The Full Federal Court has unanimously dismissed the Commissioner’s appeal from the decision in Macquarie Bank Limited v FCT [2011] FCA 1076.
In that case, the Federal Court had held there was no “dominant purpose” of seeking to obtain a “tax benefit” under Pt IVA of the ITAA 1936 from the sale of shares by one of the taxpayers to the proceedings that was a subsidiary of a group of companies that consolidated before the sale. This was mainly because the Court found that the benefit of an uplifted cost for the shares was an intended consequence of consolidation. The tax in dispute was a $318m capital gain from selling the relevant shares.
In unanimously dismissing the Commissioner’s appeal, the Full Federal Court first stated that the mere joining of a consolidated group is not sufficient of itself to preclude the operation of Pt IVA if the criteria in the Part are otherwise satisfied. However, it found that no “tax benefit” arose in the circumstances because it was not possible under the operation of the consolidation regime (and in terms of the way the Commissioner defined the scheme and posed his “counter-factual”) for the Commissioner to have identified the subsidiary who sold the shares (a company called Mongoose Pty Ltd) as having obtained the “tax benefit”. This was essentially because under the “single entity” principle that underlies the operation of the consolidation regime, only the head company can be liable for tax and therefore obtain a tax benefit.
In any event, the Full Federal Court found that Pt IVA would not have applied in any event because it did not think that a reasonable person would conclude that any of the scheme participants entered into or carried out the scheme for the dominant purpose of enabling the relevant taxpayer in the consolidated group to whom the Pt IVA determination was intended to apply (ie “Mongoose”) to obtain the tax benefit. In this regard, the Court found that the majority of s 177D factors were either neutral or supportive of the taxpayers’ claim that the dominant purpose of the relevant parties was a commercial one.
(FCT v Macquarie Bank Limited & Anor [2013] FCAFC 13, Full Federal Court, Emmett, Middleton and Robertson JJ, 15 February 2013.)
[LTN 32, 18/2/13]