Private ruling: Application of Dividend Article Z of the Country Y Double Tax Agreement
Date of advice: 26 May 2017
Published: September 2017

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

Relevant facts and circumstances: Proposed Company A dividend to Company Y Company A will declare and pay a dividend to Company Y during the current financial year. The dividend will be partly franked. Company Y is a non-resident and will not be entitled to the franking credits (Subdivision 207-C). It is anticipated that any dividend paid by Company A will be franked to the maximum extent allowed by the franking account balance of the Company B Multiple entry consolidated group (MEC) group. Background to Company A Company A was incorporated in Australia many years ago and is a resident of Australia for tax purposes. Company A's issued shares were originally held by Company X, a resident of Country X. Over 12 months ago all shares in Company A were transferred to Company Y, a resident of Country Y. Company A has paid all dividends as fully franked dividends over the last 5 years. Background to Company B Company B was incorporated in Australia many years ago and is a resident of Australia for tax purposes. Company B is the provisional head company of the Company B MEC group. One of the eligible tier-1 (ET-1) companies of the Company B MEC group is Company A. Company B does not have any conduit foreign income. Background to Company X Company X was established in Country X many years ago and was a resident of Country X for tax purposes. Company X held 100% of shares in Company A for several years prior to a group-wide restructure. After the group-wide restructure that involved the transfer of Company A to Company Y, Company X no longer held any other assets and was subsequently liquidated. Background to Company Y Company Y was established in Country Y many years ago and is a resident of Country Y for tax purposes. Company Y has several wholly owned subsidiaries which are ET-1 companies in the Company B MEC group. Company Y does not carry on business in Australia through a permanent establishment. Group policy The policy of the group of companies (which includes Company A, B and 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. However, Company Y is the beneficial owner of the dividends proposed to be paid by Company A and 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 dividends to its shareholders. It is also the policy of the group of companies to hold foreign assets directly from Country Y. The group-wide restructure The ultimate parent entity of the group of companies originally owned several subsidiaries in Country X. Under the group-wide restructure the shares in Company A were transferred from Company X to Company Y. The group-wide structure involved the liquidation of companies in Country X the aim of which is to simplify the corporate structure by eliminating redundant entities and holding structures in Country X. This reduces the time and cost of administering the Company A MEC group by aligning the holding structure of the management of the group of companies in Country Y. In simplifying the holding structure, it reduces mistakes from having various withholding tax rates and tax obligations from different countries; dealing with less corporate laws and procedures; and, decreasing ongoing costs etc.

Relevant legislative provisions: International Tax Agreements Act 1953 section 5

Reasons for decision: Summary: On the basis of the Relevant facts and circumstances , it's considered the Dividend Article Z of the Country Y Double Tax Agreement will not deny the relief available under that Article.