Class Ruling CR 2017/37
Date of effect: 1 July 2016

What this ruling is about: 1. This Ruling sets out the Commissioner's opinion on the way in which the relevant provision(s) identified below apply to the defined class of entities, who take part in the scheme to which this Ruling relates. Relevant provision(s) 2. The relevant provisions dealt with in this Ruling are: Class of entities 3. The class of entities to which this Ruling applies is shareholders of Alcoa Inc., now named Arconic Inc., who: Qualifications 4. The class of entities defined in this Ruling may rely on its contents provided the scheme actually carried out is carried out in accordance with the scheme described in paragraphs 7 to 28 of this Ruling. 5. If the scheme actually carried out is materially different from the scheme that is described in this Ruling, then:

Class of entities or scheme: 3. The class of entities to which this Ruling applies is shareholders of Alcoa Inc., now named Arconic Inc., who: | Qualifications: 4. The class of entities defined in this Ruling may rely on its contents provided the scheme actually carried out is carried out in accordance with the scheme described in paragraphs 7 to 28 of this Ruling. 5. If the scheme actually carried out is materially different from the scheme that is described in this Ruling, then: 6. This Ruling applies from 1 July 2016 to 30 June 2017. The Ruling continues to apply after 30 June 2017 to all entities within the specified class who entered into the specified scheme during the term of the Ruling. However, this Ruling will not apply to taxpayers to the extent that it conflicts with the terms of a settlement of a dispute agreed to before the date of issue of this Ruling (see paragraphs 75 and 76 of Taxation Ruling TR 2006/10). 7. The following description of the scheme is based on information provided by the applicant. The following documents, or relevant parts of them form part of and are to be read with the description: Note: certain information has been provided on a commercial-in-confidence basis and will not be disclosed or released under Freedom of Information legislation. | Introduction: 8. On 1 November, 2016 (Eastern Time, US), Alcoa Inc. (Alcoa) carried out a demerger of 80.1% of the shares in its wholly owned subsidiary, Alcoa Corporation (AC). 9. After the demerger, Alcoa changed its name to Arconic Inc. (Arconic). 10. Alcoa (now Arconic) is a US company listed on the New York Stock Exchange (NYSE). 11. In September 2015, Alcoa announced that it intended to separate into two independent, publicly traded companies: | Reasons for the demerger: 12. The commercial justifications for the demerger were contained in the announcement by the Alcoa board dated 28 September 2015: | Ownership interests in Alcoa Inc: 13. As at 30 June 2016, Alcoa had on issue: 14. Just before the demerger, approximately 0.3% of the issued share capital of Alcoa was held by shareholders who disclosed an Australian address. 15. Just before the demerger, the total of Class A Preferred Shares, Class B Preferred Shares and RTI Convertible Notes, represented less than 10% of the total ownership interests in Alcoa. 16. Just before the demerger, Employee Stock Options and Awards represented less than 3% of the total ownership interests in Alcoa. | Pre-demerger steps: 17. To facilitate the demerger, Alcoa incorporated a new company, Alcoa Corporation (AC). AC was a wholly owned subsidiary of Alcoa at its incorporation. 18. Alcoa then undertook various intra-group transaction to ensure that AC held, directly or indirectly, all companies and assets comprising of the upstream businesses. | The demerger: 19. On 1 November 2016 (Eastern Time, US) the demerger was effected by way of Alcoa making an in specie distribution of 80.1% of shares in AC to Alcoa shareholders. 20. The distribution was made on a pro rata basis. Alcoa shareholders received one share of AC common stock for every three shares of Alcoa common stock held as of the Record Date for the distribution. 21. To account for the distribution of AC shares, Alcoa reduced its retained earnings in compliance with US Generally Accepted Accounting Practice (GAAP). 22. The amount of the reduction was US$8,692,444,735 equal to the difference between the book value of the total assets and the liabilities (net book value) of AC and its wholly owned subsidiaries (the AC group), multiplied by the distribution percentage, being 80.1%. | Other matters: 23. The five day volume weighted average share price (VWAP) for Arconic (formerly named Alcoa) and AC based on trading on the NYSE over the five days following the demerger was US$18.34 and US$23.63, respectively. 24. Alcoa and its subsidiaries are not demerger subsidiaries of another demerger group as no company or trust owns or has the right to acquire more than 20% of Alcoa's shares. 25. No members of the Alcoa group own shares in Alcoa. 26. Participating shareholders will not be able to obtain roll-over relief outside Division 125 of the ITAA 1997. 27. There was no off-market buy-back of shares (as defined in Division 16K of Part III of the ITAA 1936) under the scheme. 28. This Ruling is made on the following basis: | Demerger roll-over relief: 29. Demerger roll-over relief enables a shareholder to choose to disregard a capital gain made as a result of a CGT event that happens to their shares in the original company under a demerger. 30. A demerger, as described under section 125-70 of the ITAA 1997, happened under the scheme and a CGT event happened in relation to each of the Alcoa shares owned by Alcoa shareholders. 31. Therefore, Alcoa shareholders can choose demerger roll-over relief under subsection 125-55(1) of the ITAA 1997 for their shares. | Alcoa shareholders who choose demerger roll-over: 32. An Alcoa shareholder who chooses demerger roll-over: 33. The first element of the cost base and reduced cost base of each Alcoa share and corresponding AC shares received under the demerger is worked out as follows: 34. The apportionment of this sum is done on a reasonable basis having regard to the market values (just after the demerger) of the Alcoa and AC shares, or a reasonable approximation of those market values (subsection 125-80(2) and 125-80(3) of the ITAA 1997). 35. For the purposes of the cost base and reduce cost base apportionment under subsections 125-80(2) and 125-80(3) of the ITAA 1997, the Commissioner accepts the volume weighted average price of the AC shares and Alcoa shares as traded in the ordinary course of trading on the New York Stock Exchange (NYSE) over the first five trading days from the demerger date (1 November 2016) as a reasonable approximation of the relative market value of those shares. 36. Based on the volume weighted average prices calculated (in paragraph 23 above) and the distribution ratio under the demerger of one AC share for every three Alcoa shares held (paragraph 20 above), the Commissioner accepts that a reasonable apportionment of the total cost base of the Alcoa shares just before the demerger is to: | Alcoa shareholders who do not choose demerger roll-over: 37. Alcoa shareholders who do not choose to obtain demerger roll-over relief: | Acquisition date of the AC shares for the purposes of the CGT discount: 38. For the purpose of determining eligibility for a discount capital gain under Subdivision 115-A of the ITAA 1997, AC shares received by an Alcoa shareholder under the demerger will be taken to have been acquired on the date the shareholder acquired, for CGT purposes, the original corresponding Alcoa shares (subsection 115-30(1) of the ITAA 1997). This will be the case whether or not the shareholder chooses demerger roll-over. | Dividend consequences: 39. The distribution of AC shares constitutes both a demerger allocation and a dividend (subsection 6(1) of the ITAA 1936). As no part of the demerger allocation was debited to Alcoa's share capital account, the distribution is entirely a demerger dividend (subsection 6(1) of the ITAA 1936). 40. The demerger dividend is not assessable income or exempt income of Alcoa shareholders (subsection 44(4) of the ITAA 1936). | Section 45A of the ITAA 1936: 41. The Commissioner will not make a determination under subsection 45A(2) of the ITAA 1936 that section 45C of the ITAA 1936 applies in respect of the whole, or any part, of the distribution of AC shares to Alcoa shareholders under the demerger. | Section 45B of the ITAA 1936: 42. The Commissioner will not make a determination under section 45B of the ITAA 1936 that either section 45BA of the ITAA 1936 or section 45C of the ITAA 1936 applies to the whole or any part of the distribution of AC shares to Alcoa shareholders under the demerger. Commissioner of Taxation 28 June 2017 | Demerger roll-over: 43. The demerger roll-over provisions in Division 125 of the ITAA 1997 contain a number of conditions for eligibility to choose roll-over. The main conditions that are relevant to the demerger of AC are: 44. The conditions for choosing demerger roll-over under Division 125 are satisfied in respect of the demerger of AC. As a consequence, the demerger concessions outlined in Division 125 and in subsections 44(3) and (4) of the ITAA 1936, are available to Alcoa shareholders in respect of the demerger of AC. | Demerger Dividend: 45. A dividend is defined in subsection 6(1) of the ITAA 1936 to include a distribution made by a company, other than a distribution debited against an amount standing to the credit of the share capital account of that company. 46. No part of the Alcoa distribution will be debited to Alcoa's share capital account. Therefore, the entire value of the distribution will constitute a dividend. 47. This dividend is not assessable income or exempt income (subsections 44(3) and 44(4) of the ITAA 1936) if: 48. As each of the conditions are satisfied, the demerger dividend received by Alcoa shareholders will not be assessable income or exempt income (subsection 44(4) of the ITAA 1936). | Application of sections 45A of the ITAA 1936: 49. Section 45A of the ITAA 1936 is an anti-avoidance provision that applies where capital benefits are streamed to certain shareholders (the advantaged shareholders) who derive a greater benefit from the receipt of capital, and it is reasonable to assume that the other shareholders (the disadvantaged shareholders) have received or will receive dividends. 50. Under the demerger, there was no 'streaming' of capital benefits to some shareholders and not to others. 51. Therefore, section 45A of ITAA 1936 will not apply to the whole or any part of the demerger distribution provided to Alcoa shareholders and the Commissioner will not make a determination under subsection 45A(2) that section 45C applies. | Application of sections 45B of the ITAA 1936: 52. The purpose of section 45B of the ITAA 1936 as set out in subsection 45B(1) of the ITAA 1936 is to ensure that relevant amounts distributed to shareholders of a company are treated as dividends for tax purposes if: 53. Subsection 45B(2) of the ITAA 1936 provides that the section applies if: 54. For the purposes of paragraph 45B(2)(c) of the ITAA 1936, the Commissioner is required to consider the relevant circumstances (as outlined in subsection 45B(8) of the ITAA 1936) of the scheme to determine whether it could be concluded that entities that entered into or carried out the scheme or any part of the scheme did so for a purpose (other than an incidental purpose) of enabling the relevant taxpayer (Alcoa shareholders) to obtain a tax benefit. Having regard to the relevant circumstances, and on the basis of the information provided, the Commissioner has concluded that the scheme was not entered into or carried out for a more than incidental purpose of obtaining a tax benefit. 55. Therefore, the Commissioner will not make a determination under section 45B of the ITAA 1936 that either section 45BA of the ITAA 1936 or section 45C of the ITAA 1936 applies to the whole or any part of the distribution of AC shares to Alcoa shareholders under the demerger. 56. The following is a detailed contents list for this Ruling: © AUSTRALIAN TAXATION OFFICE FOR THE COMMONWEALTH OF AUSTRALIA You are free to copy, adapt, modify, transmit and distribute this material as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products). Not previously issued as a draft

Ruling: Demerger roll-over relief: 29. Demerger roll-over relief enables a shareholder to choose to disregard a capital gain made as a result of a CGT event that happens to their shares in the original company under a demerger. 30. A demerger, as described under section 125-70 of the ITAA 1997, happened under the scheme and a CGT event happened in relation to each of the Alcoa shares owned by Alcoa shareholders. 31. Therefore, Alcoa shareholders can choose demerger roll-over relief under subsection 125-55(1) of the ITAA 1997 for their shares. | Alcoa shareholders who choose demerger roll-over: 32. An Alcoa shareholder who chooses demerger roll-over: 33. The first element of the cost base and reduced cost base of each Alcoa share and corresponding AC shares received under the demerger is worked out as follows: 34. The apportionment of this sum is done on a reasonable basis having regard to the market values (just after the demerger) of the Alcoa and AC shares, or a reasonable approximation of those market values (subsection 125-80(2) and 125-80(3) of the ITAA 1997). 35. For the purposes of the cost base and reduce cost base apportionment under subsections 125-80(2) and 125-80(3) of the ITAA 1997, the Commissioner accepts the volume weighted average price of the AC shares and Alcoa shares as traded in the ordinary course of trading on the New York Stock Exchange (NYSE) over the first five trading days from the demerger date (1 November 2016) as a reasonable approximation of the relative market value of those shares. 36. Based on the volume weighted average prices calculated (in paragraph 23 above) and the distribution ratio under the demerger of one AC share for every three Alcoa shares held (paragraph 20 above), the Commissioner accepts that a reasonable apportionment of the total cost base of the Alcoa shares just before the demerger is to: | Alcoa shareholders who do not choose demerger roll-over: 37. Alcoa shareholders who do not choose to obtain demerger roll-over relief: | Acquisition date of the AC shares for the purposes of the CGT discount: 38. For the purpose of determining eligibility for a discount capital gain under Subdivision 115-A of the ITAA 1997, AC shares received by an Alcoa shareholder under the demerger will be taken to have been acquired on the date the shareholder acquired, for CGT purposes, the original corresponding Alcoa shares (subsection 115-30(1) of the ITAA 1997). This will be the case whether or not the shareholder chooses demerger roll-over. | Dividend consequences: 39. The distribution of AC shares constitutes both a demerger allocation and a dividend (subsection 6(1) of the ITAA 1936). As no part of the demerger allocation was debited to Alcoa's share capital account, the distribution is entirely a demerger dividend (subsection 6(1) of the ITAA 1936). 40. The demerger dividend is not assessable income or exempt income of Alcoa shareholders (subsection 44(4) of the ITAA 1936). | Section 45A of the ITAA 1936: 41. The Commissioner will not make a determination under subsection 45A(2) of the ITAA 1936 that section 45C of the ITAA 1936 applies in respect of the whole, or any part, of the distribution of AC shares to Alcoa shareholders under the demerger. | Section 45B of the ITAA 1936: 42. The Commissioner will not make a determination under section 45B of the ITAA 1936 that either section 45BA of the ITAA 1936 or section 45C of the ITAA 1936 applies to the whole or any part of the distribution of AC shares to Alcoa shareholders under the demerger. Commissioner of Taxation 28 June 2017


Appendix: Demerger roll-over: 43. The demerger roll-over provisions in Division 125 of the ITAA 1997 contain a number of conditions for eligibility to choose roll-over. The main conditions that are relevant to the demerger of AC are: 44. The conditions for choosing demerger roll-over under Division 125 are satisfied in respect of the demerger of AC. As a consequence, the demerger concessions outlined in Division 125 and in subsections 44(3) and (4) of the ITAA 1936, are available to Alcoa shareholders in respect of the demerger of AC. | Demerger Dividend: 45. A dividend is defined in subsection 6(1) of the ITAA 1936 to include a distribution made by a company, other than a distribution debited against an amount standing to the credit of the share capital account of that company. 46. No part of the Alcoa distribution will be debited to Alcoa's share capital account. Therefore, the entire value of the distribution will constitute a dividend. 47. This dividend is not assessable income or exempt income (subsections 44(3) and 44(4) of the ITAA 1936) if: 48. As each of the conditions are satisfied, the demerger dividend received by Alcoa shareholders will not be assessable income or exempt income (subsection 44(4) of the ITAA 1936). | Application of sections 45A of the ITAA 1936: 49. Section 45A of the ITAA 1936 is an anti-avoidance provision that applies where capital benefits are streamed to certain shareholders (the advantaged shareholders) who derive a greater benefit from the receipt of capital, and it is reasonable to assume that the other shareholders (the disadvantaged shareholders) have received or will receive dividends. 50. Under the demerger, there was no 'streaming' of capital benefits to some shareholders and not to others. 51. Therefore, section 45A of ITAA 1936 will not apply to the whole or any part of the demerger distribution provided to Alcoa shareholders and the Commissioner will not make a determination under subsection 45A(2) that section 45C applies. | Application of sections 45B of the ITAA 1936: 52. The purpose of section 45B of the ITAA 1936 as set out in subsection 45B(1) of the ITAA 1936 is to ensure that relevant amounts distributed to shareholders of a company are treated as dividends for tax purposes if: 53. Subsection 45B(2) of the ITAA 1936 provides that the section applies if: 54. For the purposes of paragraph 45B(2)(c) of the ITAA 1936, the Commissioner is required to consider the relevant circumstances (as outlined in subsection 45B(8) of the ITAA 1936) of the scheme to determine whether it could be concluded that entities that entered into or carried out the scheme or any part of the scheme did so for a purpose (other than an incidental purpose) of enabling the relevant taxpayer (Alcoa shareholders) to obtain a tax benefit. Having regard to the relevant circumstances, and on the basis of the information provided, the Commissioner has concluded that the scheme was not entered into or carried out for a more than incidental purpose of obtaining a tax benefit. 55. Therefore, the Commissioner will not make a determination under section 45B of the ITAA 1936 that either section 45BA of the ITAA 1936 or section 45C of the ITAA 1936 applies to the whole or any part of the distribution of AC shares to Alcoa shareholders under the demerger.


Summary - what this Ruling is about | NOT LEGALLY BINDING SECTION: | A public ruling is an expression of the Commissioner's opinion about the way in which a relevant provision applies, or would apply, to entities generally or to a class of entities in relation to a particular scheme or a class of schemes. | If you rely on this ruling, the Commissioner must apply the law to you in the way set out in the ruling (unless the Commissioner is satisfied that the ruling is incorrect and disadvantages you, in which case the law may be applied to you in a way that is more favourable for you - provided the Commissioner is not prevented from doing so by a time limit imposed by the law). You will be protected from having to pay any underpaid tax, penalty or interest in respect of the matters covered by this ruling if it turns out that it does not correctly state how the relevant provision applies to you. | 'The Value-Add Company and Upstream Company will have distinct value profiles with the ability to effectively allocate resources and deploy capital in-line with individual growth priorities and cash-flow profiles. As independent entities, each company will be positioned to capture opportunities in increasingly competitive and rapidly evolving markets. The separation will enable both the Value-Add Company and Upstream Company to pursue their own independent strategies, pushing the performance envelope within distinct operating environments'. | Appendix 2 - Detailed contents list


Related rulings: TR 2003/8 TR 2006/10
Legislative references: ITAA 1936 ITAA 1936 Div 16K Pt III ITAA 1936 6(1) ITAA 1936 44 ITAA 1936 44(2) ITAA 1936 44(3) ITAA 1936 44(4) ITAA 1936 44(5) ITAA 1936 45 ITAA 1936 45A ITAA 1936 45A(2) ITAA 1936 45B ITAA 1936 45B(1) ITAA 1936 45B(2) ITAA 1936 45B(2)(a) ITAA 1936 45B(2)(b) ITAA 1936 45B(2)(c) ITAA 1936 45B(8) ITAA 1936 45BA ITAA 1936 45C ITAA 1997 ITAA 1997 Div 104 ITAA 1997 109-5 ITAA 1997 Div 110 ITAA 1997 Subdiv 115-A ITAA 1997 115-30 ITAA 1997 115-30(1) ITAA 1997 Div 125 ITAA 1997 125-55(1) ITAA 1997 125-65(6) ITAA 1997 125-70 ITAA 1997 125-80(1) ITAA 1997 125-80(2) ITAA 1997 125-80(3) ITAA 1997 125-85(1) ITAA 1997 125-85(2) ITAA 1997 Div 230 ITAA 1997 977-50 ITAA 1997 995-1(1) TAA 1953