Edited version of private advice

Authorisation Number: 1052158953876

Date of advice: 22 August 2023

Ruling

Subject: Syndicated loan facility - withholding tax

Question 1

Are the loans provided pursuant to the Syndicated Facility Agreement as described in the background facts debt interests as defined pursuant to section 974-15 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

Yes.

Question 2

Does the Syndicated Facility Agreement as described in the background facts constitute a syndicated loan facility as it meets the criteria in subsection 128F(11) of the Income Tax Assessment Act 1936 (ITAA 1936)?

Answer

Yes.

Question 3

Are the loans provided pursuant to the Syndicated Facility Agreement, syndicated loans as defined by subsection 128F(9) of the ITAA 1936?

Answer

Yes.

Question 4

Will the invitation to become a lender under the Syndicated Facility Agreement satisfy the public offer test pursuant to subsection 128F(3A) of the ITAA 1936?

Answer

Yes.

Question 5

Will subsection 128F(2) ITAA1936 apply such that interest paid by the Taxpayer or the Borrower on each syndicated loan provided under the Syndicated Facility Agreement will not be subject to tax imposed under Division 11A of Part III of the ITAA 1936?

Answer

Yes.

Question 6

Will the Taxpayer or Borrower have an obligation have an obligation under section 12-245 of Schedule 1 to the TAA to withhold an amount from any interest they pay under the Syndicated Facility Agreement?

Answer

No.

This ruling applies for the following periods:

1 January 2022 to 31 December 2022

1 January 2023 to 31 December 2023

1 January 2024 to 31 December 2024

1 January 2025 to 31 December 2025

Relevant facts and circumstances

Taxpayer is the head company of the Taxpayer income tax consolidated group (Tax Group).

The Tax group is wholly-owned by United States (US) resident holding Company A. Company A and subsidiaries are referred to as the Group.

The ultimate shareholders of the Company A were the following:

•         Entity A

•         Entity B,

•         Entity C and

•         Entity D.

Taxpayer was incorporated to facilitate the acquisition of Company C and its wholly-owned subsidiaries.

Company B (the Borrower or Company B) was incorporated as the acquisition vehicle and borrowing entity under the Syndicated Facility Agreement.

Taxpayer and Company B were registered with the Australian Securities Investments Commission (ASIC) and are Australian resident companies.

The Syndicated Facility Agreement (or the Agreement) was entered into with Company B as the borrower.

A letter inviting potential investors to become lenders (Offer Letter) under the Syndicated Facility Agreement was issued to 13 non-affiliated parties.

A borrowing request was made in writing by the Borrower whereby the entirety of the funds subject to the Agreement were drawn down to facilitate the acquisition of Company C.

There are a total of 9 lenders (collectively referred to as the Lenders) who have committed differing loan amounts to the syndicated facility. These are set out as follows:

•         Lender A;

•         Lender B

•         Lender C

•         Lender D

•         Lender E

•         Lender F;

•         Lender G;

•         Lender H; and

•         Lender J.

The funds that the Lenders provided were made primarily by non-resident entities.

The following entities are subsidiaries of Company D:

•         Lender B

•         Lender C

•         Lender D

•         Lender E

•         Lender F;

•         Lender G and

•         Lender H.

Additionally, Lender J holds the debt for an associate of Company D. This means there are two Lenders that are not associates of each other.

Company E is acting as the Administrative Agent to the Agreement.

Company F is acting as Collateral Agent to the Agreement.

Company E was engaged to run the process of inviting potential lenders to participate in the syndicated facility agreement. Company E was experienced in similar exercises and was aware of the requirements of section 128F of the ITAA 1936. As part of this process Company E conducted discussions with potential lenders to gauge their interest and qualify them prior to the invitations. Company E identified the potential lenders and sent the Offer Letters to the following (non-associated) potential lenders:

•         Company G

•         Company H

•         Company I

•         Company J

•         Company K

•         Company D

•         Company L

•         Company M

•         Company N

•         Company O

•         Company P

•         Company Q

•         Lender A

A Know Your Client (KYC) and Anti-money Laundering (AML) check was undertaken by the Borrower across all potential lenders which necessarily involved a detailed assessment of each potential lender's financial and corporate profile amongst other matters. Broadly, the KYC is a standard in the investment industry in the United States that ensures advisors can verify a client's identity and know their client's investment knowledge and financial profile. As part of this process, it was determined that none of the potential lenders were associates of each other or of the Group. Hence, certainty was obtained that each of the potential lenders are entirely separate from the Group and each other.

The Agreement contemplates that the Syndicated Facility Agreement will meet the requirements of Section 128F, being a syndicated loan facility as defined by subsection 128F(11) under which debt interests would be issued. The Borrower represents and warrants in the Agreement that:

•         Offers were made to at least 10 parties each of whom, as at the date of invitation the Borrower is satisfied carries on a business of providing finance or investing or dealing in securities in the course of operating in financial markets for the purposes of subparagraph 128F(3A)(a)(i) of ITAA 1936;

•         No offer letters were provided to any known, or suspected to be known associates of the Borrower;

•         None of the offerees were known or suspected to be known as associates of the Borrower or of each other.

Additionally, the Offer Letter to potential lenders indicates that the letter constituted an invitation in accordance with the "public offer test" in section 128F(3A) and the intension is that it will satisfy the public offer test under section 128F.

The funds raised through the Agreement were used exclusively to:

•         finance the acquisition of Company C and its wholly-owned subsidiaries;

•         fund a Reserve Account; and

•         for general corporate purposes relating to the transaction.

The key terms of the Agreement are:

•         The commencement date of the Agreement was XXX.

•         The Maturity Date of the Agreement is three years after the closing date.

•         The interest rate on the loaned amount is XX% in accordance with the Agreement.

•         Each of the Lenders agreed to provide funds in Australian dollars to the Borrower on the closing date in an aggregate principal amount of $XXX,XXX,XXX.

•         The Borrowing was made upon the Borrower's irrecoverable notice to the Administrative Agent in the form of a written Borrowing Request.

•         The Borrower has the right at any time and from time to time to prepay the loans in whole or in part, without penalty, per the Agreement.

•         To the extent not previously paid, all loans and commitments under the Agreement will be due and payable in cash on the Maturity Date.

•         In the event of default, the entire payment of the principal of any loan, interest on any loan and any fees incurred from the loan shall become due and payable on demand.

•         Upon the occurrence and during the continuation of an event of default, the loans shall bear interest at XX% per annum.

•         The Agreement is binding and enforceable against the borrowers, in the event of bankruptcy, insolvency and other events listed in the Agreement.

•         Under the Agreement each lender severally, but not jointly, agrees to lend money to, or otherwise provide financial accommodation to, the Borrower

Reasons for decision

All legislative references in this Ruling are to the Income Tax Assessment Act 1936 unless otherwise indicated.

Question 1

Pursuant to subsection 974-15(1) of the ITAA 1997, a scheme gives rise to a debt interest in an entity if the scheme, when it comes into existence, satisfies the debt test in subsection 974-20(1) of the ITAA 1997 in relation to the entity.

'Scheme' is defined at subsection 995-1(1) of the ITAA 1997 as meaning any arrangement, or any scheme, plan, proposal, action, course of action or course of conduct, whether unilateral or otherwise.

An 'arrangement' is defined in subsection 995-1(1) of the ITAA 1997 as meaning any arrangement, agreement, understanding, promise or undertaking, whether express or implied, and whether or not enforceable (or intended to be enforceable) by legal proceedings.

This is a broad definition covering a broad range of possible circumstances. As such, the Notes will constitute a scheme as defined in subsection 995-1(1) of the ITAA 1997.

The debt test at subsection 974-20(1) of the ITAA 1997 provides:

A *scheme satisfies the debt test in this subsection in relation to an entity if:

(a) the scheme is a *financing arrangement for the entity; and

(b) the entity, or a *connected entity of the entity, receives, or will receive, a *financial benefit or benefits under the scheme; and

(c) the entity has, or the entity and a connected entity of the entity each has, an *effectively non-contingent obligation under the scheme to provide a financial benefit or benefits to one or more entities after the time when:

(i) the financial benefit referred to in paragraph (b) is received if there is only one; or

(ii) the first of the financial benefits referred to in paragraph (b) is received if there are more than one; and

(d) it is substantially more likely than not that the value provided (worked out under subsection (2)) will be at least equal to the value received (worked out under subsection (3)); and

(e) the value provided (worked out under subsection (2)) and the value received (worked out under subsection (3)) are not both nil.

The scheme does not need to satisfy paragraph (a) if the entity is a company and the interest arising from the scheme is an interest covered by item 1 of the table in subsection 974-75(1) (interest as a member or stockholder of the company).

Are the loans financing arrangements for the purposes of paragraph 974-20(1)(a) of the ITAA 1997?

Subsection 974-130(1) of the ITAA 1997 provides that a scheme is a financing arrangement if it is entered into or undertaken to raise finance for the entity (or a connected entity of the entity), to fund another scheme, or a part of another scheme, that is a financing arrangement, or to fund a return, or a part of a return, payable under or provided by or under another scheme, or a part of another scheme, that is a financing arrangement.

The loans are financing arrangements within the meaning given by section 974-130 of the ITAA 1997, as they raised $XXX million for the Borrower, which will be used to facilitate the acquisition of Company C. As such, the condition in paragraph 974-20(1)(a) is satisfied.

Did the entity receive a financial benefit for the purposes of paragraph 974-20(1)(b) of the ITAA 1997?

Subsection 974-160(1) of the ITAA 1997 defines financial benefit as (among other things) meaning anything of economic value.

Under the transaction, the Borrower will receive a cash amount of from the lenders. Pursuant to paragraph 974-160(1)(a) of the ITAA 1997, this is something of economic value. As such, the condition in paragraph 974-20(1)(b) of the ITAA 1997 is satisfied.

Does the entity have an effectively non-contingent obligation to provide a financial benefit for the purposes of paragraph 974-20(1)(c) of the ITAA 1997?

The term effectively non-contingent obligation (ENCO) is defined in subsections 974-135(1) to (3) of the ITAA 1997. Subsection 974-135(1) of the ITAA 1997 provides that there is an ENCO to take an action under a scheme if, having regard to the pricing, terms and conditions of the scheme, there is in substance or effect a non-contingent obligation to take that action. Subsection 974-135(3) of the ITAA 1997 provides that an obligation is 'non-contingent' if it is not contingent on any event, condition or situation (including the economic performance of the entity having the obligation or a connected entity of that entity), other than the ability or willingness of that entity or connected entity to meet the obligation.

In accordance with the Terms, Borrower must return the funds received from the Lenders three years after the closing date and provide XX% interest per annum. Accordingly, there is an ENCO to provide the principal amount.

Will the value of the financial benefits provided at least equal the value received by the entity for the purposes of paragraph 974-20(1)(d) of the ITAA 1997?

The value provided is defined in subsection 974-20(2) of the ITAA 1997 which broadly indicates it is the sum of all the financial benefits provided while subsection 974-20(3) of the ITAA 1997 defines the value received similarly. Subsection 974-20(4) of the ITAA 1997 provides that financial benefits referred to in these sections are only those that the entity has an ENCO to provide. As discussed above, there is ENCO to provide the principal amount.

The value of the financial benefits is determined pursuant to subsection 974-35(1) of the ITAA 1997. Relevantly, the value of financial benefits provided or received under a scheme is to be calculated in nominal terms if the performance period is less than 10 years after the interest arising from the scheme is issued (subparagraph 974-35(1)(a)(i) of the ITAA 1997).

Under the terms, the loans have a maturity date that less than 10 years from the issue date. This means that nominally they will be providing at least the amount provided under the loan and paragraph 974-20(1)(d) is satisfied.

Will both the value of the financial benefits provided and the value received not be nil for the purposes of paragraph 974-20(1)(e) of the ITAA 1997?

Both the value of the financial benefits to be provided by the Borrower (being the interest and principal amount) and the value of the financial benefits to be received by the Borrower (being the amount lent by the lender) will be greater than nil. Accordingly, the condition in paragraph 974-20(1)(e) of the ITAA 1997 is satisfied.

Conclusion on the application of the debt test in subsection 974-20(1) of the ITAA 1997

As each of the requirements of the debt test under subsection 974-20(1) of the ITAA 1997 are satisfied, the loans will be debt interests pursuant to subsection 974-15(1) of the ITAA 1997.

Question 2

Subsection 128F(11) states:

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 information provided, the Syndicated Facility Agreement constitutes a syndicated loan facility under subsection 128F(11) on the basis that:

•         it is a written agreement which describes itself as a syndicated facility agreement;

•         the agreement is between the Taxpayer and Company B and at least two lenders;

•         pursuant to section 2.02(a) of the Syndicated Facility Agreement, each lender has severally, but not jointly, agreed to lend money to the Borrower; and

•         The Syndicated Facility Agreement provides for financing of up to AUD $XXX million and Company B borrowed AUD $XXX million (greater than $100 million) in its first Borrowing Request.

Therefore, the Syndicated Facility Agreement meets the criteria of a 'syndicated loan facility' in subsection 128F(11).

Question 3

The term 'syndicated loan' is defined in subsection 128F(9) to mean:

"syndicated loan" means 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 discussed in question 2, the Syndicated Facility Agreement has two or more lenders and meets the 'syndicated loan facility' criteria in subsection 128F(11) and therefore meets the definition of 'syndicated loan facility' in subsection 128F(9).

Therefore, each of the loans made pursuant to the Syndicated Facility Agreement will constitute a 'syndicated loan' as defined in subsection 128F(9).

Question 4

Subsection 128F(3A) prescribes three alternative public offer tests relevant to a syndicated loan facility, only one of which must be satisfied for a company to meet the public offer test requirement.

Subsection 128F(3A) states:

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).

In subsection 128F(5AA), it states the conditions where the public offer test is taken never to have been satisfied:

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) either:

(i) the associate is a non-resident and the associate is not or would not become a lender under the facility in carrying on a business in Australia at or through a permanent establishment of the associate in Australia; or

(ii) the associate is a resident of Australia and the associate is or would become a lender under the facility in carrying on a business in a country outside Australia at or through a permanent establishment of the associate in that country; and

(c) the associate is not or would not become a lender under the facility in the capacity of:

(i) a dealer, manager or underwriter in relation to the invitation; or

(ii) a clearing house, custodian, funds manager or responsible entity of a registered scheme.

Invitation

Taxation Determination TD 1999/24 Income tax: interest withholding tax exemption under section 128F of the Income Tax Assessment Act 1936 - how may a company satisfy the introductory requirements in paragraphs 128F(3)(a) and 128F(3)(b) that a debenture must be offered on a 'debenture by debenture' basis? (TD 1999/24) provides that for the purposes of section 128F, 'offer' is not limited to the context of a contractual offer but can be an invitation or inducement to potential investors to make offers. It is therefore not necessary to establish whether the public offer is accepted by all offerees, only that the offer was actually made to the requisite number of entities.

The written invitation, consisting of the Offer Letter emailed on XXXX to potential lenders to become a lender under the Syndicated Facility Agreement. This constitutes an invitation to potential lenders for the purposes of the public offer test.

Paragraph 128F(3A)(a) - the first public offer test

Under the first public offer test, the relevant invitation must be made to at least 10 persons carrying on a business of providing finance that are not associates of one another. Paragraph 128F(3A)(a) is the same test as in paragraph 128F(3)(a) and therefore the guidance regarding paragraph 128F(3)(a) below has been used.

Taxation Determination TD 1999/13 Income tax: interest withholding tax exemption under section 128F of the Income Tax Assessment Act 1936 - for the purposes of the public offer test in paragraph 128F(3)(a) (the 'first public offer test'): (a) are pension funds and other 'qualified institutional buyers' considered to be carrying on the business of providing finance, or investing or dealing in securities? (b) what is required of a company to establish that the persons to whom the debentures are offered are carrying on business in the manner required by the legislation? (c) when is a company taken to know or suspect that such a person is an associate (TD 1999/13) provides that in relation to subparagraph 128F(3)(a)(i), a company is able to rely on a representation by a person to whom the loan is offered that it is carrying on a business as required by the legislation.

TD 1999/13 also states, with respect to subparagraph 128F(3)(a)(ii), that the company must offer the loan to at least 10 persons each of whom was not known or suspected by the company to be associates of one another. This tests the knowledge or suspicion of the company as to whether any entities to whom it made an offer are associates of one another.

Knowledge in this sense requires actual knowledge, and suspicion needs to be looked at objectively. A company is not regarded as knowing or suspecting persons are associates unless it is established that officers of the company knew or had reasonably grounds to suspect otherwise. It is looked at objectively in the light of what is reasonable in the individual circumstances of a particular case. TD 1999/13 also states that a company offering loans is not required to undertake a detailed examination into the relationships between persons it offers debentures to, however it cannot ignore companies that are generally known to be associates.

Via the use of Company E, the Borrower has provided an email invitation to 13 potential lenders to become a lender under the Agreement will therefore constitute an invitation to 10 persons for the purposes of subparagraph 128F(3A)(a)(i).

As per paragraph 6 of TD 1999/13 a company may rely on representations of the dealer, manager or underwriter that offered the debenture to entities carrying on the business of providing finance or investing or dealing in securities. The Borrower utilised Company E for the purpose of managing this process and therefore can rely upon Company E representations that the Lenders carrying on the relevant business for subsection 128F(3A) purposes.

Additionally, the Agreement states that the Borrower represents and warrants that it has invited at least 10 parties to become Lenders each of which carry on the business of providing finance, or investing or dealing in securities, in the course of operating in financial markets. The Borrower also represents that it was not known, or suspected, that any of the potential Lenders were associates of each other.

As such, based on these representations and the number of financial institutions to whom the expression of interest email was sent, there is no evidence to contradict that the offer has been made to at least 10 un-associated financial institutions. This is sufficient to satisfy subparagraph 128F(3A)(a)(ii), which does not require a company offering loans to undertake a detailed examination of the relationships between the offerees. As such, it is accepted by the Commissioner that the invitation was made to at least 10 persons, of whom the Borrower did not know, or suspect are associates of one another.

Based on the above, the invitation made by the Borrower therefore satisfies the first public offer test in paragraph 128F(3A)(a) on the basis that:

•         a written invitation was sent via electronic correspondence to 13 financial institutions inviting them to become lenders under the Agreement;

•         the invitation was made to at least 10 financial institutions which:

­        were carrying on a business of providing finance, or investing or dealing in securities, in the course of operating in financial markets at the time the invitation was made; and

­        were not known or suspected by the Borrower to be associates of any other invitee at the time of making the invitation.

Subsection 128F(5AA)

In addition to satisfying subsection 128F(3A), it is also necessary to consider subsection 128F(5AA), which specifies the conditions under which an invitation to become a lender under a syndicated loan facility is taken never to have satisfied the public offer test.

Relevantly, the invitation 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 an associate of the company is or will become a lender under the facility. An exception to this test is if the relevant lender that is known or suspected of being an associate is lending through its Australian permanent establishment.

Where this test is failed, the entire invitation fails the public offer test, and withholding tax becomes payable on the interest paid under the loans pursuant to the facility.

Subsection 128F(5AA) is the same as section 128F(5) except subsection 128F(5) is referring to a debenture/debt interest while subsection 128F(5AA) is regarding a syndicated loan facility. On this basis the guidance discussed below is relevant for 128F(5AA) conclusions.

Taxation Determination TD 2001/3 Income tax: Interest Withholding Tax Exemption - for the purposes of subsection 128F(5) of the Income Tax Assessment Act 1936, when will a company be taken to have the requisite knowledge or suspicion that the debenture or an interest in the debenture was being, or would later be, acquired by an associate (TD 2001/3) provides that knowledge in this sense refers to actual knowledge of the company at the time the loan was issued; suspicion is to be assessed objectively in light of what is reasonable in the individual circumstances of the particular case.

TD 2001/3 further provides that a company will not be taken to have the requisite knowledge or suspicion if the company takes reasonable steps to ensure that its associates do not acquire its debentures. While every case is judged on its merits, reasonable steps may include writing to associates asking them not to acquire debentures, including statements or warranties in the prospectus warning of the risk associated with associates purchasing debentures regarding the public offer test, and instructions to the dealer.

Finally, TD 2001/3 notes that a company cannot ignore persons it knows or has reasonable grounds to suspect are associates, and then use a defence that it relied on the bona fide representations of the relevant entity, dealer, manager or underwriter.

The Borrower is a 100% subsidiary of the Taxpayer which is in turn held by the Group whose ultimate shareholders are Entity A, Entity B, Entity C and Entity D.

Additionally, the Borrower has taken reasonable steps to ensure that none of the potential lenders are associates of the Group. It has engaged Company E to provide the invitations to appropriate Lenders as part of a syndicated loan facility that was to meet the requirements of subsection 128F(1), it has undertaking KYC and AML checks to also determine that none of the potential lenders were associates of each other or the Group.

As such, it can be concluded that the Borrower satisfied the requirement in subsection 128F(5AA).

Conclusion

For the reasons noted above, the invitation to become a lender under the Syndicated Facility Agreement will satisfy the public offer test in subsection 128F(3A). Additionally, the Borrower did not know, or reasonably suspect, that it was an associate of any of the Lenders and subsection 128F(5AA) will not apply to prevent 128F(3A) applying.

Question 5

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

Subsection 128F(1) provides that section 128F applies to interest paid by a company in respect of a debenture or debt interest in the company 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

(ii)   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).

The interest paid by under the Syndicated Facility Agreement satisfies the conditions in subsection 128F(1) on the basis that:

• The Borrower was a resident of Australia when it issued the debt interest;
• The Borrower will be a resident of Australia when the interest is paid;
• as discussed above, the Syndicated Facility Agreement constitutes a 'syndicated loan facility' as defined in subsection 128F(9), such that the loans made pursuant to the Syndicated Facility Agreement will constitute a 'syndicated loan' as defined in subsection 128F(9); and
• the invitation to become a lender under the Syndicated Facility Agreement satisfies the public offer test set out in subsection 128F(3A).

Therefore, subsection 128F(1) will apply such that, under subsection 128F(2), interest paid on each syndicated loan issued under the Syndicated Facility Agreement will not be subject to tax imposed under Division 11A of Part III of the ITAA 1936.

Question 6

Section 12-245 of Schedule 1 to the TAA states an entity must withhold an amount from interest it pays to an entity or entities if the recipient of the interest has an address outside Australia or the payer of the interest is authorised to pay the interest at a place outside Australia. The majority of the Lenders under the Syndicated Agreement are stated to be primarily non-resident entities and therefore we need to consider further.

Section 12-245 of Schedule 1 to the TAA and the amounts required to be withheld are limited by section 12-300 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 discussed above, the interest payable on each syndicated loan issued under the Syndicated Facility Agreement satisfies the requirements of subsection 128F(1) such that subsection 128F(2) applies. As such, withholding tax will not be payable in respect of the interest under subsection 128B(1) (as per paragraph 128B(3)(h)).

It is also noted that where interest is derived by a non-resident carrying on business in Australia at/through a permanent establishment then subparagraph 128B(3)(h)(ii) would also exclude interest withholding tax.

Accordingly, the Borrower will not have an obligation to withhold an amount from any interest paid under the Agreement in accordance with section 12-245 of Schedule 1 to the TAA as it is limited by paragraph 12-300(a) of Schedule 1 to the TAA.

Additionally, the Taxpayer does not have a liability to withhold because it does not pay the interest on the Loans, the single entity rule in section 701-1 of the ITAA 1997 does not apply to Schedule 1 section 12-245 of the TAA 1953 withholding obligations which only requires the entity that pays the interest to withhold.