Private ruling: Application of Dividend Article X of the Country Y Double Tax Agreement.
Date of advice: 8 April 2016
Published: June 2016

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

Relevant facts and circumstances: Proposed Company C dividend to Company A Company C will declare and pay a dividend to Company A during the current financial year. Company C is a resident of Australia and an eligible tier-1 (ET-1) company of the MEC group of which Company B is the provisional head company. The dividend will be partly franked. Company A is a non-resident and will not be entitled to the franking credits (Subdivision 207-C). It is the general policy of companies including Company A that the profits of the subsidiaries will be paid to the relevant parent where the subsidiary does not need the funds for its business operations. It is anticipated that any dividend by Company C will be franked to the maximum extent allowed by the Company B MEC group franking account balance. Any dividend will be paid in cash and will be used by Company A for general corporate purposes, including on-paying dividends to shareholders. Background to Company C Company C was incorporated in Australia many years ago and is a resident of Australia. Company C's issued shares were originally held by Company M, a resident of another country. Over 12 months ago all shares in Company C were transferred to Company A. Company C has paid all dividends as fully franked dividends over the last 5 years. Company B (as head company of the Company B MEC) group does not have any conduit foreign income. Background to Company M Company M held 100% of shares in Company C for several years. Following the transfer to Company A, Company M did not hold any other assets and was subsequently liquidated. Background to Company A Company A was established in Country Y many years ago and is a resident of Country Y for taxation purposes. Company A held 100% of shares in Company M for many years until Company M was liquidated. The policy of the group of companies including Company A is to hold foreign assets directly from Country Y. Company A has several wholly owned subsidiaries including several ET-1 entities in the Company B MEC. Company A does not carry on business in Australia at or through a permanent establishment. The Country Z restructure Company A originally owned subsidiaries in Country Z. The liquidation was to simplify the corporate structure by eliminating redundant entities and holding structures in order to reduce the time and cost of administering Company M and aligning the holding structure with that of the management of the Company A Group. In reducing complexity of holding companies, this reduced inadvertent mistakes as to withholding tax rates, different corporate tax laws in different countries, not filing all necessary forms in all countries, different procedures for directors' meetings, etc. and reduced ongoing costs.

Relevant legislative provisions: International Tax Agreements Act 1953 section 5

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