of Double Tax Treaty
Summit in Australia follows other 2014
G-20 meetings in Australia, including
meetings of finance ministers, trade
ministers and central bank governors.
On the agenda is the contribution of
trade agreements towards economic
growth. Australia is a party to free trade
agreements with the United States, New
Zealand and Korea, and it recently
concluded an economic partnership
agreement with Japan.
These treaties, along with applicable
double tax treaties, form an important
part of the framework for cross border
dealings. They also increase uniformity
of treatment, but some differences
remain.
This article focuses on the 2014
Australian full Federal Court decision in
Commissioner of Taxation v Resources
Capital Fund III LP, which involved
consideration of the Australian/United
States double taxation treaty, as well
as principles for valuation of business
components.
Partnership (RCF) was a Cayman Islands
limited partnership with a Cayman
Islands general partner. Almost all of the
limited partners were U.S. residents. The
partnership invested in an Australian
company, St. Barbara Mines Limited
(SBML). RCF sold the shares in SBML
for a gain of over $58 million. The
Australian tax authorities wished to
tax that gain on the basis that the sale
resulted in a capital gain liable for tax
in Australia.
At this point it is important to note
that with some exceptions (including
for certain venture capital limited and
management partnerships), corporate
limited partnerships are treated as
taxable entities under Australian law
even though for United States tax
purposes they may be regarded as tax
transparent (i.e. the partners rather than
the partnership being assessed to tax).
The Australian Taxation Office (ATO)
assessed RCF under Division 855 of the
1997, which applied Australian tax to a
foreign resident on a capital gain on the
sale of shares in an Australian company
only if the shares were an "indirect
Australian real estate property interest,"
which in turn required that the shares
constitute a greater than 10 percent
interest in the company and that the sum
of the market value of the company's
assets that are taxable Australian real
property (TARP) must exceed the market
value of the company's non-TARP assets.
TARP assets include real property and
mining rights in Australia.
Note that a different regime would
apply where the foreign resident
has used an Australian permanent
establishment.
rights (which constituted TARP), and
mining information together with the plant
and equipment (which was not TARP).
O'Dea. His practice includes advising on a variety of issues for
businesses including acquisitions and disposals, joint ventures,
contracts and employment arrangements, international supply
and distributorship arrangements and associated disputes
and regulatory issues.
Level 18, St. James Centre
111 Elizabeth Street
Sydney, NSW 2000 Australia
+61 2 9221 1117 Fax
codea.com.au