Private ruling: Purchase and lease of substantial commercial equipment
Date of advice: 22 December 2016
Published: June 2017
Ruling period: 2016 to 2020
Date scheme commenced: 201X

Ruling: Q1: Is Country A Company liable to pay income tax under subsection 128B(5A) of the Income Tax Assessment Act 1936 ('ITAA 1936') on rental payments it receives from Aus Company under the novated subleases? | A1: No | Q2: Does the Commissioner consider that Country A Company has a permanent establishment ('PE') in Australia under Article 5 of the Convention between the Government of Australia and the Government of the Country A and Country B for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income and on Capital Gains ('the Country A Convention') and will it, therefore, require Country A Company to include income it derives from Aus Company under the novated subleases in its assessable income under subsection 6-5(3) of the Income Tax Assessment Act 1997 ('ITAA 1997') in determining its Australian taxable income? | A2: No | Q3: Is Country B Company required to withhold an amount under section 12-245 of Schedule 1 to the Tax Administration Act 1953 ('TAA') from interest it pays to Foreign Lender Company in relation to the Loan? | A3: No | Q4: Is Country B Company liable to pay income tax under subsection 128B(5A) of the ITAA 1936 on rental payments it receives from Country A Company under the head leases? | A4: No | Q5: Does the Commissioner consider that Country B Company has a PE in Australia in accordance with Article 5 of the Agreement between the Government of Australia and the Government of Country B for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income and Capital Gains ('the Country B Agreement') and will it, therefore, require Country B Company to include the income it derives from Country A Company under the head lease of the equipment in its assessable income under subsection 6-5(3) of the ITAA 1997? | A5: No | Q6: Is Country B Company nonetheless required to include the rental income it derives from Country A Company under the head lease in its assessable income under subsection 6-5(3) of the ITAA 1997? | A6: Yes | Q7: Is Country B Company entitled to a deduction for the decline in value of the equipment under section 40-25 of the ITAA 1997? | A7: Yes | Q8: Subject to the potential application of the thin capitalisation rules in Division 820 of the ITAA 1997, is Country B Company entitled to claim deductions under section 8-1 of the ITAA 1997 for interest expenses incurred in respect of the Loan? | A8: Yes | Q9: Subject to the potential application of the thin capitalisation rules in Division 820 of the ITAA 1997 and assuming that Country B Company is subject to the 'taxation of financial arrangements' ('TOFA') regime in Division 230 of the ITAA 1997, is Country B Company entitled to claim deductions under subsection 230-15(2) of the ITAA 1997 for losses made in relation to the Loan? | A9: Yes | Q10: Will the Commissioner make a determination under paragraphs 177F(1)(a), 177F(1)(b) or subsection 177F(2A) of the ITAA 1936 to cancel a tax benefit that has been obtained, or would, but for section 177F of the ITAA 1936, be obtained, by Foreign Head Company, Country B Company or Country A Company in connection with any of the following schemes: (a) the incorporation of Country B Company; (b) the incorporation of Country A Company; (c) the acquisition of the equipment by Country B Company; (d) the simultaneous execution of the head lease of the equipment from Country B Company to Country A Company; (e) the simultaneous novation to Country A Company of Unrelated Foreign Company's interest in the pre-existing lease of the equipment of Aus Company (the lease is, following the novation, now the sublease); or (f) any combination of (a) to (e) | A10: No

Relevant facts and circumstances: Foreign Head Company is the parent entity of the group. Country B Company, Country A Company and Foreign Lender Company are wholly-owned subsidiaries (directly or indirectly) of Foreign Head Company. Aus Company is an Australian company and operating the leased equipment in Australia. Country B Company is a resident of Country B for income tax purposes. Country B Company purchased the equipment from an Unrelated Foreign Company. Unrelated Foreign Company simultaneously with the sale of the equipment to Country B Company, novated its interest in the pre-existing lease over the equipment to Country A Company. Country A Company is a resident of the Country A for income tax purposes. Country B Company's purchase of the equipment was funded by a loan from Foreign Lender Company. Country A Company leases the equipment from Country B Company under a head lease. Aus Company subleases the equipment from Country A Company under the novated (sub)lease and maintained continuous possession and use of the equipment in Australia.

Relevant legislative provisions: Income Tax Assessment Act 1936 subsection 128B(5A) | Income Tax Assessment Act 1936 section 177F | Income Tax Assessment Act 1936 paragraphs 177F(1)(a) | Income Tax Assessment Act 1936 paragraph 177F(1)(b) | Income Tax Assessment Act 1936 subsection 177F(2A) | Income Tax Assessment Act 1997 subsection 6-5(3) | Income Tax Assessment Act 1997 section 40-25 | Tax Administration Act 1953 section 12-245 of Schedule 1