ATO Interpretative Decision
ATO ID 2008/23
Income Tax
A cell in a protected cell company formed in Guernsey and the controlled foreign company measuresFOI status: may be released
This ATOID provides you with the following level of protection:
If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.
Issue
Will an individual 'cell' in a protected cell company incorporated under Guernsey law, in respect of which a taxpayer subscribes for redeemable preference shares (RPS), be a controlled foreign company (CFC) for the purposes of section 340 of the Income Tax Assessment Act 1936 (ITAA 1936)?
Decision
No. An individual cell in a Guernsey protected cell company, in respect of which a taxpayer subscribes for RPS, will not be a CFC for the purposes of section 340 of the ITAA 1936.
Facts
An Australian resident taxpayer subscribes for redeemable preference shares (RPS) in respect of a relevant individual cell in a Guernsey protected cell company (protected cell company).
The protected cell company is a limited liability company incorporated under Guernsey's Protected Cell Companies Ordinance 1997 (as amended by Ordinance No.V of 1997; by No. XV of 1998; by No. XXI of 2005) (the PCC Ordinance) and registered under the provisions of The Companies (Guernsey) Law 1994 (as amended).
The protected cell company may form one or more cells.
Reasons for Decision
Section 340 of the ITAA 1936 provides that a company is a CFC at a particular time if, at that time, the company is a resident of a listed country or of an unlisted country and satisfies one of the three control tests contained therein.
Whether a cell in a protected cell company is a CFC for the purposes of section 340 of the ITAA 1936 requires the determination of whether a cell in a protected cell company constitutes a company.
The term 'company' is defined in subsection 995-1(1) of the Income Tax Assessment Act 1997 (ITAA 1997) to mean:
- (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
*denotes a term defined in subsection 995-1(1) of the ITAA 1997
The term 'body corporate' is not defined in the ITAA 1936 or the ITAA 1997.
The Commissioner has considered the meaning of the term 'body corporate' in Miscellaneous Taxation MT 2006/1 - The New Tax System: the meaning of entity carrying on an enterprise for the purposes of entitlement to an Australian business number (ABN).
Paragraph 30 of MT 2006/1 states that the term 'body corporate' has the following meaning:
'Body Corporate' is not a defined term. The term takes its meaning from the general law. 'Body corporate' is a general term to describe an artificial entity having separate legal existence. 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 contract, sue and be sued in its own name, just as a natural person can.
The protected cell company is incorporated under the PCC Ordinance and registered under the provisions of the Companies (Guernsey) Law 1994 (as amended).
By virtue of section 1(2) of the PCC Ordinance, the protected cell company itself is a legal person and is therefore a 'body corporate' for the purposes of paragraph (a) of the definition of 'company' in subsection 995-1(1) of the ITAA 1997.
The taxpayer will become a shareholder in the protected cell company by subscribing for RPS in respect of a particular cell in the protected cell company, and therefore becomes a member of a 'body corporate'. The taxpayer will not become a member of any other 'company', as that term is defined in subsection 995-1(1) of the ITAA 1997, within the protected cell company through the subscription of RPS in the protected cell company.
Accordingly, the protected cell company itself is a 'company' as that term is defined in subsection 995-1(1) of the ITAA 1997.
Each individual cell in the protected cell company is not a company under subsection 995-1(1) of the ITAA 1997 and therefore cannot be a CFC for the purposes of section 340 of the ITAA 1936.
Date of decision: 16 January 2008Year of income: Year ended 30 June 2008 Year ended 30 June 2009 Year ended 30 June 2010
Legislative References:
Income Tax Assessment Act 1997
subsection 995-1(1)
section 340
Related Public Rulings (including Determinations)
Miscellaneous Taxation Ruling MT 2006/1
Other References:
Protected Cell Companies (Guernsey) Ordinance 1997
subsection 1(2)
The Companies (Guernsey) Law 1994
Keywords
Controlled foreign companies
Guernsey
International tax
ISSN: 1445-2782