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Edited version of your written advice
Authorisation Number: 1051321707178
Date of advice: 21 December 2017
Ruling
Subject: Redemption of mandatorily redeemable Australian limited partnership interest
Question
Will the Commissioner confirm that no determination will be made pursuant to Part IVA of the Income Tax Assessment Act 1936 (ITAA 1936) to cancel the whole or part of any tax benefit obtained under section 177C, or that would be obtained but for section 177F be obtained, as a result of undertaking the Proposed Transaction?
Answer
Yes
This ruling applies for the following period:
A number of income years
The scheme commences:
When the transaction is implemented
Relevant facts and circumstances
● AusCo is an Australian incorporated and tax resident company in Australia
● AusCo is the head entity of the AusCo Income Tax Consolidated Group (ITCG), as well as the top holding company for the worldwide group of companies.
● ALP, registered in the State of Victoria as a corporate limited partnership, has 2 Australian partners and one non-resident partner (ForCo). One Australian partner is the general partner; the other Australian and ForCo are limited partners. ForCo’s partnership interest is preferred capital. The sole activity of ALP is to hold the assets.
● The ALP is an Australian tax resident and treated as a company for Australian income tax purposes
● ALP is a subsidiary member of the AusCo ITCG
● In accordance with the ALP Partnership Deed, there is a requirement for ForCo to exit the ALP after a period from the date of the ALP Partnership Deed
● When ForCo exits the ALP it will be entitled to receive its initial capital contribution i.e. preferred capital and a final partnership distribution
● The ALP does not have sufficient funds to meet the return of preferred capital and partnership distribution as a result of ForCo exiting the ALP
The Proposed Transaction
● In order to satisfy this obligation, the ALP will issue a long term debt instrument to ForCo
● The terms of the long term debt are as follows:
● Term of 12 years
● Denominated in Euro
● Coupon rate of 2.37% p.a.
● Interest accrues monthly and payable on the day of each interest period (31 March and 30 September).
Relevant legislative provisions
Income Tax Assessment Act 1936 Section 177A
Income Tax Assessment Act 1936 Section 177C
Income Tax Assessment Act 1936 Section 177CB
Income Tax Assessment Act 1936 Section 177D
Income Tax Assessment Act 1936 Section 177F
Reasons for decision
The Proposed Transaction constitutes a scheme for the purposes of subsection 177A(1) of the Income Tax Assessment Act 1936 (ITAA 1936). Having established the existence of a scheme, a further requirement for the application of Part IVA is the identification of a tax benefit that is obtained in connection with that scheme. The basis for identifying a tax benefit is found in section 177CB. On the facts there is no reasonable postulate that a tax effect would have occurred if the scheme had not been entered into.
Accordingly, the Commissioner will not exercise his power to make a determination pursuant to paragraph 177F(1)(b).
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