ATO Interpretative Decision

ATO ID 2006/265

Income tax

Controlled foreign companies: amalgamation of two controlled foreign companies - transfer of assets
FOI status: may be released

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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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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 the transfer of the assets from the amalgamating entity to the amalgamated entity give rise to a 'disposal' of the assets for the purposes of Part X of the Income Tax Assessment Act 1936 (ITAA 1936)?

Decision

Yes. The proposed amalgamation will give rise to a 'disposal' of the assets within the meaning of that term in section 317 of the ITAA 1936.

Facts

A resident company wholly owns an overseas subsidiary (Z Co). Z Co wholly owns another subsidiary (Y Co). Z Co and Y Co amalgamate under specific legislation in their jurisdiction of residence. Z Co will continue as the amalgamated company.

Under the terms of the legislation, the amalgamated company will succeed to all the assets, liabilities and obligations of Y Co. The shares in Y Co will then be cancelled without payment or other consideration.

Reasons for Decision

The transfer of the underlying assets as part of the amalgamation process constitutes a change in ownership of those assets. An entity with a separate legal personality to the amalgamating entity is holding the assets after the transfer. Therefore, the assets have been disposed of by the amalgamating entity, Y Co, and acquired by the amalgamated entity, Z Co.

Date of decision: 2 August 2004

Year of income: Year ended 30 June 2004

Legislative References:
Income Tax Assessment Act 1936
section 317

Related ATO Interpretative Decisions
ATO ID 2006/266

Keywords
Controlled foreign companies
Disposal of assets
International tax

Siebel/TDMS Reference Number: 3788010

Business Line: Public Groups and International

Date of publication: 22 September 2006

ISSN: 1445-2782

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