Private ruling: Whether an entity qualifies as a top company
Published: June 2012
Ruling period: This ruling will apply for the income years ended 30 June 2012 to 30 June 2015.

Ruling: Q1: Will ForeignCo A meet the requirements of paragraph 719-20(1)(a) of the Income Tax Assessment Act 1997 (ITAA 1997) to be a top company for the purposes of Part 3-90 of the ITAA 1997? | A1: Yes

Relevant facts and circumstances: This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling. ACo is an Australian incorporated entity which is an Australian resident entity for income tax purposes and is the head company of a tax consolidated group. The ordinary share capital in ACo is currently owned by ForeignCo B and ForeignCo C. The two shareholders of ACo will enter into an arrangement where their interests in ACo will be held through a single holding entity. Accordingly, ACo's current shareholders incorporated ForeignCo A on February 2012 and will transfer their equity in ACo to ForeignCo A. ForeignCo A is incorporated overseas and is not a wholly-owned subsidiary of another company. The deed of incorporation of ForeignCo A (the Deed) includes the following information: · the document is titled Deed of Incorporation of ForeignCo A; and · the Deed contains a declaration to incorporate an entity exempt from liability and the Articles of Association of ForeignCo A. The factual characteristics of ForeignCo A as contemplated by the Deed include: · ForeignCo A is governed by the articles of association which state its objects and affairs. The articles of association may not be amended otherwise than by resolution of a general meeting; · ForeignCo A can legally own assets and conclude agreement in its own name; · Members are not liable to contribute to any deficit on winding up; · ForeignCo A is managed by a board which consists of one or more directors. The board or each director is authorised to represent ForeignCo A; · Each member has voting rights in proportion to capital contributed. If a member's capital account is nil, that member has one voting right; · ForeignCo A will hold general meetings in the country where it was incorporated; · Annual accounts are prepared for members and if required by law, subject these accounts to audit by a chartered accountant; · Capital contributed to ForeignCo A is credited to the member capital account for each contributing member. Contribution standing in the member capital account may only be repaid to members upon a unanimous vote of the members; · ForeignCo A can be dissolved by a unanimous resolution of members. ForeignCo A can also be dissolved if there are no existing members; · Certain rights of members and obligations of ForeignCo A are subject to the relevant laws of the country where it was incorporated. Other characteristics of ForeignCo A will include: · no oral or written partnership agreement has or will be entered into by members of ForeignCo A; · the members do not own any assets jointly; · ForeignCo A itself will register a business name as required by law. However, the members will not register a business name related to ForeignCo A; · ForeignCo A will trade in this name. All stationery and correspondence will be prepared in ForeignCo A's name and this will not refer to the members and the members will trade independently in their own names and not jointly; and · ForeignCo A will hold and operate a bank account in its own name. The bank account will not be jointly held with the members. The members will not be named in the account and will have no entitlement to the funds deposited therein.

Relevant legislative provisions: Income Tax Assessment Act 1936 Section 6-1, | Income Tax Assessment Act 1997 Section 719-20 and | Income Tax Assessment Act 1997 Section 995-1.

Reasons for decision: Summary: Note: Unless otherwise specified, all legislative references are to the Income Tax Assessment Act 1997. ForeignCo A will meet the requirements of paragraph 719-20(1)(a) to be a top company for the purposes of Part 3-90. | Detailed Reasoning - Detailed reasoning: To be a top company , the entity needs to be a company and satisfy item 1 of the table in subsection 719-20(1). | Detailed Reasoning - Is ForeignCo A a company?: The term "company" is defined by subsection 995-1(1) as: company means: (a) a body corporate; or (b) any other unincorporated association or body of persons; but does not include a partnership or a *non-entity joint venture. The terms 'body corporate', 'unincorporated', 'association' and 'body of persons' are not defined in the ITAA 1997 and the Income Tax Assessment Act 1936 (ITAA 1936). | Detailed Reasoning - Body corporate: As 'body corporate' is not defined in Australia's domestic income tax law legislation, the ordinary meaning of the term in Australia may then apply. The Macquarie Dictionary, [Multimedia], version 5.0.0, 1/10/01 defines 'body corporate' in its legal context, as 'a person, association or group of persons legally incorporated in a corporation'. Generally a 'body corporate' is established under an Act of Parliament or under a statutory procedure of registration, such as the Corporations Act 2001 (refer to paragraphs 22-23 of Taxation Ruling IT 2634 and paragraphs 30-34 of Miscellaneous Taxation Ruling MT 2006/1). A body corporate has the ability to continue in existence indefinitely and to keep its identity regardless of changes to its membership. It also has the power to act, hold property, enter into legal contracts, sue and be sued in its own name. ForeignCo A exhibits the following characteristics: · it was incorporated in accordance with the laws of the country where it was incorporated; · it is a separate legal entity, with a separate legal personality to that of its members and thus has its own rights and obligations; · it has the capacity to legally own, and dispose assets; · it can conclude agreements in its own name; and · it will not be dissolved on change of membership - i.e., perpetual succession. Therefore, ForeignCo A is considered to be a 'body corporate'. For ForeignCo A to be considered a "company", it must not be a partnership or a non-entity joint venture. | Detailed Reasoning - Partnership: Whether a partnership exists is a question of fact and degree: Morden Rigg & Co. and RB Eskrigge & Co. v. Monks (1923) 8 TC 450. To determine the existence of a partnership we need to assess the nature of the relationship between the parties including their intentions and conduct. For a partnership to exist, a mutual assent and intention to act as partners is essential: Jolley v. FC of T (1989) 21 ATR 3253. No partnership can exist without such an intention which can be evidenced by the conduct of the parties towards each other and towards third parties. In Taxation Ruling TR 94/8, the Commissioner sets out the factors that are relevant in determining whether a partnership exists. ForeignCo A exhibits the following characteristics: · The members do not own the assets jointly. ForeignCo A is a separate legal entity which owns assets in its own. · ForeignCo A itself will register a business name. · ForeignCo A will hold and operate a bank account in its own name. · The members will have no involvement in the conduct or management of this business, other than in appointing directors and fulfilling other obligations required of members of ForeignCo A. As with a company, the members of ForeignCo A make capital contributions which are recorded in the members account. The members are not automatically entitled to net profits of ForeignCo A, that is, ForeignCo A will determine whether or not to make distributions of net profits. ForeignCo A will prepare financial accounts and other books and records in its own name, as required by law. ForeignCo A will register its name in accordance with the law and will trade in this name. All stationery and correspondence will be prepared in ForeignCo A's name and this will not refer to the members. Therefore, ForeignCo A is not considered to be a 'partnership'. | Detailed Reasoning - Non-entity joint venture: Finally, ForeignCo A is not a 'non-entity joint venture' as that term is defined in subsection 995-1(1) as: · it is not an economic activity that is subject to the joint control of the members; and · output from the economic activity is not shared by the members. Therefore, ForeignCo A is considered to be a company as it is a body corporate and neither a partnership nor a non-entity joint venture. | Detailed Reasoning - Is ForeignCo A a top company?: Column 3 if item 1 of the table in subsection 719-20(1) requires the company to be a foreign resident. ForeignCo A is an entity resident of a foreign country. ForeignCo A is managed by a board which consists of one or more directors with the general meetings to be held in that foreign country. As ForeignCo A is not incorporated in Australia and the central management of control is also not in Australia, ForeignCo A will not be a resident of Australia. Therefore, ForeignCo A will be a foreign resident. Column 4 if item 1 of the table in subsection 719-20(1) requires that the company, in general, must not be a wholly-owned subsidiary of another company. As set out in the facts above, ForeignCo A is not a wholly-owned subsidiary of another company. Therefore, ForeignCo A will be a top company for the purposes of Part 3-90 as it will meet the requirements of paragraph 719-20(1)(a).

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. If you have any concerns about this ruling you wish to discuss, you will find our contact details in the fact sheet. | Does Part IVA apply to this ruling?: Part IVA of the Income Tax Assessment Act 1936 is a general anti-avoidance rule that can apply in certain circumstances if you or another taxpayer obtains a tax benefit in connection with an arrangement and it can be concluded that the arrangement, or any part of it, was entered into or carried out by any person for the dominant purpose of enabling a tax benefit to be obtained. If Part IVA applies the tax benefit can be cancelled, for example, by disallowing a deduction that was otherwise allowable. | We have not fully considered the application of Part IVA to the arrangement you asked us to rule on, or to an associated or wider arrangement of which that arrangement is part. | If you want us to rule on whether Part IVA applies we will first need to obtain and consider all the facts about the arrangement which are relevant to determining whether Part IVA may apply. | For more information on Part IVA, go to our website www.ato.gov.au and enter 'part iva general' in the search box on the top right of the page, then select: 'Part IVA: the general anti-avoidance rule for income tax'.