Edited version of your written advice

Authorisation Number: 1013132735564

Date of advice: 22 December 2016

Ruling

Subject: Withholding tax

Question

Is the taxpayer required under section 12-245 of Schedule 1 to the Taxation Administration Act 1953 (TAA 1953) to withhold an amount from interest paid to non-resident lenders on certain loans provided under a syndicated loan facility when that facility was amended?

Answer

No

This ruling applies for the following periods:

Year ending 31 December 2020

The scheme commences on:

20XX

Relevant facts and circumstances

1. The taxpayer is an Australian incorporated company and a resident of Australia for tax purposes.

2. The taxpayer is a wholly-owned subsidiary of an international group.

3. In 20XX financial institutions were engaged to arrange a syndicated loan facility.

4. Invitations were made to several entities to become a lender under the syndicated loan facility.

5. Each of the invitation letters stated that its purpose was to arrange a syndicated loan facility on behalf of the taxpayer. The letter also stated that it

constitutes an invitation letter to become a lender under a syndicated loan facility in accordance with the “public offer test” in section 128F(3A) of the Income Tax Assessment 1936 of Australia. It is intended that this invitation to become a lender under the syndicated loan facility will satisfy the public offer test and other requirements of section 128F of the Income Tax Assessment Act 1936 of Australia for exemption from Australian withholding tax for interest payments by the taxpayer under the syndicated loan facility.

6. During 20XX, the taxpayer entered into the syndication agreement.

7. Certain financial institutions with an address outside Australia are listed as the lenders under the syndication agreement.

8. Pursuant to the syndication agreement the funds borrowed were used for specified purposes.

9. The syndication agreement provided, amongst other things:

● that the parties agree that the syndication agreement is a 'syndicated facility agreement' for the purposes of section 128F(11)(a) of the Australian Tax Act;

● the obligations of each lender under the syndication agreement are several and not joint;

● each borrower represents and warrants to each lender that all of the borrowers are members of the same wholly-owned group (within the meaning of the Income Tax Assessment Act 1997), parties to the same joint venture, or associates of each other; and

● accrued interest on each loan is payable on the last day of each interest period at the rate of interest set out in the syndication agreement.

10. During 20XX certain of the financial institutions became lenders under the syndication agreement.

11. During 20YY the taxpayer sought written consents from the lenders to amend certain terms of the syndication agreement.

12. The syndication agreement provided for the amendment of the syndication agreement if certain conditions were satisfied. All of the amendments to the syndication agreement are consistent with the conditions which contemplated and permitted amendment to the syndication agreement.

Relevant legislative provisions

Taxation Administration Act 1953 Schedule 1 section 12-245

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

Income Tax Assessment Act 1936 section 128B

Income Tax Assessment Act 1936 section 128F

Income Tax Assessment Act 1936 subsection 128F(2)

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

Income Tax Assessment Act 1936 subparagraph 128F(3A)(a)(i)

Income Tax Assessment Act 1936 subsection 128F(11)(a)

Reasons for decision

Summary

The amendments made to the syndication agreement have not resulted in a material change to the terms of the loans.

The taxpayer will not be required under section 12-245 of Schedule 1 to the Taxation Administration Act 1953 (TAA 1953) to withhold any amount from interest it pays on the loans to non-resident lenders under the amended syndication agreement.

Detailed reasoning

Obligation to withhold

Section 12-245 of Schedule 1 to the TAA 1953 imposes an obligation to withhold on entities that pay interest to an entity which provides a postal address outside Australia or if the interest is to be paid 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 from an interest payment if no withholding tax is payable in respect of the interest.

The taxpayer will therefore be required to withhold an amount from any interest paid to non-resident lenders unless no withholding tax is payable in respect of those interest payments.

Interest withholding tax liability

Withholding tax liability is dealt with under section 128B of the Income Tax Assessment Act 1936 (ITAA 1936).

The interest on the loans was previously determined to be exempt from withholding tax pursuant to subsection 128F(2) of the ITAA 1936.

Consequently, the taxpayer was not required to withhold any amount from interest it pays on the loans to non-resident lenders under the syndication agreement.

Amendments

Amendments were made to the terms of the syndication agreement during 20YY.

Contract law principles, as enunciated in FCT v Sara Lee Household and Body Care (Australia) Pty Ltd (2000) ATC 4378, provide that an amendment to an existing contract does not necessarily mean that the old contract is terminated and a new contract exists.

Generally, variation of a contract involves changes that do not go to the root of the contract or alter the substance of the original agreement. The result of such variation is that the original contract remains in force, with only some of its terms being altered.

By contrast, in circumstances where the terms of a subsequent contract are entirely inconsistent with a first contract, or go to the very root of the first contract, the first contract may be impliedly discharged by abandonment: British and Beningtons Ltd v. North West Cachar Tea Co Ltd [1923] AC 48.

The syndication agreement provided for the amendment of the syndication agreement if certain conditions were satisfied. All of the amendments to the syndication agreement are consistent with the conditions which contemplated and permitted amendment to the syndication agreement. All of the lenders to the syndication agreement consented to the amendments and continued as lenders.

The amendments do not alter the substance of the loans as the latter remain on foot. Hence, it is considered that the amendments made to the syndication agreement amount to a variation with the result that the loans would be not be considered to be loans made under a new contract.

As the loans are not considered to be new loans, the interest on the loans will be exempt from withholding tax pursuant to subsection 128F(2) of the ITAA 1936.

The taxpayer will not be required under section 12-245 of Schedule 1 to the TAA 1953 to withhold any amount from interest it pays on the loans to non-resident lenders under the syndication agreement as amended.