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Edited version of private advice
Authorisation Number: 1052287719088
Date of advice: 9 August 2024
Ruling
Subject: Scrip for scrip roll-over - replacement of shares
Question
Will the exchange of a share in Company B for a share (issued and held as treasury stock) in Company D satisfy the requirements under subparagraph 124-780(1)(a)(i) of the Income Tax Assessment Act 1997 (ITAA 1997)?
Answer
Yes.
Relevantly section 995-1 of the ITAA 1997 provides that a share in a company means a share in the capital of the company, and includes stock. There is no requirement for the share to be a newly issued share. Additionally, although the share is classified as "treasury stock" whilst held by Company D and holds no capital rights, upon transfer to Company A the rights attaching to the "share" will be immediately reinstated and it will be treated as common stock. Therefore, Company A will hold a share in the capital, amongst other rights, in the company.
Further, subparagraph 124-780(1)(a)(i) of the ITAA1997 requires an entity to exchange a share in a company for a share in another company.
In this case, Company A will receive a share in Company D for each Company B share it transfers under the exchange agreement (paragraph 124-780(1)(a) of the ITAA 1997).
The proposed exchange of shares satisfies the above requirements.
This ruling applies for the following period:
Year ending 30 June 2025
The scheme commenced on:
1 July 2024
Relevant facts and circumstances
Relevant background to the proposed transaction
Company A was established on a specified date.
Company A holds 100% of the common stock units (equal to a specified percentage of the total units on issue) in Company B, a limited liability company established and taxed as a company in a foreign country.
Entity C holds the other specified percentage of the total units on issue in Company B. Entity C is not a resident of Australia for tax purposes.
Company B will undertake a "merger" with a 100% owned subsidiary (Merger Sub) of Company D in accordance with the relevant foreign law. Company D is a special purpose acquisition company incorporated as an exempted company with limited liability under the laws of the relevant foreign country and listed on a foreign country's exchange.
Company B will "merge" with Merger Sub with Company B being the surviving company following the merger.
Proposed transaction
Company A and Entity C will contribute their shares in Company B to Company D in exchange for shares in Company D.
Following the transaction Company D will be the sole shareholder of Company B and Company A and Entity C will hold shares in Company D.
Due to the operation of laws in the relevant foreign country, Company D cannot, in these circumstances, issue new shares to Company A and Entity C without first issuing a prospectus or equivalent document.
As a result, it is proposed Company A and Entity C will acquire treasury stock in Company D (which does not require the issue of a prospectus).
Treasury stock
Treasury stock is a concept that exists under foreign law. Treasury stock comprises shares that have previously been on issue that the company has bought back, redeemed or surrendered from its shareholders. The registered owner of treasury stock is the company.
Whilst held by the issuing company (Company D), treasury stock carry no voting, dividend or capital rights - rather, such rights are suspended indefinitely whilst the shares are classified as treasury stock. Furthermore, when determining whether a quorum of shareholders exists, treasury stock are not included in the calculation.
However, immediately upon the transfer of treasury stock by the company to the recipient (Company A and Entity C), all rights attaching to the shares are automatically reinstated and the holder of the shares has voting, dividend and capital rights and are treated as common stock in the issuing company without any further action required on behalf of the issuing company or the recipient.
Relevant legislative provisions
Income Tax Assessment Act 1997 subparagraph 124-780(1)(a)(i)
Income Tax Assessment Act 1997 section 995-1