Edited version of your written advice

Authorisation Number: 1012723682351

Ruling

Subject: Section 128F interest withholding tax exemption

Question 1

Will the Syndicated Facility Agreement constitute a 'syndicated loan facility' for the purpose of the definition of a 'syndicated loan facility' in subsection 128F(9) of the Income Tax Assessment Act 1936 (ITAA 1936)?

Answer

Yes.

Question 2

Will each of the loans made pursuant to the Syndicated Facility Agreement constitute a 'syndicated loan' for the purpose of the definition of a 'syndicated loan' in subsection 128F(9) of ITAA 1936?

Answer

Yes.

Question 3

Does the invitation to become a lender under the Syndicated Facility Agreement satisfy the public offer test in subsection 128F(3A) of ITAA 1936?

Answer

Yes.

Question 4

Will subsection 128F(1) of ITAA 1936 apply such that interest paid by the taxpayer on each syndicated loan issued under the Syndicated Facility Agreement will not be subject to tax imposed under Division 11A of ITAA 1936?

Answer

Yes.

Question 5

Will the taxpayer have no obligation to withhold an amount from any interest paid under the Syndicated Facility Agreement under section 12-300 of the Schedule 1 to the Taxation Administration Act 1953 (TAA) by virtue of paragraph 12-300(a) of the TAA because section 128F of the ITAA 1936 applies to the interest?

Answer

Yes.

This ruling applies for the following periods:

A number of income years

The scheme commences on:

2014 income year

Relevant facts and circumstances

The scheme

1. The taxpayer was incorporated in Australia as a proprietary company with limited liability. It is part of an Australian Group, which also forms part of a foreign group.

2. To assist with the financing of the acquisition of the increased equity stakes in a project, conducted by the Australian Group, the taxpayer entered a syndicated financing arrangement, governed by the Syndicated Facility Agreement.

3. The taxpayer is the sole borrower under the Syndicated Facility Agreement and on-lends the money borrowed to other entities in the Australian Group.

4. The taxpayer sent an invitation to more than 10 financial institutions via electronic correspondence to invite them to consider participating in the Syndicated Facility Agreement to provide financing to the taxpayer.

5. The taxpayer reasonably believed that the financial institutions to which the invitation was sent were carrying on a business of providing finance, or investing or dealing in securities, in the course of operating in financial markets.

6. None of the financial institutions were known or suspected by the taxpayer to be an associate of any of the other parties invited, at the time of the invitation was made.

7. Also, none of the financial institutions was known by the taxpayer as an offshore associate of itself.

8. From those financial institutions invited, a certain number of financial institutions have become lenders under the Syndicated Facility Agreement.

9. Under the terms of the Syndicated Facility Agreement, the obligations of the lenders are several and failure by a lender to perform its obligation under the Syndicated Facility Agreement does not affect the obligations of any other party under the Syndicated Facility Agreement.

10. Under the Syndicated Facility Agreement, each lender makes the following representations, warranties and undertaking:

(i) It was, at the time it received the invitation from the borrower to participate in the Facilities and will be, at the time of making a loan, carrying on the business of providing Facilities and will be, at the time of making a loan, carrying on the business of providing finance, or investing or dealing in securities, in the course of operation in financial markets; and

• To its actual knowledge and belief, it was not, at the time it received the invitation from the borrower to participate in the Facilities and will not be, at the time it makes a loan (unless notified to the borrower in writing before it makes that loan), an offshore associate of the borrower.

(ii) The taxpayer was an Australian tax resident company at the time of issue of the debt interests under the Syndicated Facility Agreement and will still be an Australian tax resident at the time interest is paid in respect of the debt interests.

(iii) The taxpayer will have access to at least A$100 million (or its equivalent in any other currency or currencies) at the time the first loan is to be provided under the Syndicated Facility Agreement.

Relevant legislative provisions

Income Tax Assessment Act 1936 section 128B

Income Tax Assessment Act 1936 subsection 128F(1)

Income Tax Assessment Act 1936 subsection 128F(2)

Income Tax Assessment Act 1936 subsection 128F(3)

Income Tax Assessment Act 1936 subsection 128F(3A)

Income Tax Assessment Act 1936 subsection 128F(5AA)

Income Tax Assessment Act 1936 subsection 128F(9)

Income Tax Assessment Act 1936 subsection 128F(11)

Income Tax Assessment Act 1936 subsection 128F(12)

Income Tax Assessment Act 1936 subsection 128F(13)

Income Tax Assessment Act 1997 section 995-1

Taxation Administration Act 1953 schedule 1 paragraph 12-300(a)

Reasons for decision

All references are to the ITAA 1936 unless otherwise stated.

Question 1

Will the Syndicated Facility Agreement constitute a 'syndicated loan facility' for the purpose of the definition of a 'syndicated loan facility' in subsection 128F(9) of ITAA 1936?

Detailed reasoning

Under section 128B, Interest Withholding Tax (IWT) is payable on interest paid by an Australian resident to a non-resident unless an exemption applies.

Subsection 128F provides that where an Australian resident company issues a debenture or a debt interest and the issue satisfies the requirements of the public offer test contained in subsection 128F(3) or (4) and does not fail the public offer test under subsection 128F(5), an exemption from IWT will apply.

A debt interest under subparagraph 128F(1)(c) includes a syndicated loan to which section 128F may apply.

Syndicated loan facility

For the purposes of subparagraph 128F(1)(c)(iii), a 'syndicated loan' is defined in subsection 128F(9) which has the meaning given by subsections (11), (12) and (13).

Subsection 128F(11) is the provision relevant to the syndicated facility under this arrangement as it applies where there are at least two lenders and one or more borrowers.

Subsection 128F(11) provides that a written agreement is a syndicated loan facility if:

(a) the agreement describes itself as a syndicated loan facility or syndicated facility agreement; and

(b) the agreement is between one or more borrowers and at least 2 lenders; and

(c) under the agreement each lender severally, but not jointly, agrees to lend money to, or

otherwise provide financial accommodation to, the borrower or borrowers; and

(d) the amount to which the borrower or borrowers will have access at the time the first loan or other form of financial accommodation is to be provided under the agreement is at least $100,000,000 (or a prescribed amount).

Subsection 128F(12) does not apply to this case as it applies in situations where there is only one lender. In this case, a certain number had committed to providing finance under the Syndicated Facility Agreement.

Subsection 128F(13) also does not apply as the taxpayer is the sole borrower under the Syndicated Facility Agreement. Based on the facts provided, the Syndicated Facility Agreement will constitute a syndicated loan facility within the meaning of subsection 128F(11) because:

• it is a written agreement;

• it describes itself as a syndicated loan facility or a syndicated facility agreement, under the terms of the Syndicated Facility Agreement;

• it is between the taxpayer as the borrower and at least two lenders;

• under the Syndicated Facility Agreement, each lender agrees to lend money severally (but not jointly) to the taxpayer; and

• the amount to which the taxpayer will have access at the time the first loan is provided will be at least AUD$100 million.

Therefore the Syndicated Facility Agreement constitutes a syndicated loan facility for the purpose of the definition of a syndicated loan facility in subsection 128F(9).

Question 2

Will each of the loans made pursuant to the Syndicated Facility Agreement constitute a 'syndicated loan' for the purpose of the definition of a 'syndicated loan' in subsection 128F(9) of the ITAA 1936?

Detailed reasoning

As stated above, 'syndicated loan' is defined in subsection 128F(9) as a loan or other form of financial accommodation that is provided under a syndicated loan facility, being a facility that has 2 or more lenders.

As explained above in the Reasons for Decision for Question 1, the Syndicated Facility Agreement constitutes a syndicated loan facility. As such, each of the loans made pursuant to the Syndicated Facility Agreement will constitute a syndicated loan as defined in subsection 128F(9).

Question 3

Does the invitation to become a lender under the Syndicated Facility Agreement satisfy the public offer test in subsection 128F(3A) of ITAA 1936?

Detailed reasoning

For section 128F to apply to an interest paid by a company in respect of a debenture or debt interest in the company, paragraph 128F(1)(d) requires that:

(i) the issue of the debenture or debt interest satisfies the public offer test set out in subsections (3) or (4); or

(ii) for a syndicated loan - the invitation to become a lender under the relevant syndicated loan facility satisfies the public offer test set out in subsection (3A).

In the present case, the debt interest is a syndicated loan, therefore the relevant public offer test is set out in subsection 128F(3A).

Subsection 128F(3A) provides that an invitation to become a lender under a syndicated loan facility by a company satisfies the public offer test if the invitation was made:

(a) to at least 10 persons each of whom:

(i) was carrying on a business of providing finance, or investing or dealing in securities, in the course of operating in financial markets; and

(ii) was not known, or suspected, by the company to be an associate (see subsection (9)) of any of the other persons covered by this paragraph; or

(b) publicly in electronic form, or in another form, that was used by financial markets for dealing in debentures or debt interests; or

(c) to a dealer, manager or underwriter, in relation to the placement of debentures or debt interests, who, under an agreement with the company, made the invitation to become a lender under the facility within 30 days in a way covered by paragraph (a) or (b).

For the purpose of satisfying subparagraph 128F(3A)(a)(i), the taxpayer is not required to make a detailed examination of the invitees when issuing the invitations.

In this case, the taxpayer reasonably believed that the financial institutions to which the invitation was sent were carrying on a business of providing finance, or investing or dealing in securities, in the course of operating in financial markets.

With respect to subparagraph 128F(3A)(a)(ii), none of the financial institutions were known or suspected by the taxpayer to be an associate of any of the other parties invited. Therefore, subparagraph 128F(3A)(a)(ii) is satisfied at the time the invitation was made.

Therefore the public offer test in subsection 128F(3A) is satisfied on the basis that:

• a written invitation to potential lenders to become a lender under the Syndicated Facility Agreement was made via electronic correspondence;

• Agreement was made via electronic correspondence;

• the invitation was made to at least 10 financial institutions which:

• were carrying on a business of providing finance, or investing or dealing in securities, in the course of operating in financial markets at the time the invitation was made; and

• were not known or suspected by the taxpayer to be associates of each other.

In addition to satisfying the requirements in subsection 128F(3A), it is also necessary to consider subsection 128F(5AA), which specifies the conditions under which an invitation to become a lender under a syndicated loan facility will never satisfy the public offer test.

Broadly, the invitation is taken never to have satisfied the public offer test if, at the time of the invitation, the company knew, or had reasonable grounds to suspect, that an associate of the company is or will become a lender under the facility.

Under the terms of the Syndicated Facility Agreement, the taxpayer acknowledges that no persons to whom it made an invitation to become a lender under this Agreement is known or suspected to be an offshore associate of the taxpayer.

Further each lender under the Syndicated Facility Agreement warrants that, to its actual knowledge and belief, it was not at the time it received the invitation from the taxpayer to participate in the Facilities and will not be at the time it makes a loan to the taxpayer, an offshore associate of the taxpayer.

As none of the Invitees were known or suspected by the taxpayer to be its associate, subsection 128F(5AA) does not apply.

Therefore, based on the facts, the public offer test in subsection 128F(3A) is satisfied.

Question 4

Will subsection 128F(1) of ITAA 1936 apply such that interest paid by the taxpayer on each syndicated loan issued under the Syndicated Facility Agreement will not be subject to tax imposed under Division 11A of ITAA 1936?

Detailed reasoning

Subsection 128F(2) provides that tax is not payable under Division 11A in respect of interest to which section 128F applies.

Subsection 128F(1) provides that section 128F applies to interest paid by a company in respect of certain publicly offered debentures and debt interests if:

(a) the company was a resident of Australia when it issued the debenture or debt interest; and

(b) the company is a resident of Australia when the interest is paid; and

(c) for a debt interest other than a debenture - the debt interest:

(i) is a non-equity share; or

(ii) consists of 2 or more related schemes (within the meaning of the Income Tax Assessment Act 1997) where one or more of them is a non-equity share; or

(iii) is a syndicated loan; or

(iv) is prescribed by the regulations for the purposes of this section; and

(d) either:

(i) the issue of the debenture or debt interest satisfies the public offer test set out in

subsection (3) or (4); or

(ii) for a syndicated loan - the invitation to become a lender under the relevant syndicated

loan facility satisfies the public offer test set out in subsection (3A).

The interest paid by the taxpayer under the Syndicated Facility Agreement satisfies the conditions under subsection 128F(1) because:

(i) at the time the taxpayer issues the debt interest, the taxpayer was a resident of Australia;

(ii) at the time the interest is paid by the taxpayer, it will be a resident of Australia;

(iii) the syndicated loan is a debt interest to which interest is paid by the taxpayer; and

(iv) the invitation to become a lender under the relevant syndicated loan facility satisfies the public offer test set out in subsection 128F(3A).

As the requirements of subsection 128F(1) will be satisfied, subsection 128F(1) will apply such that interest paid by the taxpayer on each loan issued under the Syndicated Facility Agreement will not be subject to tax imposed under Division 11A.

Question 5

Will the taxpayer have no obligation to withhold an amount from any interest paid under the Syndicated Facility Agreement under section 12-300 of the Schedule 1 to the TAA by virtue of paragraph 12-300(a) of the TAA because section 128F of the ITAA 1936 applies to the interest?

Detailed reasoning

Section 12-300 of Schedule 1 to the TAA sets out the limits on amounts withheld under Subdivision 12-F of Schedule 1 to the TAA. Under paragraph 12-300(a) of Schedule 1 to the TAA, an entity is not required to withhold an amount from (inter alia) interest (within the meaning of Division 11A of Part III) if no withholding tax is payable in respect of the interest.

As mentioned, the interest payable by the taxpayer under the Syndicated Facility Agreement satisfies the requirements under subsection 128F(1). Therefore, tax will not be payable in respect of the interest under subsection 128F(2).

Accordingly, the taxpayer will have no obligation to withhold an amount from any interest paid under the Syndicated Facility Agreement under section 12-300 of Schedule 1 to the TAA by virtue of paragraph 12-300(a) of Schedule 1 to the TAA.

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