Taxpayer Alert TA 2004/5: Copyright Transfer Arrangement
Date of issue: 9 March 2004
Status: Current


Description: This Taxpayer Alert describes an arrangement involving a transfer of client records that have been created or acquired in which copyright may subsist. The taxpayer, who is unable to claim a deduction in relation to any copyright in the client records it has created, disposes of the records to an entity that is part of the same wholly-owned group. That entity then claims a deduction in relation to copyright under the capital allowance provisions. | This Alert applies to arrangements having some or all of the following features: 1. In the ordinary course of business, Company A creates client records. Company A has also acquired client records as a result of various business acquisitions. The information in these records is of value to Company A in its ongoing business activities. 2. Company A recognises copyright in the client records post acquisition and apportions a significant amount of the consideration attributed in the contract to goodwill and/or other unspecified intangibles to this copyright. Company A then proceeds to claim a capital allowance deduction for the copyright. 3. Company A does not claim a capital allowance deduction for the copyright in the internally created client records. 4. Company A then makes a loan to Company B. In turn, Company B makes a loan of the same amount to Company C. These three companies are all within the same wholly-owned group but have not yet consolidated for income tax purposes. 5. Company C purchases all of the client records and any copyright that may subsist in the records from Company A. The consideration payable by Company C is the same amount as the loan it received from Company B. 6. Company C claims a deduction under the capital allowance provisions based on the entire amount of the consideration paid, purportedly on the basis that that amount is attributable to any copyright that may subsist in the records. 7. Company C uses the low-value pool provisions to accelerate the capital allowance deduction on the basis that each item of copyright is a separate asset. | 1. In the ordinary course of business, Company A creates client records. Company A has also acquired client records as a result of various business acquisitions. The information in these records is of value to Company A in its ongoing business activities. 2. Company A recognises copyright in the client records post acquisition and apportions a significant amount of the consideration attributed in the contract to goodwill and/or other unspecified intangibles to this copyright. Company A then proceeds to claim a capital allowance deduction for the copyright. 3. Company A does not claim a capital allowance deduction for the copyright in the internally created client records. 4. Company A then makes a loan to Company B. In turn, Company B makes a loan of the same amount to Company C. These three companies are all within the same wholly-owned group but have not yet consolidated for income tax purposes. 5. Company C purchases all of the client records and any copyright that may subsist in the records from Company A. The consideration payable by Company C is the same amount as the loan it received from Company B. 6. Company C claims a deduction under the capital allowance provisions based on the entire amount of the consideration paid, purportedly on the basis that that amount is attributable to any copyright that may subsist in the records. 7. Company C uses the low-value pool provisions to accelerate the capital allowance deduction on the basis that each item of copyright is a separate asset. | The ATO considers that the arrangement outlined above gives rise to taxation issues which include: a) Whether Company A and Company C are the holders of depreciating assets. b) Whether the contract consideration can be re-characterised. c) Whether the valuation methodology used accurately reflects the value attributable to the copyright. d) Deductibility under Division 40 (the capital allowance provisions) of the Income Tax Assessment Act 1997 (the ITAA 1997). e) Whether the rollover provisions in Division 40 of the ITAA 1997 have been complied with. f) The application of the general anti-avoidance provisions of Part IVA of the Income Tax Assessment Act 1936 (ITAA 1936). | a) Whether Company A and Company C are the holders of depreciating assets. b) Whether the contract consideration can be re-characterised. c) Whether the valuation methodology used accurately reflects the value attributable to the copyright. d) Deductibility under Division 40 (the capital allowance provisions) of the Income Tax Assessment Act 1997 (the ITAA 1997). e) Whether the rollover provisions in Division 40 of the ITAA 1997 have been complied with. f) The application of the general anti-avoidance provisions of Part IVA of the Income Tax Assessment Act 1936 (ITAA 1936). | The Australian Taxation Office is examining these arrangements.





Related documents: TD 2005/1. | PS LA 2008/15 | ITAA 1997 Division 40 | ITAA 1997 Section 40-180 | ITAA 1997 Section 40-340 | ITAA 1997 Subdivision 40-E | ITAA 1936 Part IVA

Large Business & International