accordingly, it is difficult to see how even this complicating factor - without more - could produce an

adverse Part IVA outcome for AustCo.



7 Example #3: Funding choices

7.1 The funding choices fact pattern



An Australian resident company (AustCo) is wholly owned by a non-resident parent (Parent)

AustCo requires additional funding to apply in its income producing business

AustCo considers various funding options including:

Issuing ordinary shares to Parent

Issuing to Parent RPS that are debt interests

Issuing to Parent RPS that are equity interests

Borrowing at interest from a bank

Borrowing at interest from Parent

Borrowing interest free from Parent

Sale and lease-back of a substantial AustCo asset

Entering into a repo with Parent in respect of securities owned by AustCo

After multi-disciplinary input (including from tax advisers) AustCo issues RPS that are debt

interests to Parent

Absent Part IVA, the RPS dividends are deductible to AustCo in full



A number of additional matters would be expected to impact the Part IVA analysis.

Examples of such matters include:

AustCo commences with one particular funding mechanism but, on tax advice, changes plans

and adopts another funding mechanism;

The RPS eliminate the thin cap “headroom” that AustCo had before their issue;



A tax treaty will soon come into effect reducing from 15% to nil dividend withholding tax on

unfranked dividends that AustCo pays on shares issued to Parent – so AustCo issues shares

but defers the payment of unfranked dividends until the new treaty commences; and

The RPS were issued at a time when AustCo’s circumstances indicate that their repayment

was unlikely.

It may well be the case that all but the first of these matters will pique the ATO’s interest.


Any particular choice may produce a higher or lower Australian tax liability for either AustCo or Parent

relative to other choices.

In particular:

returns on debt interests are generally deductible but not frankable and are generally subject to

interest withholding tax at 10%; and

returns on equity interests are generally frankable but not deductible and are generally subject

to dividend withholding tax at either 15% or 30% to the extent unfranked (although this may be

reduced further – even to nil - under some tax treaties depending on the level of shareholding).

Nevertheless, all of these tax consequences can be described as structural features of the Australian

income tax system.

In that regard, the comments in relation to the pre-sale dividend example about utilising structural

features of the Australian income tax system not constituting abuse of the system apply equally here.

Yet, despite abuse not being a cumulative requirement of Part IVA, it is difficult to conceive of a

compelling policy reason why any of the choices – if adopted by AustCo - should attract Part IVA.

7.3 Scheme

There are potentially two schemes:

AustCo issuing the debt interest RPS to Parent (narrower scheme) – and possibly paying RPS

dividends; and

AustCo’s consideration of the relative merits of the different funding mechanisms together with

the narrower scheme (broader scheme).

However, in relation to the broader scheme, it will be recalled that the ATO approach in the NTLG

Minutes is that the relevant scheme is only the transaction actually implemented – even if it were the

case that AustCo commences with one particular funding mechanism but, on tax advice, changes

plans and adopts another funding mechanism.

This ATO view could perhaps be seen as concessional.



Nevertheless, it would seem to follow from this view that the ATO would not consider the broader

scheme to be a relevant scheme for Part IVA purposes.

Accordingly, the balance of this section proceeds on the basis that the narrower scheme is the

relevant scheme.

7.4 Tax benefit


Deductions for returns on debt interests are the type of “negation benefit” to which the annihilation

limb more readily applies.

That is because if the scheme is excised (ie, the issue of the RPS – and possibly the payment of RPS

dividends) AustCo would have no relevant outgoing in a s.8-1 context (or loss in a Division 230

context) that could generate a deduction.

However, it will be recalled that there are a number of potential barriers to the application of the

annihilation limb, including:

whether, on the qualification approach, certainty of alternative outcome is a gateway to the

annihilation limb; and

whether courts will respect the EM comments to the effect that the annihilation limb does not

apply where the scheme produces material non-tax results or consequences for the taxpayer

(such as the funding which AustCo applies in its income producing business).


the basis that the annihilation limb applies – and generates a tax benefit equal to the amount of

deductions AustCo claims in respect of RPS distributions.


As will be recalled, a tax benefit arises under the reconstruction limb if there is a reasonable

alternative to the implemented scheme, having particular regard to the substance of the scheme and

any result or consequence of the scheme for the taxpayer but disregarding any Australian income tax

consequences.

It may well be that, having regard to the narrow focus judicial approach in existing case law on the

second s.177D(2) matter, the substance of the scheme is the issue of RPS. If so, it would follow that

AustCo obtaining funding that has a legal form other than RPS (eg, legal form debt, sale and lease-

back or a repo) would have a different substance and preclude the alternative being reasonable.

Even this view would leave RPS that are equity interests as a potentially viable alternative postulate.

However, if courts were to take a slightly broader focus, potentially many alternative forms of funding

may be regarded as having a sufficiently similar substance as the issued RPS.



But it may well be that the evidence establishes that alternative funding mechanisms produce

results/consequences that differ from those produced by the issued RPS. For example:

a bank borrowing might cause AustCo to be in breach of its existing borrowing arrangements

a sale and lease-back will produce different legal and commercial outcomes for AustCo (eg, it

may generate a substantial stamp duty liability)

At some point, these differences will cause the alternative postulate to be unreasonable – whether

reasonableness is properly construed as importing a plausibility requirement or a sufficient similarity

requirement.

Note that the results/consequences to which particular regard must be had under s.177CB(4) are

confined to those arising to the taxpayer. Therefore, particular regard is not expressly required to be

had to other matters such as:

Parent may have a preference to hold legal form shares rather than legal form debt (eg,

because it produces superior foreign tax or accounting outcomes for Parent); and

borrowing interest free from Parent may cause adverse transfer pricing issues for Parent in its

home jurisdiction, without generating appropriate compensating adjustments for AustCo.

Nevertheless, regard to these matters is not precluded by s.177CB(3).

Moreover, it will be recalled that there is an issue as to which of the qualification approach or the

replacement approach courts will adopt. If it is the qualification approach, it would also be necessary

that the alternative postulate be the most likely thing that the taxpayer would have done if the scheme

were not implemented. And it may be that the alternative postulate identified by the ATO does not

answer that description.


the basis that the reconstruction limb produces a counterfactual under which AustCo’s funding

arrangement does not generate deductible distributions for AustCo.

On that basis, a tax benefit arises to AustCo equal to the amount of deductions AustCo claims in

respect of RPS distributions

It is then necessary to consider whether the requisite dominant purpose is present.

7.5 Purpose

When the s.177D(2) matters are considered individually in the context of the bare bones fact pattern,

it is difficult to conclude that any of those matters incline towards the requisite dominant purpose

being present.

Rather, it would generally be expected that a court would conclude that the dominant purpose of

AustCo and Parent was to secure funding for AustCo rather than securing deductions for AustCo.



Indeed, the ATO view expressed in the NTLG Minutes in the context of debt interests RPS is that -

even where there is some demonstrable arbitraging of the tax debt/equity borderline - the s.177D(2)

matters point “decisively away from such a conclusion”.

Importantly, the ATO made the following statement:

“When one compares the issue of RPS with other possible means of raising the relevant

finance, one cannot, having regard to the 8 factors in subsection 177D(2), conclude that the

particular means chosen is explicable only [or presumably even predominantly] by tax

considerations. RPS of a conventional nature are a standard and common means of raising

finance which of themselves could not be said to be contrived or artificial in this context. They

differ in commercial substance from ordinary shares [and obviously from debt] and represent

a legitimate commercial choice available to a company.” [emphasis added]

Of course, there may be particular unusual features of the RPS that might impact that conclusion.

Also, it would be interesting to see if the ATO would be prepared to extend this “legitimate commercial

choice” to other alternative funding mechanisms such as a sale and lease-back and/or a repo.

Finally, even if AustCo commences with one particular funding mechanism but, on tax advice,

changes plans and adopts another funding mechanism, it will be recalled that the emphatic ATO view

expressed in the NTLG Minutes is that merely changing schemes to produce a more advantageous

tax result will not normally activate Part IVA - on the basis that the taxpayer's subjective purpose is

not relevant to the purpose requirement.



Appendix

Part IVA case abbreviations and references

Ashwick (Qld) No 127 Pty Ltd [2009] FCA 1388; [2011] FCAFC 49 (“Ashwick”)

AXA Asia Pacific Holdings Ltd [2009] FCA 1427; [2010] FCAFC 134 (“AXA”)

British American Tobacco Australia Services Limited [2009] FCA 1550; [2010] FCAFC 130 (“BAT”)

Citigroup Pty Limited [2010] FCA 826; [2011] FCAFC 61

Consolidated Press Holdings Limited [1998] FCA 1276 (“CPH”)

Eastern Nitrogen Ltd [1999] FCA 1536; [2001] FCA 3

Futuris Corporation Limited [2010] FCA 935; [2012] FCAFC 32; Futuris Corporation Limited [2006]

FCA 1096; [2007] FCAFC 93; Futuris Corporation Limited [2009] FCA 600 (“Futuris”)

Metal Manufactures Ltd [1999] FCA 1712; [2001] FCA 365

Mills [2011] FCA 205; [2011] FCAFC 158; [2012] HCA 51

News Australia Holdings Pty Limited [2009] AATA 750; [2010] FCAFC 78 (“News Australia”)

Noza Holdings Pty Ltd [2011] FCA 46 (“Noza”)

RCI Pty Limited [2010] FCA 939; [2011] FCAFC 104 (“RCI”)

Spassked Pty Ltd (No 5) [2003] FCA 84; [2003] FCAFC 282

Spotless Services Limited [1993] FCA 276; [1996] HCA 34 (“Spotless”)

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