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Ruling
Subject: Withholding Tax liability
Question 1
Is Trustee Limited required to withhold amounts on account of interest withholding tax under section 12-245 of Schedule 1 of the Taxation Administration Act 1953 from payments made to Fin Co under the Liquidity Facility Agreements between FinCo and Trustee Limited as trustee of the trust?
Answer
No
Question 2
Is Trustee Limited required to withhold amounts on account of interest withholding tax under section 12-245 of Schedule 1 of the Taxation Administration Act 1953 from payments made to Fin Co under the Letters of Credit between FinCo and Trustee Limited as trustee of the trust?
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
The scheme commences on:
January 2010
Relevant facts and circumstances
Liquidity Facility Agreements and Letters of Credit
FinCo entered into eight relevant and active Liquidity Facility Agreements (Agreements), as the Liquidity Facility Provider, with the Trustee (Trustee Limited) in its capacity as trustee of the trusts (together the 'Trusts').
Under the Agreements, FinCo (previously through an Australian subsidiary and now through FinCo) provided the Trustee with a Liquidity Facility under which loans were made available to the Trustee provided that certain conditions were met. Interest was payable by the Trustee to FinCo (through its Australia branch) in relation to each draw down that it made pursuant to the Agreements.
The interest rate(s) on the draw downs under the Agreements, and other terms of the Agreements, were regarded as commercially appropriate.
FinCo (through its Australia branch) has also issued two letters of credit (Letters of Credit) in favour of the Trustee as trustee of the Trusts
The terms of the Letters of Credit are also regarded as commercially appropriate.
FinCo changed the lending/issuing office in respect of the Agreements and Letters of Credit to its offshore branch. None of the terms of the Agreements and Letters of Credit were altered as a result of or following the change.
FinCo
FinCo is currently entitled to the benefit of the exemption from Australian interest withholding tax under the relevant Convention in respect of any interest paid to it on advances under the Letters of Credit.
Relevant legislative provisions
Taxation Administration Act 1953 Schedule 1 Section 12-245 and
Taxation Administration Act 1953 Schedule 1 Section 12-300.
Summary
Question 1
Is Trustee Limited required to withhold amounts on account of interest withholding tax under section 12-245 of Schedule 1 of the Taxation Administration Act 1953 from payments made to Fin Co under the Liquidity Facility Agreements between FinCo and Trustee Limited as trustee of the trust?
Answer
No
Detailed reasoning
Section 12-245 of Schedule 1 to the Taxation Administration Act 1953 (TAA 1953) imposes an obligation to withhold tax on interest within the meaning of Division 11A of Part III of the ITAA 1936 that an entity pays to a recipient who has an address outside Australia. However, paragraph 12-300 (a) of Schedule 1 to the TAA 1953, provides that an entity is not required to withhold an amount under Subdivision 12-F if no withholding tax is payable in respect of the interest.
Under the terms of the Agreements the Trustee makes interest payments as required to FinCo, which is a non resident. Prima facie the Trustee would be liable to withhold tax from these interest payments, as the recipient of the payments has an address outside Australia. However, as stated in the facts, in this case the relevant Convention operates to exempt interest payments the Trustee makes to FinCo under the Agreements from withholding tax.
Consequently with FinCo being exempted from withholding tax on interest payments received under the Agreements paragraph12-300 (a) of Schedule 1 of the TAA 1953 will operate to relieve the obligation upon the Trustee to withhold an amount from the interest payments it makes to FinCo under the Agreements.
Question 2
Is Trustee Limited required to withhold amounts on account of interest withholding tax under section 12-245 of Schedule 1 of the Taxation Administration Act 1953 from payments made to Fin Co under the Letters of Credit between FinCo and Trustee Limited as trustee of the trust?
Answer
No
Detailed reasoning
Section 12-245 of Schedule 1 to the TAA 1953 imposes an obligation to withhold tax on interest within the meaning of Division 11A of Part III of the ITAA 1936 that an entity pays to a recipient who has an address outside Australia. However, paragraph 12-300 (a) of Schedule 1 to the TAA 1953, provides that an entity is not required to withhold an amount under Subdivision 12-F if no withholding tax is payable in respect of the interest.
Under the terms of the Letters of Credit the Trustee makes interest payments as required to FinCo, which is a non resident. Prima facie the Trustee would be liable to withhold tax from these interest payments, as the recipient of the payments has an address outside Australia. However, as stated in the facts, in this case the relevant Convention operates to exempt interest payments the Trustee makes to FinCo under the Letters of Credit from withholding tax.
Consequently with FinCo being exempted from withholding tax on interest payments received under the Letters of Credit paragraph12-300 (a) of Schedule 1 of the TAA 1953 will operate to relieve the obligation upon the Trustee to withhold an amount from the interest payments it makes to FinCo under the Letters of Credit.