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Ruling

Subject: Interest withholding tax exemption

Question 1

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

Answer

Yes.

Question 3

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

Answer

Yes.

Question 4

Will subsection 128F(2) of the ITAA 1936 apply such that interest paid by the taxpayer on each syndicated loan issued under the Agreement will not be subject to tax imposed under Division 11A of the ITAA 1936?

Answer

Yes.

Question 5

Will the taxpayer have no obligation to withhold an amount from any interest paid under the Initial Syndicated Facility Agreement under section 12-300 of 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 period

A number of income years

The scheme commenced on

During the 2013 income year

Relevant facts and circumstances

Funding of the Project

1. The taxpayer is a company as defined in subsection 995-1(1) of Income Tax Assessment Act 1997 (ITAA 1997).

2. The taxpayer will be the sole borrower of debt funding for a project (the Project).

3. The taxpayer will be an Australian resident company at the time of issue of any debt interests under an agreement designed to provide debt funding to the Project (the Agreement), and at the time interest is paid in respect of those debt interests.

4. A public invitation to potential lenders was made.

5. None of the parties to whom an invitation to become a lender under the Agreement was made were known or suspected by the taxpayer to be an associate of any of the other parties invited to become a lender under the Agreement, at the time of making the invitation.

6. A number of potential lenders (including financial institutions and export credit agencies (ECA)) received the invitation.

7. More than 2 lenders committed to provide finance under the Agreement.

8. The taxpayer will have access to at least AUD$X million at the time the first loan is provided under the Agreement.

9. Each loan made pursuant to the Agreement will constitute a debt interest as defined in Subdivision 974-B of ITAA 1997.

10. Amounts classified as interest under the Agreement will be in the nature of interest for the purpose of paragraph 128A(1AB)(a) of ITAA 1936.

The Agreement

11. The Agreement is nominated as a syndicated facility agreement.

12. In accordance with the Agreement, lenders agree to lend money severally and not jointly.

13. Under the Agreement:

· invitations to become a lender are made to at least ten parties, each of whom, as at the date the relevant invitation was made, are believed to carry on the business of providing finance, or invest or deal in securities, in the course of operating in financial markets;

· invitations are not made to parties who the taxpayer was aware, or had reasonable grounds to suspect, were associates of the taxpayer;

· none of the parties to whom an invitation to become a lender under the Agreement was made were known or suspected by the taxpayer to be an associate of any of the other parties invited to become a lender under the Agreement, at the time the invitation was made;

· each lender (other than an ECA) confirms that no relevant officers of it involved with the Agreement were aware or suspected that it was an associate of the taxpayer at the time it was invited to participate in or at the time it participated in loans made under the Agreement; and

· a lender cannot assign any of its rights or transfer any of its rights and obligations under the Agreement, to an associate of the taxpayer.

Relevant legislative provisions

Income Tax Assessment Act 1936 section 128A

Income Tax Assessment Act 1936 subsection 128B(2)

Income Tax Assessment Act 1936 subsection 128F(1)

Income Tax Assessment Act 1936 subsection 128F(3)

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

Income Tax Assessment Act 1936 subsection 128F(9)

Income Tax Assessment Act 1936 subsection 128F(11)

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

Income Tax Assessment Act 1997 section 995-1

Income Tax Assessment Act 1997 Subdivision 974-B

Reasons for decision

Question 1

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

Summary

The Agreement constitutes a syndicated loan facility for the purpose of the definition of a 'syndicated loan facility' in subsection 128F(9) of the ITAA 1936.

Detailed reasoning

Under subsection 128B(2) of the ITAA 1936, withholding tax is payable on interest paid to a non-resident unless an exemption applies.

Subsection 128F(2) of the ITAA 1936 provides that tax is not payable under Division 11A in respect of interest to which section 128F applies. Subsection 128F(1) of the ITAA 1936 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

(iii) 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).

Syndicated loan facility

For the purposes of subparagraph 128F(1)(c)(iii) of the ITAA 1936, a '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.

Subsection 128F(9) of the ITAA 1936 also provides that a 'syndicated loan facility' has the meaning given by subsections 128F(11), (12) and (13).

Subsection 128F(12) of the ITAA 1936 does not apply to this case as it applies in situations where there is only one lender. In this case, more than 2 lenders had already committed to providing finance under the Agreement. Subsection 128F(13) of the ITAA 1936 also does not apply to this case as it applies where there are two or more borrowers. In the present case, the taxpayer is the sole borrower under the Agreement.

Subsection 128F(11) of the ITAA 1936 is the provision relevant to the syndicated facility under the scheme as it applies where there are at least two lenders and one or more borrowers.

Subsection 128F(11) of the ITTA 1936 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).

Based on the facts in the present case paragraphs (a) to (d) are satisfied. Therefore the Agreement will be a syndicated loan facility within the meaning of subsection 128F(11) of the ITAA 1936.

Question 2

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

Summary

Each of the loans made pursuant to the Agreement will 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) of the ITAA 1936 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 the Agreement constitutes a syndicated loan facility, each of the loans made pursuant to the Agreement will constitute a syndicated loan as defined in subsection 128F(9) of the ITAA 1936.

Question 3

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

Summary

The invitation to potential lenders to become a lender under the Agreement satisfies the public offer test in subsection 128F(3A) of the ITAA 1936.

Detailed reasoning

As explained above, paragraph 128F(1)(d) of the ITAA 1936 requires that:

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

(iii) 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).

As the present case deals with a syndicated loan, the relevant public offer test is that contained in subsection 128F(3A) of the ITAA 1936.

Subsection 128F(3A) of the ITAA 1936 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) of the ITAA 1936, the taxpayer is not required to make a detailed examination of the offerees when issuing the invitations. With respect to subparagraph 128F(3A)(a)(ii) of the ITAA 1936, the taxpayer will not be regarded as knowing or suspecting the invitees are associates of one another unless, at the time the invitations were issued, it actually knew or had reasonable grounds to suspect otherwise.

Based on the facts of the present case, the public offer test in subsection 128F(3A) of the ITAA 1936 is satisfied.

In addition to satisfying the requirements in subsection 128F(3A) of the ITAA 1936 however, it is also necessary to consider subsection 128F(5AA) of the ITAA 1936, 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.

As none of the invitees were known or suspected by the taxpayer to be its associate, subsection 128F(5AA) of the ITAA 1936 does not apply. Therefore, based on the facts, the public offer test in subsection 128F(3A) of the ITAA 1936 is satisfied.

Question 4

Will subsection 128F(2) of the ITAA 1936 apply such that interest paid by the taxpayer on each syndicated loan issued under the Agreement will not be subject to tax imposed under Division 11A of the ITAA 1936?

Summary

Subsection 128F(2) of the ITAA 1936 will apply such that interest paid by the taxpayer on each loan issued under the Agreement will not be subject to tax imposed under Division 11A of the ITAA 1936.

Detailed reasoning

According to subsection 128F(2) of the ITAA 1936, tax is not payable under Division 11A in respect of interest to which section 128F of the ITAA 1936 applies.

Based on the facts of this case, the interest paid by the taxpayer under the Agreement satisfies the conditions under subsection 128F(1) of the ITAA 1936.

As such, subsection 128F(2) of the ITAA 1936 will apply such that interest paid by the taxpayer on each loan issued under the Agreement will not be subject to tax imposed under Division 11A of the ITAA 1936.

Question 5

Will the taxpayer have no obligation to withhold an amount from any interest paid under the Agreement under section 12-300 of 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?

Summary

The taxpayer will have no obligation to withhold an amount from any interest paid under the Agreement under section 12-300 of 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 of the ITAA 1936) if no withholding tax is payable in respect of the interest.

As the interest payable by the taxpayer under the Agreement satisfies the requirements under subsection 128F(1) of the ITAA 1936, tax will not be payable in respect of the interest under subsection 128F(2) of the ITAA 1936.

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