ATO ID 2003/1027: Whether a foreign government can be characterised as a 'company' where it owns an Australian resident company that carries on commercial activities in Australia
Date of decision: 15 September 2003
Year of income: Year ended 30 June 2004
Business line: Public Groups and International

Issue
Can a foreign government be characterised as a 'company' for the purposes of subsection 995-1(1) of the Income Tax Assessment Act 1997 (ITAA 1997) where it has ultimate ownership of an Australian resident company that carries on commercial activities in Australia?

Decision
Yes. A foreign government can be characterised as a 'company' for the purposes of subsection 995-1(1) of the ITAA 1997 where it has ultimate ownership of an Australian resident company that carries on commercial activities in Australia.

Facts
A foreign government has ultimate ownership of an Australian resident company which carries on commercial activities in Australia. The government's interest is held by a government minister acting as a trustee.

Reasons for decision
Summary: A 'company' is defined in subsection 995-1(1) of the ITAA 1997 to mean a body corporate or any other unincorporated association or body of persons but does not include a partnership or a non-entity joint venture. A 'body corporate' is not defined in the ITAA 1997 or the Income Tax Assessment Act 1936 and therefore takes its ordinary meaning. The Oxford English Dictionary 1989, 2nd edn, Clarendon Press, Oxford defines 'body corporate' to mean 'an artificial "person" created by legal authority for certain ends; a corporation; commonly a corporation aggregate, but also applied to a corporation sole'. The term 'government', of itself, has no reliable technical meaning. In order to ascribe a meaningful characterisation to the term one must look to the context in which it is used (see Ryder v. Foley (1906) 6 CLR 422 at pp. 423-433 per Griffith CJ). In the majority of matters in which government acts in an executive capacity it does so through ministers, or their equivalent, who operate as a corporation sole, i.e. an incorporated series of successive persons, so that the minister and their successors have continuous corporate personality (see Hubbard Association of Scientologists International v. The Attorney General for the State of Victoria [1976] VR 119 ( Hubbard Association's Case ). The judgment of Gowans J in the Hubbard Association's Case discusses, among other things, the two fundamental types of corporation: corporation sole; and corporation aggregate. The former is constituted in one person and the latter in a group of persons, but they have in common the characteristic of perpetual succession which distinguishes the corporation from the person or persons who from time to time constitute it. Speaking generally, whilst government ministers ordinarily operate in their official capacity as corporations sole it is also the case that 'government' in its wider executive capacity can be regarded as exhibiting the characteristics of a corporation aggregate in that it consists of a number of persons united together in one society preserved by a succession of members. In the present case, in the circumstances in which the shares in question are held, the minister and the Government would hold the shares as a repository with corporate characteristics of sufficient significance to conclude that the government would satisfy the definition of 'company' in subsection 995-1(1) of the ITAA 1997. Note: in identifying various 'entities', section 960-100 of the ITAA 1997 makes separate reference to the terms 'body corporate' and 'body politic'. The fact that the two terms are mentioned separately does not preclude a reconciliation of the meaning of these terms for the purposes of the Act. It appears that bodies politic may be constituted as bodies corporate in certain circumstances in order to engage in the multifarious activities of executive government. Nevertheless, even if it were to be accepted that these terms are mutually exclusive it is tenable to conclude that the capacity in which the minister and the government hold the investment in the shareholding is consistent with their acting in the nature of a corporation rather than simply in the nature of a body politic.

Legislative references: Income Tax Assessment Act 1997 subsection 995-1(1) section 960-100
Case references: Hubbard Association of Scientologists International v. The Attorney General for the State of Victoria [1976] VR 119
Other references: The Oxford English Dictionary 1989, 2nd edn, Clarendon Press, Oxford
Subject references: Company tax Government & government business enterprises