The Federal Court has denied a taxpayer a refund of $452,452,013 which had been withheld as dividend withholding tax from the consideration paid to the taxpayer for its shares in Optus.
- The dispute concerned an amount of $3.9 billion debited to an account described as a “buyback reserve account” in the ledger of Cable & Wireless Optus Ltd (“Optus”) following a buy-back of shares on 6 September 2001.
- The taxpayer (a non-resident) was a shareholder in Optus before 6 September 2001 and contended that the buy-back reserve account was a share capital account within the meaning of s 6D of the ITAA 1936 and, therefore, that the amount debited to that account in payment to the taxpayer for the shares bought back by Optus was not taken to be a dividend paid by Optus pursuant to s 159GZZZP of the ITAA 1936.
- The Commissioner took the view that the amount was part of the payment by Optus which is taken to be a dividend paid out of profits derived by Optus pursuant to s 159GZZZP(1).
- The amount debited to the buy-back reserve account was part of the consideration paid by Optus to buy back approximately 43% of its shares on 6 September 2001 for a total consideration of $6.2 billion.
- At the time, Optus had $5.3 billion standing to the credit of its share capital account and debited $2.3 billion of the total consideration to that account and $3. 9 billion of the consideration to the buy-back reserve account.
- The consideration paid to the taxpayer from the buy-back reserve account was treated by all concerned at the time as part of the dividend on which withholding tax was paid.
- The Court said the taxpayer now contended that $452,452,013 of the withholding tax was paid in error.
The Court said the issue in dispute arose in an application under s 18-70 of Sch 1 to the Taxation Administration Act 1953 (TAA) for a refund of the $452,452,013. The taxpayer was not an Australian resident and, therefore, was subject to the withholding tax regime in respect of dividends received from Optus. A total amount of $586,983,026 was withheld from the taxpayer by Optus and paid to the Commissioner as dividend withholding tax payable by non-resident shareholders of which $452,452,013 was paid to the Commissioner from the buy-back reserve account.
The Court observed that the resolution of the dispute depended upon the nature of the debit made by Optus to the buy-back reserve account. The Court said the buy-back in the case of Optus did not return capital to its shareholders in excess of the needs of Optus “but can, in an economic sense, be seen as a substitution of the capital which had previously been contributed by its previous shareholder with that funded by its subsequent shareholder”.
The taxpayer contended that the whole of the buy-back consideration outlaid by Optus reduced its share capital. The Court said the Optus accounts did not reveal a situation, unlike that in FCT v Consolidated Media Holdings Ltd[2012] HCA 55, of a financial position in relation to share capital that could only be understood by subtracting the total consideration for the buy-back as a reduction of the credit balance in Optus’ share capital account. In the result, the Court dismissed the taxpayer’s appeal.
(Cable & Wireless Australia & Pacific Holding BV (in liquidatie) v FCT [2016] FCA 78, Federal Court, Pagone J, 11 February 2016.)
[LTN 29, 15/2/16]