ATO ID 2008/70: Offshore Banking Units: Application of paragraph 128AE(2)(d) to the head company of a consolidated group
Date of decision: 7 May 2008
Year of income: Year ending 30 June 2008
Business line: International Centre of Expertise

Issue
Is the head company of a consolidated group, which is treated as if it were a life insurance company pursuant to section 713-505 of the Income Tax Assessment Act 1997 (ITAA 1997), eligible to be declared to be an offshore banking unit (OBU) under paragraph 128AE(2)(d) of Division 11A of the Income Tax Assessment Act 1936 (ITAA 1936)?

Decision
No. The head company of a consolidated group, which is treated as if it were a life insurance company pursuant to section 713-505 of the ITAA 1997, is not eligible to be declared to be an OBU under paragraph 128AE(2)(d) of Division 11A of the ITAA 1936.

Facts
H Co is the head company of a consolidated group. H Co is not a life insurance company registered under the Life Insurance Act 1995 . Sub Co, which is a subsidiary member of the consolidated group, is a life insurance company registered under the Life Insurance Act.

Reasons for decision
Summary: Section 713-505 of the ITAA 1997 provides that: This Act, and the Income Tax Rates Act 1986 , apply to the *head company of a *consolidated group as if it were a *life insurance company for an income year if one or more life insurance companies are *subsidiary members of the group at any time during that year. * denotes a term defined in section 995-1 of the ITAA 1997 Section 713-505 of the ITAA 1997 applies to H Co (as head company of the consolidated group) because Sub Co (being a subsidiary member of the consolidated group) is a life insurance company. Paragraph 128AE (2)(d) of Division 11A of the ITAA 1936 provides that: The Treasurer may, by notice published in the Gazette, declare a person being: ... (d) a life insurance company registered under the Life Insurance Act 1995; ... to be an offshore banking unit for the purposes of this Division. Paragraph 128AE(2)(d) of the ITAA 1936 expressly requires that the relevant person must actually be a life insurance company registered under the Life Insurance Act to be eligible for declaration as an OBU. H Co does not satisfy the requirements of paragraph 128AE(2)(d) of the ITAA 1936 as it is not a life insurance company registered under the Life Insurance Act. Therefore H Co is not eligible for declaration as an OBU pursuant to paragraph 128AE(2)(d).

Legislative references: Income Tax Assessment Act 1997 section 713-505
Subject references: Consolidation Head company Life insurance company Offshore banking units