Subdivision 768-A consultation minutes: 9 December 2015

Meeting details


747 Collins St Melbourne


Sydney, Melbourne


9 December 2015








Penny Georgiou


Penny Georgiou

Contact and Secretariat:

Julie Walters

Contact phone:

(03) 9275 9897


ATO Members

Penny Georgiou

Senior Director International Profit Shifting

Kevin O'Shaughnessy

Senior Director Technical Leadership Group

Michelle Osler

Director Technical Leadership Group

Gulalai Fazal

International Profit Shifting

Hajar Khasmuin

Technical Leadership Group

Andrew Phlorides

Technical Leadership Group

Michael McCormack

Tax Counsel Network

Louis Clarke

Tax Counsel Network (via phone)

Mary Fung

Tax Counsel Network (via phone)

Professional and Industry Body Representatives

Cameron Blackwood

Taxation Institute of Australia Corporate Tax Association

Tony Stolarek

Chartered Accountants Australia and New Zealand

Tim Carberry

CPA Australia

Peter Collins


Jenny Wong

Chartered Accountants Australia and New Zealand (via phone)


Paul Korganow

Assist Commissioner International Profit Shifting

Nick Zanikos

International Profit Shifting

Vivian Chang

Law Council of Australia

Agenda items


Technical working group agendas, minutes and related papers are not binding on the Australian Taxation Office (ATO) or any of the other bodies referred to in these papers. While every effort is made to accurately record views expressed, the wording necessarily represents a summary of statements of general position only, and care should be taken in interpreting those statements. These papers reflect the position at the date of release (unless otherwise noted) and readers should note that the position on any issue may subsequently change.

1. Introduction and welcome

The chair welcomed the group and introduced the members.

2. Purpose of the meeting

This meeting follows the initial Subdivision 768-A Consultation Group meeting which was held on 24 February 2015 and the subsequent meeting held on 21 July 2015.

As noted in the minutes of the meetings held to date, this group has been convened to specifically look at administrative and technical interpretive issues associated with Subdivision 768-A. The concerns raised by external representatives were principally about (i) the meaning of 'at the time the distribution is made' in paragraphs 768-5(1)(b) and 768-5(2)(d) of the ITAA 1997 on share buy-backs; (ii) what is the meaning of 'the amount can be attributed…to a foreign equity distribution' in paragraph 768-5(2); and (iii) what is the meaning of 'hold' in sections 960-185 and 960-190 of the ITAA 1997 and what impact does it have of the availability of the exemption in Subdivision 768-A.

3. Agenda Item 2 - Action items July meeting

The Chair reviewed the action items from the previous meeting on 21 July 2015.

1. The first action item discussed was raising the interaction between Subdivision 768-A, Subdivision 815-B and C and Division 974 of the ITAA regarding legal form debt instruments that are characterised as equity interests with Treasury BEPS Group. Members determined that this issue reached out to the transfer pricing issue of whether Subdivision 768-A and the transfer pricing rules are aligned, therefore it was agreed that this item links to action item 2.

2. The second action item required the ATO to consult with the Subdivision 815 Working Group regarding whether the current in-progress taxation ruling addresses what an independent party would do in a re-characterisation of debt/equity scenario. The ATO explained that they are currently in the process of drafting two documents addressing this issue which will be consistent with TD 2008/20.

The ATO explained that in order to accurately address the issue and make a decision on whether further guidance material was required, the external representatives of the group would need to provide real life debt/equity scenarios for the ATO to consider

An external representative explained a case example of a taxpayer making an outbound interest free loan that was considered equity following the requirements of TR92/11. The representative will provide further details of the case to the ATO.

The concerns raised were in regards to what actions taxpayers who relied on TR92/11 would need to take, as Subdivision 815 overrides TR92/11. The ATO explained that an ATO decision relating to this issue has not yet been determined, however they will attempt to address both outbound and inbound interest free loans as well as the interaction issues between Subdivision 815-B and C, Division 974 and Subdivision 768-A.

Going forward there will be further consultation regarding the document with both the Subdivision 815 and Subdivision 768-A Working Groups. The ATO mentioned that the last Subdivision 815 Working Group is in April 2016.

3. Action items 3 to 10 were discussed and it was acknowledged by the ATO that the case examples requested were provided and the ATO would request future examples when and if required.

4. The eleventh action item required the ATO to escalate the issue regarding the discrepancy between 768-A and 768-G to New Measures. The ATO stated that this issue was escalated accordingly and the difference was acknowledged.

4. Agenda Item 3.1- Timing Issue

The ATO updated the group on the progress of the documents addressing the issue 'at what time the distribution is made'. The notification for the tax ruling has been accepted and is currently in the progress of being drafted. It was explained that the ruling will mainly focus on the impact the meaning of 'at the time the distribution is made' will have on the availability of the exemption in Subdivision 768-A for off-market share buy-backs as addressed in Division 16K.

The ATO's view is that in the case of an off-market share buyback subject to Division 16K, the deemed dividend will be NANE income provided that the participation test is satisfied at any time on the day the buyback contract is formed (being the day the dividend is taken to be paid (subsection 159GZZZP(1)). The ATO has not yet looked at how the issue will apply to liquidations and share cancellations, as there are different factors included in the transaction of a share cancellation. The outcome may be the same as share buy-backs; however the issue will be looked at further. It was noted that class rulings addressing share cancellations will be analysed to determine how the reduction in shares occurs.

The internal tax ruling process was explained and depending on the approval process an update of the draft documents may be available in February/March 2016.

The ATO is in the process of speaking internally with the Integrated Tax Design area regarding the Treasury view in regards to the exemption applying to share buy-backs. Discussions at a high level with Treasury are expected to occur before Christmas, and if the discussions with Treasury result in any changes the group will be informed accordingly.

5. Agenda item 3.2- TD on 'holds' issue

The ATO explained that the draft version of the tax determinations addressing the issue of 'how a partner in a partnership or a beneficiary of a trust can have a participation interest in a foreign company in order to satisfy the participation test may be ready for preliminary consultation in early 2016.

The Tax Determinations will give the ATO view on how Subdivision 768-A, Subdivision 960-G of the ITAA 1997 and sections 350 and 351 of the ITAA 1936 will work together. The documents will also distinguish between different types of trusts.

6. Action items


Action Item number



Action item name

To provide real life legal form debt examples.


Tim Carberry, Peter Collins



Expected delivery date

31 January 2016

Action Item number


Action item name

ATO to consult with Subdivision 815 Working Group, to determine if the current in-progress tax rulings address what an independent party would do in a re-characterisation of debt/equity scenario.


Kevin O’Shaughnessy



Expected delivery date

31 January 2016


Action Item number


Action item name

ATO to brief Treasury regarding the disagreement concerning the application of the exemption to share buy-backs.





Expected delivery date

29 February 2016

    Last modified: 03 Mar 2016QC 48089