Edited version of private ruling

Authorisation Number: 1011818281112

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Ruling

Subject: Transfer of jurisdiction of company registration

Question 1:

Is the taxpayer the same 'entity' for the purposes of the term 'entity' as defined in section 960-100 of the ITAA 1997, pursuant to the transfer of the jurisdiction of the taxpayer's registration from Country X to Country Y, under the provisions of The Companies (Country X) Law ('Country X Act') and the Companies Country Y Act ('Country Y Act')?

Answer:

The taxpayer is the same 'entity' for the purposes of the term 'entity' as defined in section 960-100 of the ITAA 1997, pursuant to the transfer of the jurisdiction of the taxpayer's registration from Country X to Country Y.

Question 2

Does a CGT event under Division 104 of the ITAA 1997 occur in respect of the taxable Australian property of the taxpayer, pursuant to the transfer of the jurisdiction of the taxpayer's registration from Country X to Country Y, under the provisions of the Country X Act and the Country Y Act?

Answer:

There is no CGT event under Division 104 of the ITAA 1997 that happens in respect of the taxable Australian property of the taxpayer pursuant to the transfer of the jurisdiction of the taxpayer's registration from Country X to Country Y under the provisions of the Country X Act and the Country Y Act.

The period of the ruling

The date of removal of the taxpayer from the Country X Register of Companies and the date of issue in Country Y of a certificate of continuation of the taxpayer as an international business company.

The scheme commences on:

The date of removal of the taxpayer from the Country X Register of Companies.

Relevant facts:

Registration

The taxpayer is a non-resident company for Australian income tax purposes that is registered in Country X under the Country X Companies Law.

The taxpayer is registered under The Companies (Country X) Laws.

The taxpayer is a non-cellular company limited by shares within the meaning of a section of the Country X Act.

The Memorandum of Association of the taxpayer provides, amongst other things, for the company to carry on business in all its branches and in any part of the world as an investment, trading, trust, finance, agency, property, manufacturing and commercial company, and to undertake and carry on and execute all kinds of financial, commercial, trading, manufacturing and other operations.

A section of the Country X Act provides that the objects of a company are unrestricted unless specifically limited by its Memorandum of Association.

The Country X Act also provides that, in terms of corporate capacity, the validity of an act done by a company shall not be called into question on the lack of capacity by reason of anything contained in or omitted from:

· the company's memorandum of articles;

· any resolution of the company; or

· any agreement between the company's members.

Transfer of Registration

The Memorandum of Association of the taxpayer also provide for the company to be recognised and registered in any place throughout the world, and to carry on its business in any part of the world.

The taxpayer intends to apply to the Registrar, pursuant to a section of the Country X Act, to be removed from the taxpayer's Register and to become registered as a company outside Country X. In this regard the taxpayer intends a special resolution to be passed by its shareholders, as required by a section of the Country X Act.

The taxpayer states in its ruling application that will meet the various requirements for the transfer of the registration of companies under the Country X Act.

A section of the Country X Act recognises that removal from the Register of Companies does not create a new legal person, and does not prejudice or affect the identity or continuity of the legal person constituted by the company. This is notwithstanding the provisions of a section of the Country X Act which states that a company continues until removed from the Register.

Pursuant to the Country X Act, upon removal from the Register of Companies all property and rights to which the company was entitled immediately before that removal remain its property and rights.

Furthermore, the company remains subject to all contracts, debts and other obligations, to which it was subject prior to its removal.'

The ruling application states that the references to various provisions of the Country X Act in the facts section of the application are correct as at the date of the ruling application.

Continuation

The taxpayer intends to continue its existence in Country Y and accordingly will be registered under the Country Y Act.

The taxpayer will be continued as an international business company limited by shares within the meaning of a section of the Country Y Act.

Sections of the Country Y Act provides in combination that an international business company is a legal entity in its own right separate from its members and continues in existence until it is dissolved.

It has full rights, powers and privileges to borrow money; guarantee a liability or obligation of any person and secure any of its obligations by mortgage, pledge or other charge, of any of its assets for that purpose.

An entity that was incorporated under a jurisdiction outside Country Y (by complying with the requirements set forth in a section of the Country Y Act), can continue as an international business company under that Act. This is provided the entity also satisfies the requirements of lodgment of the articles of continuation and requirements for registration under the Country Y Act in a section of that Act.

The ruling application states that it is intended that the taxpayer will qualify as an 'international business company and satisfy the requirements of the section of the Country Y Act. Further, the taxpayer intends to file the documents referred to in the section of the Country Y Act.

A section of the Country Y Act provides that, from the time of the issue by the Registrar of a certificate of continuation, the taxpayer will not longer be treated as a company incorporated or registered under the law that applied to it immediately prior to its continuation. i.e. the Country X Act.

More importantly, pursuant to the section:

· the articles and bylaws of the company, or their equivalent, as amended by the articles of continuation, are the articles and bylaws of the company;

· property of every description, including choses in action and the business of the company, continue to be vested in the company; and

· the company continues to be liable for all of its claims, debts, liabilities and obligations.

Australian business

The taxpayer is registered as a foreign company under Part 5B.2 of the Corporations Act 2001.

The taxpayer carries on a business of primary production in Australia. In this regard the principal asset held by the taxpayer is land in Australia.

It is stated in the ruling application that the transfer of the taxpayer's registration from Country X to Country Y will not result in its being issued with a new Australian Registered Business Number (ARBN) for the purposes of its registration as a foreign company under the Corporations Act 2001.

It is also stated that, a letter confirming the taxpayer's transfer of registration from Country X to Country Y with supporting evidence that the taxpayer is continued as an international business company under the Country Y Act, will be provided to Australian Securities Investment Commission on completion of the process of the transfer.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 995-1

Income Tax Assessment Act 1997 Paragraph 960-100(b)

Income Tax Assessment Act 1997 Division 104

Income Tax Assessment Act 1997 Section 104-10

Corporations Act 2001 Part 5B.2

Reasons for Decision

Question 1

Summary

The taxpayer is a body corporate, for the purposes of the ITAA 1997. The taxpayer is also registered under the Country X Act as an 'entity' as defined in paragraph 960-100(b) of the ITAA 1997. It is also a 'company' as defined in section 995-1 of the ITAA 1997.

Notwithstanding the taxpayer's transfer of registration to the Country Y Act, the taxpayer preserves its identity and continues to be the same legal entity pursuant to the relevant provisions of the Country X and Country Y Acts.

Accordingly, the taxpayer will continue to be a 'body corporate', 'company' and 'entity' as relevantly defined in the ITAA 1997 subsequent to the transfer of its registration from Country X to Country Y.

Detailed reasoning

A 'company' is defined in section 995-1 of the ITAA 1997 as:

(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.

As the term 'body corporate' is not defined in Australia's income tax legislation, the ordinary meaning of the term applies. The Butterworths Concise Australian Legal Dictionary second edition defines a body corporate as 'an artificial legal entity having separate legal personality.'

The Commissioner has considered the meaning of the term 'body corporate' in Miscellaneous Taxation Ruling 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 taxpayer is a 'body corporate' within the general law meaning of the term as defined in Miscellaneous Tax Ruling MT 2006/1. The memorandum of association describes the taxpayer's corporate identity as an entity with a separate legal status, wholly distinct from that of its members.

This allows the taxpayer to acquire, hold and dispose of property of every description, transact business, borrow or lend money, accept and execute agreements etc. as it thinks fit, in its own right.

The taxpayer is incorporated under the Country X Act which recognises that the validity of any act done by a company shall not be called into question on the lack of capacity.

Accordingly, the taxpayer is a company as defined in section 995-1 of the ITAA 1997.

Section 995-1 of the ITAA 1997 defines an 'entity' to have the meaning in section 960-100 of the ITAA 1997. An 'entity' is defined to mean any of the following:

(a) an individual;

(b) a body corporate;

(c) a body politic;

(d) a partnership;

(e) any other incorporated association or body of persons;

(f) a trust;

(g) a superannuation fund.'

As a body corporate, for the purposes of the ITAA 1997, the taxpayer is registered under the Country X Act as an 'entity' as defined in paragraph 960-100(b) of the ITAA 1997. It is also a 'company' as defined in section 995-1 of the ITAA 1997.

ATO Interpretative Decision 2004/798 considers whether the taxpayer, after the conversion from an incorporated co-operative to a company, is the same 'entity' for all purposes under the Income Tax Assessment Act 1997 (ITAA 1997). The ATO ID concludes that the taxpayer remains the same 'entity', for the purposes of section 960-100 of the ITAA 1997, after the conversion as:

'The provisions in the Co-op Act and the Corporations Act both provide for the continuation of the taxpayer as the 'same entity as the body corporate' which was the co-operative, and the act of registration under a different Act of itself will not create a 'new legal entity'

In addition, the assets, rights and liabilities of the taxpayer vest in and are preserved when the taxpayer is registered under the Corporations Act without the need for any 'conveyance, transfer or assignment or assurance'

A section of the Country X Act recognises that the removal of a company from the Register of Companies does not create a new legal person, and does not prejudice or affect the identity or continuity of the legal person constituted by the company.

Similarly, after the registration of the taxpayer under the Country Y Act, it will, as an international business company, continue to be a legal entity in its own right separate from its members and continues in existence until it is dissolved.

Notwithstanding the taxpayer's transfer of registration to a separate Act, the taxpayer preserves its identity and continues to be the same legal entity pursuant to a section of the Country Y Act.

Accordingly the taxpayer will continue to be a 'body corporate', 'company' and 'entity' as relevantly defined in the ITAA 1997 subsequent to the transfer of its registration from Country X to Country Y.

In addition, property of every description, including choses in action and the business of the taxpayer, continue to be vested in the taxpayer; and the taxpayer continues to be liable for all of its claims, debts, liabilities and obligations incurred prior to the transfer of its registration (a section of the Country Y Act). This indicates that the identity of the body corporate is preserved and continues with the same assets, rights and liabilities, albeit as a company by registration.

Therefore, the taxpayer is the same body corporate and 'entity' for the purposes of the ITAA 1997 both before and after it completes its transfer of registration.

Question 2

Summary

Furthermore, for CGT purposes, there is no transfer of any assets from the Country X entity to the Country Y entity.

Accordingly, there is no change of ownership (i.e. a disposal) in respect of the taxpayer's assets as a result of the transfer of its registration from Country X to Country Y.

To explain further, as the taxpayer remains the same 'entity' before and after the transfer of its registration, CGT event A1 (section 104-10 of the ITAA 1997) will not happen to the taxpayer's CGT assets acquired as an entity under the Country X Act, on its conversion to an entity governed by the Country Y Act.

Consequently, a capital gain or loss cannot arise in the hands of the taxpayer in respect of its taxable Australian property.

Detailed reasoning

Capital Gains Tax (CGT) implications

Foreign residents are subject to CGT under Division 855 of the ITAA 1997, where a CGT event happens in relation to their CGT assets with effect from 12 December 2006.

Broadly, a "CGT asset" is defined in section 995-1(1) of the ITAA 1997 by reference to section 108-5 of the ITAA 1997, as any kind of property or a legal or equitable right that is not property, that is acquired after 19 September 1985.

CGT events contain rules for determining whether a taxpayer has made a capital gain or capital loss in respect of a transaction relating to their CGT assets, and how that gain or loss is calculated.

The concept of a CGT event is fundamental to the CGT provisions in that, if no CGT event happens in relation to a taxpayer, a capital gain or loss cannot arise in the hands of the taxpayer.

A foreign resident can only make a capital gain or loss in respect of an asset that is 'taxable Australian property.' Broadly, this includes direct or indirect interests in Australian real property and the business assets (other than Australian real property) of an Australian permanent establishment of the foreign resident.

In the present circumstances, the land owned by the taxpayer in Australia and any assets used by the taxpayer to carry on its business of primary production in Australia through its permanent establishment would qualify as taxable Australian property for the purposes of Division 855 of the ITAA 1997.

It therefore need to be determined, whether the transfer of the taxpayer's registration from Country X to Country Y triggers a CGT event. In this regard the relevant CGT event that can apply to the taxpayer is CGT event A1 which happens on the change of ownership of a taxpayer's CGT assets which in the present circumstances is 'taxable Australian property'.

ATO ID 2002/808 deals with CGT implications when an unincorporated association incorporates under the Associations Incorporation Act 1981 (Qld) (AIA (Qld)).

The ATO ID concludes that CGT event A1 (section 104-10 of the ITAA 1997) happens as there is a change in the ownership (i.e. a disposal) of the assets from the unincorporated association to the incorporated association. The newly incorporated association is not the same 'entity' as the unincorporated association.

This is because, subsection 960-100(1) of ITAA 1997 includes unincorporated associations and body corporates 'separately' within the definition of 'entity'. They are also 'separately' included within the definition of 'company' in section 995-1 of ITAA 1997.

In the present circumstances, the legislation under which the taxpayer is currently registered, the Country X Act, provides for the continuation of the same legal entity following the transfer of the taxpayer's registration to the Country Y Act.

Similarly, the company provisions under the Country Y Act specifically provide for the 'continuation' of the taxpayer under that Act, so that, property, assets, rights, land, etc, including choses in action , acquired prior to the transfer of its registration continue to be vested in the taxpayer (a section of the Country Y Act).

As a consequence, for CGT purposes, there is no transfer of assets from the Country X entity to the Country Y entity. In this regard, it is considered that the Country X entity is the same 'entity' as the Country Y entity for the purposes of the ITAA 1997.

Accordingly, there is no change of ownership (i.e., a disposal) in respect of the taxpayer's assets as a result of the transfer of its registration from Country X to Country Y.

The relevant CGT event in the taxpayer's circumstances is CGT event A1 in section 104-10 of the ITAA 1997. CGT event A1 happens on the disposal of a CGT asset.

As there is no disposal of the taxpayer's assets following the transfer of its registration from Country X to Country Y, CGT event A1 (nor any other CGT events) will not happen to the CGT assets acquired by the taxpayer when it was a Country X entity.

Consequently, a capital gain or loss does not arise in the hands of the taxpayer in respect of its taxable Australian property for the purposes of Division 855 of the ITAA 1997.

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