Edited version of private ruling

Authorisation Number: 1011760550019

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Ruling

Subject: Controlled Foreign Company

Question:

Will an entity be a CFC under section 340 of the ITAA 1936 in relation to the Applicant as the head company of a consolidated group for head company core purposes?

Answer:

No.

This ruling applies for the following periods:

Year ended 30 June 2011

Year ended 30 June 2012

Year ended 30 June 2013

Year ended 30 June 2014

Year ended 30 June 2015

Note: If a day (other than 30 June) is elected to be the last day of the entity's statutory accounting period, that day will be substituted.

Relevant facts and circumstances:

The Applicant is proposing to establish a limited partnership (LP) in a 'listed country' (under the definition in section 320 of the ITAA 1936) via a wholly owned Australian subsidiary.

Relevant legislative provisions

Income Tax Assessment Act 1936 section 94D

Income Tax Assessment Act 1936 paragraph 94D(1)(a)

Income Tax Assessment Act 1936 subsection 94D(2)

Income Tax Assessment Act 1936 section 94J

Income Tax Assessment Act 1936 section 318

Income Tax Assessment Act 1936 subsection 318 (2)

Income Tax Assessment Act 1936 section 340

Income Tax Assessment Act 1936 paragraph 340(a)

Income Tax Assessment Act 1936 paragraph 340(b)

Income Tax Assessment Act 1936 paragraph 340(c)

Income Tax Assessment Act 1936 subsection 349(1)

Income Tax Assessment Act 1936 paragraph 349 (1)(a)

Income Tax Assessment Act 1936 paragraph 349(1)(b)

Income Tax Assessment Act 1936 subsection 349(2)

Income Tax Assessment Act 1936 subsection 349(5)

Income Tax Assessment Act 1936 section 350

Income Tax Assessment Act 1936 subsection 350(1)

Income Tax Assessment Act 1936 paragraph 350(1)(a)

Income Tax Assessment Act 1936 paragraph 350(1)(b)

Income Tax Assessment Act 1936 paragraph 350(1)(c)

Income Tax Assessment Act 1936 paragraph 350(1)(d)

Income Tax Assessment Act 1936 subsection 352(4)

Income Tax Assessment Act 1936 paragraph 352(4)(a)

Income Tax Assessment Act 1936 paragraph 352(4)(b)

Income Tax Assessment Act 1936 paragraph 353(2)(a)

Income Tax Assessment Act 1936 paragraph 353(2)(b)

Income Tax Assessment Act 1936 paragraph 353(2)(b)(ii)

Income Tax Assessment Act 1936 paragraph 353(2)(c)

Income Tax Assessment Act 1997 section 995-1

Income Tax Regulations 1936 regulation 152C schedule 10

EXPLANATION: (this does not form part of the Notice of Private Ruling):

The broad objective of the accruals taxation system contained in the CFC rules in ITAA 1936 is to tax Australian residents on an accruals basis, on their share of a CFC's 'tainted income' as it is earned unless the income is comparably taxed offshore or the CFC derives its income almost exclusively from active business activities.

Therefore, the threshold question is whether there is a CFC in relation to an Australian resident taxpayer. A company will be treated as a CFC where it satisfies any one of the following three 'control tests' in section 340 of ITAA 1936:

A company is a CFC at a particular time if, at that time, the company is a resident of a listed country or of an unlisted country and any of the following paragraphs applies:

(a) at that time, there is a group of 5 or fewer Australian 1% entities the aggregate of whose associate-inclusive control interests in the company is not less than 50%;

(b) both of the following subparagraphs apply:

i) at that time, there is a single Australian entity (in this paragraph called the "assumed controller'') whose associate-inclusive control interest in the company is not less than 40%;

ii) at that time, the company is not controlled by a group of entities not being or including the assumed controller or any of its associates;

(c) at that time, the company is controlled by a group of 5 or fewer Australian entities, either alone or together with associates (whether or not any associate is also an Australian entity).

Based on the facts of this case, the LP will not satisfy any of the above control tests thus, will not be a CFC under section 340 of the ITAA 1936.