ATO Interpretative Decision

ATO ID 2003/392

Income Tax

Consolidation - Multiple FDA declarations and MEC groups
FOI status: may be released

This version is no longer current. Please follow this link to view the current version.

This document incorporates revisions made since original publication. View its history and amending notices, if applicable.

CAUTION: This is an edited and summarised record of a Tax Office decision. This record is not published as a form of advice. It is being made available for your inspection to meet FOI requirements, because it may be used by an officer in making another decision.

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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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

Can a provisional head company of a multiple entry consolidated (MEC) group make multiple foreign dividend account (FDA) declarations on a particular day, under section 128TC of the Income Tax Assessment Act 1936 (ITAA 1936)?

Decision

Yes. A provisional head company of a MEC group can make multiple FDA declarations on the same day under section 128TC of the ITAA 1936.

Facts

A Co and B Co are Australian resident, wholly-owned subsidiaries of TC - the top company (a non-resident of Australia).

A Co and B Co are both eligible tier-1 companies.

On 1 July 2004, A Co and B Co form a multiple entry consolidated (MEC) group, jointly nominating A Co to be the provisional head company of the group.

A Co has a foreign dividend account (FDA) surplus and pays a dividend to TC on 1 April 2005. B Co also pays a dividend to TC on the same day.

Reasons for Decision

Section 128TC of the ITAA 1936 provides that a resident company that has an FDA surplus is able to pay a dividend that consists of an FDA declaration amount. Sections 719-900 and 717-520 of the Income Tax Assessment Act 1997 (ITAA 1997) enable the provisional head company of a MEC group to set the FDA declaration percentage and determine the FDA declaration amount, in accordance with section 128TC of the ITAA 1936, for dividends paid on a particular day.

Section 717-520 of the ITAA 1997 enables a head company of a consolidated group to make FDA declarations in relation to dividends paid by a subsidiary member of the group. The head company is able to make the FDA declarations because it is taken to be the company that pays the dividends to the non-resident shareholders for that purpose. Where one or more dividends are paid on a particular day, section 717-525 of the ITAA 1997 will apply. That section provides that the FDA declaration amounts for all dividends paid on a particular day, worked out under subsection 128TC(2) of the ITAA 1936, are not to exceed the FDA surplus at the beginning of the day.

Section 719-900 of the ITAA 1997 ensures Subdivision 717-J of the ITAA 1997 applies to a provisional head company of a MEC group in the same way as it does for a head company of a consolidated group. Section 719-900 of the ITAA 1997 also provides that:

•: an eligible tier-1 company that is the provisional head company will not be taken to be a subsidiary member of the group at that time, and
•: each company that is a member of the group, other than the provisional head company at the time, will be taken to be a subsidiary member of the group at that time.

Accordingly, A Co will be the provisional head company at the time the FDA declarations are made, and B Co will be taken as if it were a subsidiary member of the group at that time.

As Subdivision 717-J of the ITAA 1997 applies to a provisional head company of a MEC group in the same way as it does for a head company of a consolidated group, sections 717-520 and 717-525 of the ITAA 1997 will have application with respect to FDA declarations made by a provisional head company. Consequently, a provisional head company can make multiple FDA declarations for dividends paid by MEC group members on the same day subject to the limitations on the FDA declaration percentage imposed by subsection 128TC(2) of the ITAA 1936.

Therefore, A Co is able to make multiple FDA declarations on 1 April 2005. The FDA declarations made by A Co will cover dividends paid to its shareholders as well as the dividends paid to the shareholders in B Co.

Date of decision: 9 May 2003

Year of income: 30 June 2005

Legislative References:
Income Tax Assessment Act 1997
   section 717-520
   section 717-525
   section 719-900
   Subdivision 717-J

Income Tax Assessment Act 1936
section 128TC
subsection 128TC(2)

Related Public Rulings (including Determinations)
Taxation Ruling TR 93/40A

Related ATO Interpretative Decisions
ATO ID 2002/1085

Keywords
Consolidation
Consolidation - foreign tax
Consolidation - multiple entry consolidated group
Foreign dividend withholding tax
Unfranked dividends

Business Line: Consolidations Centre of Expertise

Date of publication: 23 May 2003

ISSN: 1445-2782

history

	Date:	Version:
You are here	9 May 2003	Original statement
	10 December 2010	Archived

Copyright notice

You are free to copy, adapt, modify, transmit and distribute material on this website as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products).