Private ruling: Income tax - Consolidation - Losses - Loss utilisation - trust distributions
Date of advice: 7 January 2020
Published: March 2020
Ruling period: Income year ended 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Will a trust distribution received by the Head Company from the Trustee of the Trust constitute an event under section 707-325(4) of the Income Tax Assessment Act 1997 (ITAA 1997) that would require a recalculation of the available fraction of the Head Company's income tax consolidated group? | A1: Yes

Relevant facts and circumstances: Head Company was incorporated in the income year. Head Company's shares are all wholly and beneficially owned by a Trustee in its capacity as trustee of the Trust. X is the sole director of Head Company. X is the sole director and shareholder of the Trustee of the Trust. The Trust is a discretionary family trust. The Principal Beneficiary is X. Head Company acquired 100% of the issued shares in Subsidiary Company during the income year and formed an income tax consolidated group (with itself as the head company) on the same date. Head Company's primary business activity is to hold and fund the business activities of Subsidiary Company and to act as an investment vehicle for any future business acquisitions within X's family group of entities. At the time of consolidation, Subsidiary Company had carry-forward tax losses and capital losses. Subsidiary Company satisfied the modified same business test under section 707-125 of the ITAA 1997 and the losses of Subsidiary Company were transferred at the joining time to Head Company as head company of the consolidated group pursuant to subsection 707-120 of the ITAA 1997. Head Company is a beneficiary of the Trust under the Deed. The Deed provides for the distribution of income of the Trust. Pursuant to the Deed, and subject to a prior determination to accumulate income, the Trustee may on or before the last day of a financial year determine to pay, apply or set aside or hold the whole or part of the net income of the trust fund as the Trustee in its absolute discretion thinks fit to or for all or such one or more of the Beneficiaries in such shares and proportions as the Trustee in its absolute discretion determines. At the end of the financial year, the Trustee of the Trust resolved, in accordance with the power under the Deed, to set aside and hold 100% of the net income of the Trust for Head Company, with the amount to be credited in the books of the Trust to the Head Company's account and held in trust for it absolutely and paid or dealt with at the Head Company's direction as a present entitlement. The distribution was initially recorded as a receivable and payable in the books of Head Company and the Trust respectively. The amount was subsequently paid to Head Company in the following financial year. Head Company showed its share of the net income of Trust under subsection 97(1) of the Income Tax Assessment Act 1936 in its income tax return.


Reasons for decision: Summary: All legislative references are to the Income Tax Assessment Act 1997 unless otherwise specified. The trust distribution received by Head Company from the Trust is a transaction that did not take place at arm's length that involved Head Company, and therefore, is an event described in paragraph 707-325(4)(b) that would require a recalculation of the available fraction of the Head Company consolidated group if it results in an increase in the market value of Head Company. | Detailed Reasoning - Transferring losses to the head company of consolidated group: Division 707 of Part 3-90 provides for the transfer of a loss from an entity (the joining entity) becoming a member of a consolidated group to the head company of the group if, as a general principle, the joining entity could have utilised the loss had it not become a member of the group: section 707-110. Single-entity rule Subsection 701-1 states that if an entity is a subsidiary member of a consolidated group for any period, it is taken to be a part of the head company of the group, rather than a separate entity during that period. In line with this overarching single entity rule, section 707-105 provides that if a loss is transferred, it is the head company that is treated as having made the loss for income years ending after the transfer and consequently the head company can utilise the loss to the extent permitted by the general rules in the legislation (outside Part 3-90) and the special rules about transferred losses in the other subdivisions of Division 707. Effect of transfer of loss Subsection 707-140(1) states that if a loss is transferred under section 707-120 from the joining entity to the head company of the joined group, the Act operates for the purposes of the income years after the transfer to treat: · the head company as being the entity that made the loss for the income year in which the transfer occurs, and · the joining entity as not being the entity that made the loss for the income year for which the joining entity actually made the loss. The loss may be used by the head company in the same income year in which the transfer occurs: subsection 707-140(2). Transfer tests Subdivision 707-A sets out the rules that generally restrict the amount of losses that can be transferred to a consolidated group by ensuring that entities seeking to transfer losses to a consolidated group pass, at the transfer time, modified versions of the current tests for deducting or applying losses (i.e. the continuity of ownership and same business/business continuity tests). Losses are tested for this purpose at the time the entity joins the consolidated group. Utilising losses Subdivision 707-B contains rules that apply in determining whether a transferred loss can be used by a head company (i.e. whether it can be deducted or applied by the head company or transferred to another group). A head company's use of a transferred loss depends upon which of the loss recoupment tests were met at the transfer time. Broadly, when determining whether a head company has passed the continuity of ownership tests (COT) in respect of losses transferred because they met the COT, pre-consolidation ownership changes in the original loss company are relevant but intra-group changes in the ownership of the original loss company post consolidation are ignored. In all other cases, the loss recoupment rules are applied directly to the head company to determine if it can utilise a transferred loss. The loss year is taken to start at the time of transfer: subsection 707-205(2). Therefore, losses that are transferred because they meet the same business test/business continuity test are not subject to further business testing in the hands of the head company unless the head company fails the COT. Amount of transferred loss that can be utilised - the available fraction Subdivision 707-C determines the amount of transferred losses that can be utilised by the head company. Subsection 707-305(1) and (3) explain that an main object of the subdivision is to limit the rate at which transferred losses can be used by the head company in a way that reflects the amount of the loss that the joining entity could have utilised for the income year had the joining entity remained outside the consolidated group. The Explanatory Memorandum to the New Business Tax System (Consolidation) Bill (No.1) 2002 (the EM) explains the broad objective of the subdivision as follows: 8.2 The use of transferred losses by a consolidated group is restricted so that losses will be used by a group at approximately the same rate they would have been used by the joining entity had it remained outside the group. The aim is to ensure that the treatment of transferred losses is not a motive in deciding to consolidate a group or in a consolidated group deciding to acquire a loss entity. 8.3 For that reason, the maximum amount of losses transferred by a joining entity that can be used by the group in an income year is determined by reference to the amount of the groups income considered to have been generated by the joining entity. The available fraction is a proxy for determining this amount. Subsection 707-310(1) limits the amount of losses in a particular bundle of losses transferred under subdivision 707-A that can be utilised by the transferee by reference to the available fraction for the bundle. A bundle of losses comes into existence at the time (the initial transfer time) a loss that has not previously been transferred is transferred under Subdivision 707-A from a joining entity (the real loss maker) to the head company of a consolidated group (the joined group): section 707-315. The bundle consists of every loss that is transferred at that time: subsection 707-315(2). Pursuant to subsection 707-320(1), the available fraction for a bundle of losses at a time is: Modified market value of the real loss-maker at the initial transfer time Transferee's adjusted market value at the initial transfer time The transferee's adjusted market value at the initial transfer time is defined in subsection 707-320(1) to mean the amount that would be the market value, at the initial transfer time, of the transferee to which the losses in the bundle were transferred at that time if: (a) the transferee did not have a loss of any sort for an income year ending before that time, and (b) the balance of the transferee's franking account were nil at that time. The value of the transferee is worked out on the basis that subsidiary members of the consolidated group are part of the transferee (i.e. the single entity rule applies). The modified market value of the real loss-maker entity is defined in subsection 707-325(1) of the ITAA 1997 and is worked out assuming: · it has no losses and the balance of its franking account is nil; · the subsidiary members of the relevant group at the joining time are separate entities and not parts of the head company (i.e. the joining entity is treated as a separate entity); and · its market value did not include an amount that is attributable (directly or indirectly) to a membership interest in any other group member (with one exception where the entity has fixed entitlements to the income or capital of a trust that is not attributable to a membership interest in a member of the group). Paragraphs 8.18 to 8.20 of the EM explain the purpose of the available fraction, as follows: 8.18 The available fraction is a proxy for determining the proportion (i.e. fraction) of the groups income generated by the loss entity. A proxy is necessary because immediately after joining, the loss entity's activities are, for income tax purposes, merged with those of the head company so it is not possible to determine the amount of the groups income actually generated by the loss entity. 8.19 The available fraction limit ensures that transferred losses are used up at approximately the same rate they would have been used had the loss entity remained outside the group. The aim is to ensure that the decision to consolidate is not driven by the tax treatment of transferred losses. 8.20 If the loss entity later leaves the consolidated group, its losses remain with the head company of the group. The available fraction attributable to the losses continues to be used to determine the amount of the losses that can be deducted or applied by the head company. While a loss entity that leaves a group ceases to contribute income to the group, the cash or assets received by the group on the sale of the loss entity continue to generate income for the group, leaving the groups income generating capacity unchanged. Adjusting the available fraction Section 707-320(2) provides that if an event described in an item of the table set out in that subsection applies, the available fraction is reduced or maintained just after the event by multiplying it by the factor identified in the item. The relevant item is set out below: Factors affecting the available fraction Item Event Factor 4 There is an increase in the *market value of the company to which the losses in the *bundle were most recently transferred, because of an event described in subsection 707-325(4) (but not covered by subsection 707-325(5)) *Market value of the company just before the event ____________________ *Market value of the company just before the event + Amount of the increase Section 707-325(4) states: These are the events: (a) an injection of capital into the entity or an entity that was an * associate of the entity (or of the trustee of the entity, if the entity is a trust) at the time of the injection; (b) a transaction that: (i) did not take place at *arm ' s length; and (ii) involved the entity or an entity that was an associate of the entity (or of the trustee of the entity, if the entity is a trust) at the time of the transaction. The following paragraphs of the EM explain the operation and objective of the rules in Subdivision 707-C (as relevant): | Detailed Reasoning - Adjusting the available fraction: 8.51 Available fractions are adjusted to ensure they continue to approximate the proportion of the groups income that can be said to be generated by the relevant loss entity. 8.52 For example, a groups available fractions are adjusted whenever the group acquires another loss entity (or group) or the groups market value is increased as a result of a capital injection or a non-arms length transaction. A groups available fractions must also be adjusted if they total more than one. For the purpose of this explanation, the events giving rise to an adjustment are referred to as adjustment events. ... Adjustment event 4 - capital injections and non-arms length transactions 8.61 A groups available fractions are adjusted if the groups market value is increased as a result of capital injected into the group or a non-arms length transaction involving the group. This increase in the groups income generating capacity reduces the proportion of income that loss entities within the group can be regarded as generating. Therefore, each available fraction is adjusted by multiplying it by the factor at item 4 ... | Detailed Reasoning - More about events that increase value: ... 8.96 Post-consolidation, the events are only relevant if they trigger an increase in the market value of the whole group. This can only occur in this context as a result of an injection of capital or non-arms length transaction involving entities external to the group. 8.97 The expression injection of capital is not defined and therefore takes its ordinary meaning. Capital is generally understood as the wealth of an entity, whether in money or property. The use of the word injection conveys that the capital or wealth has been introduced from outside the entity (or group) in the sense that it has not been obtained from the entitys (or groups) own resources. The simplest example of an injection of capital is the payment of cash to an entity as consideration for membership interests in the entity. 8.98 Non-arms length transaction is also not defined though it is specified that the transaction must involve an associate of the entity or group. These events are only relevant if they trigger an increase in the value of a joining entity or a group. There would be no increase in value for example, if the entity or group acquired an asset from an associate for which it paid full consideration. 8.99 Examples of transactions that may lead to an increase in value of an entity or group are: · transferring an asset to the entity or group for less than market value consideration; · forgiving a debt owed by the entity or group; · lending money to the entity or group on non-commercial terms; and · paying the entity or group an inflated price for goods or services. The adjustment rule only considers the effect of the event on the market value of the entity and if it has increased, then a reduction in the available fraction will be effected. The provisions concentrate on describing which transactions are relevant and then dealing with the effect of the event so entered into. The purpose of the transaction or act is not a factor that determines the application of the adjustment rule: paragraph 10 of TR 2004/9 and ATO Interpretative Decision ATO ID 2004/182 Income Tax Consolidation: effect of 'not at arm's length' transactions on modified market value . | Detailed Reasoning - The capital injection test: The first event listed at paragraph 707-325(4)(a) that may require adjustment of the available fraction is a capital injection into the head company or an associate of the head company. The expression 'injection of capital' is not defined for the purposes of paragraph 707-325(4)(a). Accordingly, it has its ordinary meaning consistent with the purposes of the provisions. The Commissioner provides guidance on the expression 'injection of capital' in Taxation Ruling TR 2004/9 Income Tax: consolidation: what is meant by 'injection of capital' in section 707-325 of the Income Tax Assessment Act 1997? The expression 'injection of capital' for the purposes of paragraph 707-325(4)(a) covers transactions and acts with the following inter-related characteristics (paragraph 9 of TR 2004/9): · Wealth introduced from outside - The transaction or event has introduced wealth into the entity from a source outside of the entity and not from transactions or acts from the entity's own resources. · Enhanced net assets - The transaction or act produces an enhanced net asset position for the entity. A change in assets that relates to a corresponding change in liabilities does not enhance the net asset position of the entity and is not an injection of capital. · Equity interests affected - The transaction or act affects the equity interests in the entity. A change in equity that relates to a corresponding change in assets and liabilities is an injection of capital if it also satisfies the other elements of an injection of capital. If the transaction or act only affects the assets and liabilities of the entity and does not affect equity it is not an injection of capital. · Not related to earnings and profit - The transaction or act affects that part of the equity interests that are capital and not profit. Injections of capital are contributions to the entity and are not earnings made by the entity from its activities and operations. A contribution is an injection of capital if it also satisfies the other elements of an injection of capital. A transaction or act that contributes to, or is part of the entity's profit is not an injection of capital. · External party required - The transaction or act involves the entity into which the capital is injected and an entity that injects the capital. An enhancement in the net asset position of the entity from the entity's own activities and resources is not an injection of capital. · Of a capital nature - The transaction or act is on capital account or is capital in nature. It must affect the capital structure of the entity. A transaction on profit account is not an injection of capital. That is, a transaction in the ordinary course of business, for example, the ordinary sale of trading stock, is on profit account; it is not on capital account and is not an injection of capital. However, a particular transaction that would ordinarily be on profit account may be on capital account, having regard to factors including the identity of the parties, the purpose of the transaction, or the effect it has on the rights and obligations of the equity holders in the entity. An injection of capital does not arise until the transaction or act displays all of the characteristics of an injection of capital. This will depend on the nature and individual circumstances of the transaction or act. For example, a transaction that is otherwise an injection of capital will only be treated as such when the net assets of the entity are increased (paragraph 12 of TR 2004/9). | Detailed Reasoning - Application to your circumstances: The distribution of income from the Trust to Head Company is a transaction that contributes to the profits of the entity. It is not a transaction that affects the capital structure of Head Company. Therefore, it does not display all of the characteristics of an injection of capital as outlined in TR 2004/9 and is not an injection of capital for the purposes of paragraph 707-325(4)(a). | Detailed Reasoning - The non-arms length transaction test: The second event listed at paragraph 707-325(4)(b) that may require adjustment of the available fraction is a transaction that did not take place at arm's length that involved the head company or an entity that was an associate of the head company at the time the transaction took place. As the terms used in the paragraph (i.e. 'transaction' and 'take place at arm's length') are not defined it is necessary to consider their ordinary meaning. As it is possible that the ordinary meaning will vary according to the context in which expressions are used, it is necessary to consider the legislative framework in which the expression appears. An examination of the purpose behind the inclusion of the rules that trigger a reduction or maintenance of the available fraction, particularly adjusting event Item 4, and their effect when applied, provides the context in which the meaning of the expressions in subsection 707-325(4) of the ITAA 1997 are to be understood: paragraph 41 of TR 2004/9. As noted earlier, the rationale for adjusting an existing available fraction is that the additional value associated with the event is seen to increase the group's income generating capacity. This would have the effect of reducing that proportion of income that a loss entity within the group could be regarded as generating. Accordingly, the available fraction is adjusted to reflect that reduced contribution to the group's income producing capacity: paragraph 45 of TR 2004/9. In this regard, the interpretation of the word 'transaction', and more generally, the tests based on continuity of business that permit losses incurred by a company to be deductible (i.e. section 165-13 and other relevant provisions in Part 3-5) are considered relevant to determining how the expressions in the specific loss rules in the consolidation provisions should apply. Applying a consistent interpretation in Division 707 to the general losses rules in Part 3-5 is consistent with a broad objective of Division 707 to limit the rate at which transferred losses can be used by the head company in a way that reflects the amount of the loss that the joining entity could have utilised for the income year had the joining entity remained outside the consolidated group. The 'business continuity test' in section 165-210, contains two negative limbs that prevent the utilisation of carry forward tax losses, a 'new business test', and relevantly for this ruling, a 'new transactions test' in subsection 165-210(2), as follows: However, the company does not satisfy the *business continuity test under this section if, at any time during the *business continuity test period, it *derives assessable income from: (a) a *business of a kind that it did not carry on before the *test time; or (b) a transaction of a kind that it had not entered into in the course of its business operations before the *test time. This was previously called the "same business test". This provision was amended by Treasury Laws Amendment (2017 Enterprise Incentives No. 1) Act 2019 which introduced a further provisionto supplement the same business test with a more flexible similar business test in new section 165-211. Unlike the same business test the similar business test does not incorporate the former tests negative limbs. Nevertheless, we consider the interpretation of the 'new transaction test' remains relevant to construing the non arms-length transaction test in paragraph 707-325(4)(b). Taxation Ruling TR 1999/9 Income tax: the operation of sections 165-13 and 165-210, paragraph 165-35(b), section 165-126 and section 165-132 explains that the new transaction test is: ... intended to prevent the injection of income into the company while leaving appropriate scope for the development and expansion of the company's business. They do not, however, depend for their operation on the existence of a purpose of tax avoidance. The Commissioner's view on how the new transaction test should be interpreted is set out in TR 1999/9 as follows: | Detailed Reasoning - 'Transaction', 'entered into' and 'business operations' have a broad meaning: 82. In the new transactions test 'transaction' has a broad meaning. The meaning of the word 'transaction' depends upon its context. It is clear that, in the context of the second limb of sections 165-13 and 165-210, 'transaction' refers to every means or event by which the taxpayer derives income, for the word appears in association with the expression 'business operations' as the last of a descending hierarchy of tests that examines, first, the overall business of the company, then its component undertakings or enterprises and, finally, the individual acts by which the business is carried on. The new transactions test is concerned to ensure that a company deducts losses from income from transactions of the same kind as the operations by which it generated income before the change-over. 83. But the test is not concerned to distinguish income-producing activities of a bilateral kind from those of a unilateral kind. As Lord Reid noted in a case on English anti-avoidance provisions, Greenberg v. IRC: 'The word "transaction" is normally used to denote some bilateral activity but it can be used to denote an activity in which only one person is engaged. It would not be wrong to say of a person doing office work that he is transacting business.' The payment of a dividend was held to be a transaction in that case. 'Transaction' has also been said in another context to be "a comprehensive word which includes any dealings with property": Barron v. Littman per Lord Normand. To allow the injection of income into a loss company from unilateral dealings would defeat the purpose of the test, and the existence or otherwise of another party in relation to a dealing is not germane to the real issue, which is the way in which the taxpayer conducts business so as to produce income. Accordingly, the new transactions test is not confined to bilateral dealings. Appointment of the taxpayer as an object of a discretionary trust and appointment of income to the taxpayer pursuant to a discretionary trust are transactions for the purposes of subsections 165-210(2) and (4). Barron v. Littman also shows that a transaction may consist of a number of acts and even omissions, as the transaction in that case was the acquisition of property and a subsequent failure to let it. 84. The expression 'entered into' also has a broad meaning; it has, for example, the meanings 'to begin, to join, to engage, to become a participator, to be concerned or involved in, to be interested in'. Its function is to indicate the connection between the kind or class of transaction and the course of business operations before the change-over, and not the mode by which the taxpayer becomes concerned in the transaction after the change-over: the connection between the taxpayer and the transaction after the change-over is supplied by the taxpayer deriving income from it. 85. The words 'business operations' refer to everything that a company undertakes or performs or does in the course of the business, which is the same business, i.e., the overall business of the company. Example 10 in TR 1999/9 is also relevant: 150. Jones is the controller of the Jones Family Trust. He and Underling, his accountant, are directors of Trustee Co Pty Ltd, the trustee. The trust is a discretionary trust and the objects of the trust are members of the Jones family. There is a power to add to trust objects. The subject of the trust is income producing property. Jones buys Loss Co Pty Ltd, a loss company, and has Underling and himself appointed as directors. Loss Co has never been the beneficiary of a trust previously. Loss Co is appointed as an object of the Jones Family Trust. Jones and Underling resolve, as directors of Trustee Co, to appoint income to Loss Co. 151. Loss Co has derived income from a transaction of a kind into which it had not entered before the change-over. It therefore fails the new transactions test. It is noted that the negative limbs do not apply to the enacted similar business test. However, the integrity rules in the similar business test address the same concerns previously dealt with by the negative limbs of the same business test. The explanatory memorandum to the Treasury Laws Amendment (2017 Enterprise Incentives No. 1) Bill 2017 explains the effect as follows: ... This ensures that the omission of the negative limbs from the similar business test does not create tax avoidance or income injection opportunities that would minimise a company's tax liability... | Detailed Reasoning - Example 1.5: Integrity rules: Jones controls the Jones Family Trust as the sole director of the corporate trustee. The trustee of the Jones Family Trust derives income from a range of activities. The trust has recently experienced an increase in its net income. Jones buys Jewellery Co, a company that carries on a jewellery retail business. The company has large tax losses from previous years. The company is made an object of the Jones Family Trust and Jones, as director of the corporate trustee, resolves to appoint income to Jewellery Co. The appointed income is not a material amount of Jewellery Co's income in each income year. However, over time, Jones reduces the overall income tax payable by his controlled entities by a large amount. Jewellery Co has never been the beneficiary of a trust previously. As Jewellery Co has derived assessable income from a transaction of a kind that it had not entered into before the change of ownership, it would fail the same business test because of the new transactions test in paragraph 165-210(2)(b) of the ITAA 1997. However, given the limited extent to which the assessable income of Jewellery Co is derived from new activities, Jewellery Co is likely to satisfy the similar business test (as no other changes have taken place to Jewellery Co's business within the business continuity test period). However, the income injection test in Subdivision 175-A will apply to disallow the deduction of the tax losses of Jewellery Co. This is because Jewellery Co derived assessable income, being the income appointed to it as an object of the Jones Family Trust, which it would not have derived had the tax losses not been available. In The Macquarie Dictionary online, Macquarie Dictionary Publishers, https://www.macquariedictionary.com.au/ viewed 20 November 2019: 'Transact' is defined as: 1. To carry through (affairs, business, negotiations, etc.) to a conclusion or settlement; 2. To perform. To 'take place' is considered synonymous with 'to happen'. Subsection 995-1(1) provides that determining whether parties deal at 'arm's length' requires a consideration of any connection between the parties and any other relevant circumstances. Similarly, considering whether a transaction 'takes place at arm's length' will require a consideration of the connection between the parties and the circumstances that surround the relevant transaction. However, it is not considered that the words of paragraph 707-325(4)(b) require a bilateral dealing having regard to the legislative context, in particular Division 707 and the broader rules regarding deducting tax losses in Part 3-5. The test does not require there to be dealing between the parties but a transaction to 'take place' that involves the head company. In the Commissioner's view the test in paragraph 707-325(4)(b) should be construed broadly, consistent with the interpretation of the new transaction test in section 165-210 in TR 1999/9, and would apply to unilateral acts including the appointment of income by the trustee of a discretionary trust to a beneficiary. It is considered that the requirement that the transaction 'involve' the head company can encompass receipt of a distribution although such receipt does not require any activity on its part. This interpretation is considered consistent with the stated objective of Division 707. | Detailed Reasoning - Application to these circumstances: In this case, the relevant event that needs to be considered to see if it meets the description set out in paragraph 707-325(4)(b) is the exercise of a power of appointment by the Trustee of the Trust. This is the event that results in money being paid to Head Company. It is not accepted that the Trust should be effectively 'looked through' and for the test to be applied to the transactions by which Trust derived its income. It is accepted that what has occurred is a unilateral act of the Trustee. The Trustee derives authority to make the appointment of income entirely from the Deed and a beneficiary has no standing or capacity whatsoever in the decision making process of the Trustee. Nevertheless, for the reasons given above we consider that paragraph 707-325(4)(b) can apply to a unilateral act by a trustee of a discretionary trust. The relationship between the parties (i.e. Head Company is wholly owned by the Trustee of the Trust and both entities are controlled by the same person) and the nature of the distribution being an appointment of income by the Trustee of the Trust to Head Company as a beneficiary of the trust support the conclusion that the transaction did not 'take place at arm's length'. | Detailed Reasoning - Conclusion: A distribution from the Trustee of the Trust to Head Company is a transaction that is not at arm's length. Therefore, an event described in paragraph 707-325(4)(b) has occurred that would require a recalculation of the available fraction of the Head Company consolidated group if it results in an increase in the market value of Head Company.