ATO ID 2010/27: Classification of a Korean Hapja Hoesa for Australian income tax purposes
Date of decision: 28 January 2010
Year of income: Year ended 30 June 2006
Business line: Public Groups and International

Issue
Is the Korean Hapja Hoesa a company pursuant to the definition within section 995-1 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Decision
Yes. The Korean Hapja Hoesa is a company within the meaning of section 995-1 of the ITAA 1997.

Facts
The Hapja Hoesa is a legal form of corporation, which may be established under the Korean Commercial Act (Commercial Act). The Hapja Hoesa is also a private equity fund which is regulated by the Korean Indirect Investment Asset Management Business Act (IIAMBA). In essence, the Hapja Hoesa is an unlimited investment specialty vehicle that is established for the purpose of investing the assets of the entity into the shares or equity of other entities - with the purpose of increasing the value of such entities through participation in the management of the entities or improving the business structure or control structure of the entities. The Hapja Hoesa may be used only for private equity investment purposes. Currently under Korean legislation, a Hapja Hoesa has the following features: The articles of incorporation of this particular Hapja Hoesa include the following terms:

Reasons for decision
Summary: 'Company' is defined in section 995-1 of the ITAA 1997 as: but does not include a partnership or a non-entity joint venture. As the term 'body corporate' is not defined in Australia's income tax legislation, the ordinary meaning of the term applies. The Butterworths Concise Australian Legal Dictionary Second edition defines a body corporate as 'an artificial legal entity having separate legal personality'. Being an entity that was created by registration, and that has separate legal personality, the Hapja Hoesa is a 'body corporate'. Consequently, it will be a company under paragraph (a) of the definition of 'company' in section 995-1 of the ITAA 1997, providing that it is not also a partnership. Section 995-1 of the ITAA 1997 defines 'partnership' as: The Hapja Hoesa has some features commonly associated with a partnership, and some features associated with a company. The following features favour characterisation of this particular Hapja Hoesa as a company. The features which favour characterisation of this Hapja Hoesa as a partnership include: The predominance of characteristics favours classification as a company rather than a partnership. Further, as the Hapja Hoesa does not have partners who carry on its business or who receive income jointly, it is not a partnership for the purpose of the definition of 'partnership' or 'company' in section 995-1 of the ITAA 1997. As the Hapja Hoesa is a body corporate and not a partnership, it follows that it is a company within the meaning of section 995-1 of the ITAA 1997.

Legislative references: Income Tax Assessment Act 1997 section 995-1
Other references: Butterworths Concise Australian Legal Dictionary Second edition Commercial Act (Korea) Indirect Investment Asset Management Business Act (Korea)
Subject references: Bodies corporate Companies International tax Korea Partnerships Foreign hybrids Foreign hybrid limited partnership Foreign hybrid company