In a recent address, Federal Court Judge The Hon Justice Logan RFD, commented on the anti-avoidance provisions of Pt IVA. He noted it has been suggested that, in light of cases such as RCI Pty Ltd v FCT [2011] FCAFC 104 and FCT v Futuris Corporation Ltd [2012] FCAFC 32, Pt IVA was in need of “reform”. However, he offered some words of caution.
Logan J said the governance of a corporation’s business involved the administration of many issues of which tax is but one. In contrast, he said the Commissioner has but one role, the administration of taxation laws. “The singularity of that role carries with it a commensurate risk of insularity of thinking”, he said. The business world, unlike that of the Commissioner, does not revolve around tax.
The Judge said there was “a very considerable risk”, of which the decisions in Peabody and Eastern Nitrogen were proof, that the presence of “a” purpose of obtaining a tax benefit “will, given the narrow role consigned to the Commissioner, appear to him to be the dominant purpose”. Part IVA outcomes unfavourable to the Commissioner may serve as an indication “not of a deficiency in Pt IVA but rather of a deficiency in particular public administration practices which led to the use of Pt IVA or the pressing of a case in which it was used”, Logan J said.
In business, His Honour said, doing nothing is always an opportunity cost. Not to do nothing may, in given circumstances, entail a breach of a director’s duties. Logan J said that modifying s 177C in a way, which would eliminate a “do nothing” postulate, would be therefore be a major change to the present anti-avoidance regime, and is a matter for the value judgment of Parliament. However, he observed that it would be “unfortunate if that value judgment were based on the flawed premise that cases in which the Commissioner’s use of Pt IVA failed, inevitably point to a deficiency in the legislation, as opposed, perhaps, to a deficiency in case selection”.
His Honour considered that it should also be appreciated that in certain cases, faced with a quite different general anti-avoidance regime, the boards of companies dealing with the economic reality of having to take into account taxation and in order to discharge their duties under the Corporations Act, might consider other “do nothing” options. “Those options might well be either do nothing further in Australia or do not invest here in the first place”, he said.
[LTN 185, 24/9]