The taxpayer was recently successful after a long run of cases where the Commissioner has succeeded in the application of Part IVA to deny tax benefits arising out of various transactions.
In this case the purpose of the restructure was to migrate the head company of a corporate group from Australia to the USA. Part of the restructure was to remove a sandwich structure in which US and UK assets were owned through an Australian subsidiary although ultimately owned by the US head company. The restructure however did give rise to a tax benefit in that substantial capital losses arose out of the restructure which could be used to offset against future capital gains.
The tribunal held that while taxation considerations were very much in the mind of the taxpayer and its advisers, taking into account the required 8 factors it would not be concluded that those involved with the scheme employed the scheme for the purpose of obtaining a tax benefit. The objective dominant purpose remained a commercial one. It involved the selection of the transaction as carried out because it better achieved the commercial purpose whether or not it also yielded a tax benefit.
The problem with Part IVA as distinct from other jurisdictions with general anti-avoidance provisions such as Canada which require abuse of the law to be involved, is that it is so wide in terms that basically an argument could be made for Restructurevery ordinary transactions to fall foul of the provisions particularly as the provision has been interpreted by the Courts. For example buying more stationery than you need on 30 June 2009 could be argued to fall foul of Part IVA. The provision should be directed at artificial transactions but the Courts have gone further than this.
Interestingly in this case the tribunal did distinguish between ordinary commercial transactions and artificial ones which is a welcome return to no doubt was the original intention of the legislation. The Tribunal noted that the circumstances of the case before it stood in stark contrast to those of a taxpayer who derives income and then seeks to shelter that income through the use of artificial or contrived arrangements which serve no useful commercial purpose (other than to avoid tax). The transactions that were undertaken in the case before the tribunal, although complex, had the valid purpose of effecting the restructure for the ultimate commercial benefit of the group of companies and its shareholders. The triggering of a material tax liability would have undermined that purpose and that ultimate commercial benefit.