Edited version of your private ruling

Authorisation Number: 1012585106169

Ruling

Subject: Section 128F interest withholding tax exemption

Question 1

Does the Agreement constitute a 'syndicated loan facility' for the purposes of the definition of a 'syndicated loan' in subsection 128F(9) of the Income Tax assessment Act 1936 (ITAA 1936)?

Answer

Yes.

Question 2

Does each of the loans made pursuant to the Agreement constitute a 'syndicated loan' for the purposes 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

Does subsection 128F(2) of the ITAA 1936 apply such that tax is not payable under Division 11A of the ITAA 1936 in respect of interest paid by Company M on each syndicated loan issued under the Agreement?

Answer

Yes.

Question 5

Does Company M have an obligation to withhold an amount from any interest paid under the Agreement under section 12-245 of Schedule 1 to the Tax Administration Act 1953 (TAA 1953)?

Answer

No.

Question 6

Is the invitation to potential Lenders to become a lender under the Agreement taken under subsection 128F(5AA) of the ITAA 1936 to never have satisfied the public offer test?

Answer

No.

The scheme commences on:

The date the Agreement was executed

Relevant facts and circumstances

1. Company M is the head Company of an Australian income tax consolidated group.

2. At all relevant times Company M is and will remain an Australian tax resident.

3. Company M is the sole Borrower for debt funding.

4. The debt is issued under an Agreement.

5. The Agreement describes itself as a syndicated facility agreement.

6. Each of the loans made pursuant to the Agreement constitutes a debt interest (in accordance with Subdivision 974-B of the ITAA 1997).

7. The syndicated loan facility is a single facility covered by an Agreement between Company M and two or more lenders. The Agreement sets out common terms applicable to all Sub-Facilities.

8. A Letter of Invitation was issued to at least 10 potential lenders along with an Information Memorandum which detailed the terms of the Agreement.

9. When Company M issued the Letter of Invitation, Company M was of the belief that each potential lender carried on a business of providing finance, or investing or dealing in securities, in the course of operating in financial markets.

10. When Company M issued the Letter of Invitation, Company M did not know nor suspect that the prospective lenders were associates of each other [within the meaning of section 318 of the ITAA 1936 as modified by subsection128F(9)].

11. Company M did not make any invitations to parties that Company M was aware, or had reasonable grounds to suspect, were or would become associates of Company M.

12. In accordance with the Agreement, each lender severally, but not jointly, agrees to lend funds to Company M.

13. Amounts classified as interest under the Agreement will constitute interest for Australian withholding tax purposes pursuant to section 128A of the ITAA 1936.

14. Company M will have access to at least $100milion at the time the first loan is provided under the Agreement.

Relevant legislative provisions

Income Tax Assessment Act 1936 section 128A

Income Tax Assessment Act 1936 subsection 128F(1)

Income Tax Assessment Act 1936 subsection 128F(2)

Income Tax Assessment Act 1936 subsection 128F(3)

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

Income Tax Assessment Act 1936 subsection 128F(5AA)

Income Tax Assessment Act 1936 subsection 128F(6)

Income Tax Assessment Act 1936 subsection 128F(9)

Income Tax Assessment Act 1936 subsection 128F(11)

Income Tax Assessment Act 1936 subsection 128F(12)

Income Tax Assessment Act 1936 subsection 128F(13)

Income Tax Assessment Act 1936 Part III Division 11A

Taxation Administration Act 1953 schedule 1 section 12-245

Taxation Administration Act 1953 schedule 1 section 12-300

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

Taxation Administration Act 1953 schedule 1 Subdivision 12F

Income Tax Assessment Act 1997 Subdivision 974-B

Income Tax Assessment Act 1997 section 995-1

Reasons for decision

All legislative references are to provisions of the Income Tax Assessment Act 1936 (ITAA 1936) unless otherwise stated.

Issue 1

Question 1

Summary

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

Detailed reasoning

Pursuant to the definition of 'syndicated loan facility' in subsection 128F(9), a syndicated loan facility has the meaning given by subsections 128F(11), (12), and (13).

Relevantly, subsection 128F(11) 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).

The Agreement with the various Senior Lenders comprises a single syndicated loan facility.

The Agreement will constitute a syndicated loan facility under subsection 128F(11) for the following reasons:

• It is a written agreement;

• The Agreement describes itself as a syndicated loan facility;

• The Agreement is between Company M as the only borrower and two or more lenders;

• Each lender will severally, but not jointly, agree to lend funds to Company M; and

• Company M will have access to at least $100,000,000 at the time the first loan is to be provided under the Agreement.

Subsections 128F(12) and 128F(13) do not apply to this case.

Question 2

Summary

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.

Detailed reasoning

Subsection 128F(9) defines a syndicated loan 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.

The Macquarie Dictionary on-line defines a loan as

2.  something lent or provided on condition of being returned, especially a sum of money lent at interest.

The Commissioner is satisfied that each loan that will be made pursuant to the Agreement will constitute a loan as per the ordinary meaning.

Each of the loans will be provided under a syndicated loan facility being a facility that has two or more lenders (Question 1).

Accordingly, each loan constitutes a syndicated loan as defined under subsection 128F(9).

Question 3

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

Subsection 128F(3A) provides that an invitation to become a lender under a syndicated loan facility made 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 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 other persons covered by this paragraph; or

…

Company M satisfies the public offer test in paragraph 128F(3A)(a) as:

• Company M made invitations to become a lender to at least 10 persons;  

• Each invited person carried on a business of providing finance, or investing or dealing in securities in the course of operating in financial markets; and

• Company M did not know nor suspect that the invited persons were associates of each other.

Question 4

Summary

Subsection 128F(2) applies such that tax is not payable under Division 11A in respect of interest paid by Company M on each syndicated loan issued under the Agreement.

Detailed reasoning

Section 128F provides an exemption from withholding tax liability for interest paid to a non-resident where the requirements of the section are met.

The return payable pursuant to the loans made under the Agreement constitutes interest for Australian withholding tax purposes under section 128A.

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

The interest paid by Company M on each of the syndicated loans issued under the Agreement satisfies the conditions under subsection 128F(1) because:

• Company M will continue to be a resident of Australia at the time it issues the debt interest and each time when interest is paid;

• The debt interest is a syndicated loan, (Question 2); and

• The syndicated loan satisfies the public offer test set out in subsection 128F(3A), (Question 3), and is not taken never to have satisfied the test pursuant to subsection 128F(5AA) (Question 6 below).

Question 5

Summary

Company M is not required to withhold an amount from the interest paid pursuant to paragraph 12-300(a) of Schedule 1 to the TAA 1953.

Detailed reasoning

The amount an entity must withhold from interest under section 12-245 of Schedule 1 to the TAA 1953 is subject to a limit as set out in section 12-300 of that Schedule.

Under paragraph 12-300(a) of Schedule 1 to the TAA 1953, an entity is not required to withhold an amount of interest (within the meaning of Division 11A of Part III of the ITAA 1936) if no withholding tax is payable in respect of interest.

As discussed in the Explanation for Question 4 above, interest payable by Company M under the Agreement satisfies the requirements under subsection 128F(1).

Therefore, tax is not payable pursuant to subsection 128F(2) on interest paid or payable on loans made under the Agreement. Therefore, Company M has no obligation under section 12-245 of Schedule 1 of the TAA 1953 to withhold an amount from any interest paid or payable under the Agreement.

Question 6

Summary

The invitation to potential lenders to become a lender under the Agreement is not taken under subsection 128F(5AA) of the ITAA 1936 to never have satisfied the public offer test.

Detailed reasoning

Irrespective of the answer to Question 3, the public offer test may be taken never to have been satisfied by operation of subsection 128F(5AA).

Subsection 128F(5AA) provides that:

An invitation to become a lender under a syndicated loan facility is taken never to have satisfied the public offer test if, at the time the invitation is made, the company knew, or had reasonable grounds to suspect, that:

(a) an associate of the company is or will become a lender under the facility; and

(b) ….

Paragraph 128F(5AA)(a) requires that none of the potential lenders are associates of Company M. The Agreement states that each of the lenders who received an invitation cannot be associates of Company M. At the time Company M made the invitation, Company M neither knew nor suspected that an associate of Company M was or would become a lender under the Agreement.

As the requirements of paragraph 128F(5AA)(a) are not present, it is not necessary to consider the conjunctive requirements contained in paragraphs 128F(5AA)(b) and (c).