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Edited version of your written advice

Authorisation Number: 1012741358203

Ruling

Subject: Losses

Question 1

For the purposes of Company A applying section 166-230 of the ITAA 1997, is Foreign Company BC, being the 'top interposed entity' after the merger of Foreign Company C with Foreign Company B to form Foreign Company BC, treated as being the same 'top interposed entity' (being Foreign Company C) as before the merger?

Answer

Yes.

This ruling applies for the following periods:

1 January 2014 to 31 December 2014

1 January 2015 to 31 December 2015

1 January 2016 to 31 December 2016

1 January 2017 to 31 December 2017

The scheme commences:

During the period 1 January 2014 to 31 December 2014.

Relevant facts and circumstances

The scheme, the subject of this ruling, is described below.

Prior to the merger between Foreign Company C and Foreign Company B

Foreign Company C

Company A and tax losses

Foreign Company B

Merger of Foreign Company C and Foreign Company B to form Foreign Company BC

Foreign legislation

The merger of Foreign Company B and Foreign Company C occurred in accordance with foreign law.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 166-230

Reasons for decision

In applying section 166-230 of the ITAA 1997 to Foreign Company C, at and after the Merger Completion Date, the consequences of the merger between Foreign Company C and Foreign Company B under foreign law foreign law must be considered. This is because the merger was implemented under foreign law.

When considering the application of the ITAA 1997 to a corporate structure that has been effected by this merger, the Foreign Corporations (Application of Laws) Act 1989 (Cth) (FC Act) requires the relevant foreign law to be applied. Section 7 of the FC Act states:

(b) the membership of a foreign corporation; or

(c) the shareholders of a foreign corporation having a share capital; or

(d) the officers of a foreign corporation; or

(g) the internal management and proceedings of a foreign corporation; or

Section 3 of the FC Act clarifies that 'incorporate' includes form.

Foreign Company C and Foreign Company B merged to form a new company, Foreign Company BC, under foreign law.

In Gold and Resource Developments NL v. Australian Stock Exchange Ltd and Another (1998) 30 ACSR 105; (1999) 17 ACLC 306, Wheeler J stated at ACSR 105; ACLC 306 that:

where foreign law creates a transaction or procedure which has no Australian counterpart, it is necessary to look to the foreign law for the meaning and effect of that transaction or procedure. Once that is understood, the procedure or transaction is then to be tested against [the Australian legal definition].

The effect of the foreign law is that, on and after the Merger Completion Date, Foreign Company BC is substituted for Foreign Company C in respect of a lawful claim, demand, or right, so that Foreign Company BC succeeds to or acquires the rights, remedies, or securities of Foreign Company C in relation to the claim. In other words, Foreign Company BC stands in the shoes of Foreign Company C from that time onwards.

Therefore, in substance, Foreign Company BC is substituted for, and stands in the place of, Foreign Company C. This means that after the merger Foreign Company BC is treated as the same entity that, before the merger, owned, through interposed entities, all of the shares in Company A.

Therefore, in applying section 166-230 of the ITAA 1997 at each test time after the merger, Foreign Company BC is taken to be the same entity as Foreign Company C, and thus is the same 'top interposed entity' as before the merger to whom voting stakes, dividend stakes and capital stakes in Company A are attributed, as a person (other than a company), under subsection 166-230(2) of the ITAA 1997.

It should be noted that this Ruling does not consider the CGT consequences of the transfer of the Australian assets (if any) of Foreign Company C to Foreign Company BC under the merger pursuant to foreign law. Specifically, CGT event A1 in section 104-10 of the ITAA 1997 is not precluded from happening as a result of this Ruling.


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