The High Court on 14 September 2017 dismissed the taxpayer’s application for special leave to appeal from the Full Federal Court decision in Cable & Wireless & Pacific Holding BV (in liquidation) v FCT [2017] FCAFC 71.
The Full Federal Court decision, which now stands, unanimously dismissed the taxpayer’s appeal against a decision that it was not entitled to a refund of some $452 million in dividend withholding tax (DWT) payable in relation to an amount paid to the taxpayer (a foreign resident) for the buyback of the shares it held in Optus.
The amount in question – $3.9 billion – was debited to an account described as a “buy-back reserve account” in the ledger of Optus following a buy-back of shares on 6 September 2001. At the time all parties treated that amount as a dividend out of profits paid to the taxpayer in terms of s159GZZZP of the ITAA 1936. Accordingly, the amount was subject to DWT. The Full Federal Court has unanimously upheld Pagone J’s decision at first instance that the buy-back reserve account was an account of equity and not a share capital account (and thus the taxpayer was not entitled to a refund of the DWT).
The Full Court decided that the amount debited to the buy-back reserve was not a debit to Optus’s share capital. The Court analysed the transaction undertaken, noting the way that transaction was presented to the ATO in 2001, and concluded that commercial, economic and legal reality was that the buy-back reserve was not seen as a reduction in Optus’s share capital. This was consistent with the principles espoused by the High Court in Consolidated Media Holdings, which was decided in different factual context.
[ATO website – report on result; High Court website – Special Leave Results for 14/9/17, Case 15, [2017] HCASL 231; LTN 177, 15/9/17]