Private ruling: Application of dividend article of a double tax agreement
Date of advice: 29 October 2018
Published: January 2019

Ruling: Q1: Will the Dividend Article of the foreign country Double Tax Agreement apply to deny the relief available under that Dividend Article? | A1: No

Relevant facts and circumstances: Company Y is a non-resident company which is not entitled to franking credit benefits under Subdivision 207-C of the Income Tax Assessment Act 1997 . Background to Company B Company B was incorporated in Australia many years ago and is a resident of Australia for tax purposes. Over 12 months ago, all the shares in Company B were transferred to Company Y which is a resident of a second foreign country. Company B is the provisional head company of the Company B multiple entry consolidated (MEC) group. Company A, Company C and Company D are eligible tier-1 (ET-1) companies of the Company B MEC group. Background to Company A, Company C and Company D Each of Company A, Company C and Company D was incorporated in Australia many years ago and is a resident of Australia for tax purposes. The issued shares in each of Company A, Company C and Company D were originally held by a company which is a resident of a foreign country. Over 12 months ago, all the shares in each of Company A, Company C and Company D were transferred to Company Y. Dividend payments to Company Y Any dividends paid to Company Y by Company A, Company B, Company C and Company D to Company Y over the last few years were paid as fully franked dividends. Each of Company A, Company B, Company C and Company D will pay dividends to Company Y during the next few years. It is anticipated that any dividend paid to Company Y will be franked to the maximum extent allowed by the franking account balance of the Company B MEC group. Group policy The policy of the group of companies (which includes the Company B MEC group and Company Y) is that the profits of the subsidiaries will be paid to the relevant parent entity where the subsidiary does not need the funds for its business operations. Company Y is the beneficial owner of any dividends received from members of the Company B MEC group. Company Y has no obligations to pay those dividends to another party. Any dividends will be paid in cash and will be used by Company Y for general corporate purposes, including paying any dividends to its shareholders. It is also the policy of the group of companies to hold foreign assets directly from the country of which Company Y is a resident. The restructure The ultimate parent entity of the group of companies originally owned several subsidiaries in a foreign country. Under the restructure over 12 months ago, the shares in each of Company A, Company B, Company C and Company D were transferred to Company Y which is a resident of a second foreign country. The restructure involved the liquidation of companies in the first country in order to simplify the corporate structure by eliminating redundant entities and holding structures in that country. The restructure was undertaken to reduce the time and cost of administering various companies by aligning the holding structure of the management of the group of companies in the second foreign country. In simplifying the holding structure, it was intended to reduce mistakes from having various withholding tax rates and tax obligations from different countries, deal with less corporate laws and procedures, and, decrease ongoing costs, management time, etc.

Relevant legislative provisions: International Tax Agreements Act 1953 section 5 Double Tax Agreement (Second foreign country) Dividend Article

Reasons for decision: Summary: On the basis of the matters set out in the ‘Relevant facts and circumstances’, the Commissioner considers that the relevant Dividend Article of the Second foreign country Double Tax Agreement will not deny the relief available under that Article.