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Edited version of your private ruling
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Ruling
Subject: Foreign hybrid company
Questions
1. Is Company A a foreign hybrid company for the purposes of Division 830 of the Income Tax Assessment Act 1997 (ITAA 1997)?
Answer: Yes
2. Is Company B a foreign hybrid company for the purposes of Division 830 of the ITAA 1997?
Answer: Yes
3. Is Company C a foreign hybrid company for the purposes of Division 830 of the ITAA 1997?
Answer: Yes
4. Is Company D a foreign hybrid company for the purposes of Division 830 of the ITAA 1997?
Answer: Yes
5. Is Company E a foreign hybrid company for the purposes of Division 830 of the ITAA 1997?
Answer: Yes
6. Is Trust A taken to have an interest in the property (as detailed in the relevant facts and circumstances below) for the purposes of section 830-35 of the ITAA 1997?
Answer: Yes, to the extent detailed in the reasons for decision below
This ruling applies for the following period(s)
Income year ended 30 June 2012
Income year ended 30 June 2013
Income year ended 30 June 2014
Income year ended 30 June 2015
The scheme commences on
1 July 2011
Relevant facts and circumstances
This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.
Trust A, an Australian resident entity, holds X% of the interests in Company A, a foreign resident entity.
During the relevant income year, Company A acquired X% of the membership interests in Company B.
Company B holds all of the membership interests in Company C.
Company C holds all of the membership interests in Company D.
Company D holds all of the membership interests in Company E.
Company E owns an office and retail building in Country A (the Property).
For Country A's purposes, Company A is not subject to taxation in Country A and is treated as a partnership for tax purposes. Any Country A taxation liability is assessed to the partners of Company A.
Similarly, each of Company B, Company C, Company D and Company E are treated as partnerships for Country A tax purposes and taxed as a flow through. That is, Country A tax is imposed on the ultimate partners rather than the companies themselves.
For Australian tax purposes, pursuant to Division 830 of the ITAA 1997:
· Company A has made an election under subsection 830-15(5)(b) of ITAA 1997 to treat Company B as a foreign hybrid company in relation to the relevant income year
· Company B has made an election under subsection 830-15(5)(b) to treat Company C as a foreign hybrid company in relation to the relevant income year
· Company C has made an election under subsection 830-15(5)(b) to treat Company D as a foreign hybrid company in relation to the relevant income year
· Company D has made an election under subsection 830-15(5)(b) to treat Company E as a foreign hybrid company in relation to the relevant income year.
Relevant legislative provisions
Income Tax Assessment Act 1997 Division 830
Income Tax Assessment Act 1997 section 830-15
Income Tax Assessment Act 1997 subsection 830-15(1)
Income Tax Assessment Act 1997 subsection 830-15(1)(a)
Income Tax Assessment Act 1997 subsection 830-15(1)(b)
Income Tax Assessment Act 1997 subsection 830-15(1)(c)
Income Tax Assessment Act 1997 subsection 830-15(2)(d)
Income Tax Assessment Act 1997 subsection 830-15(5)
Income Tax Assessment Act 1997 subsection 830-15(6)
Reasons for decision
Division 830 of the ITAA 1997 provides that certain foreign companies, foreign hybrid companies, are treated as partnerships for the purposes of Australian tax. These entities are normally taxed in Australia as a company but are taxed overseas as a partnership. Division 830 remedies certain inconsistencies of taxation resulting from this usual treatment.
Section 830-20 of the ITAA 1997 provides that a foreign hybrid company is treated as a partnership for Australian tax purposes. Subsection 830-15(1) of the ITAA 1997 sets out the requirements for a foreign hybrid company:
A company is a foreign hybrid company in relation to an income year if:
a. at all times during the income year when the company is in existence, the partnership treatment requirements for the income year in subsection (2) or (3) are satisfied; and
b. at no time during the income year is the company, for the purposes of a law of any foreign country that imposes *foreign tax on entities because they are residents of the foreign country, a resident of that country; and
c. at no time during the income year is the company an Australian resident; and
d. disregarding this Division, in relation to the same income year of another taxpayer:
i. the company is a *CFC at the end of a *statutory accounting period that ends in the income year; and
ii. at the end of the statutory accounting period, the taxpayer is an attributable taxpayer in relation to the CFC with an *attribution percentage greater than nil.
* denotes a term defined in section 995-1 of the ITAA 1997.
In respect of Companies A-E, paragraph 830-15(1)(a) of the ITAA 1997 is satisfied because subsection 830-15(2) of the ITAA 1997 is satisfied.
Paragraph 830-15(1)(b) of the ITAA 1997 is satisfied because the companies are not treated as residents for the purposes of the tax laws of any foreign country.
Paragraph 830-15(1)(c) of the ITAA 1997 is satisfied because the companies are not a Australian residents at any time during an income year.
Paragraph 830-15(1)(d) of the ITAA 1997 is satisfied.
In respect of Companies B-E, these companies do not meet the requirements of paragraph 830-15(1)(d) as no Australian resident shareholder holds greater than X% interest in them. In these instances, the companies may make an election under 830-15(5) of the ITAA 1997 to treated as foreign hybrid companies, which they have done.
Having satisfied subsection 830-15(1) of the ITAA 1997, Companies A-E are foreign hybrid companies and will be treated as partnerships under section 830-20 of the ITAA 1997. The partnership provisions in Division 5 of Part III of the ITAA 1936 will apply to them and they will have to calculate their net income under section 90 of the ITAA 1936, including amounts under Division 207 of the ITAA 1997.
Trust A, being a member of Company A, is deemed to be a partner of the partnership (section 830-25 of the ITAA 1997) and will have an interest in the partnership's assets equal to its entitlement to the capital of the company upon windup (section 830-35 of the ITAA 1997).