James Hardie subsidiary ordered to pay US$318,000,000 in ‘back taxes’

RCI Pty Ltd v Commissioner of Taxation [2010] FCA 939

Catchwords: TAXATION – appeal from objection decision of the Commissioner – capital gains tax – Part IVA Income Tax Assessment Act 1936 – whether applicant entered into scheme for the dominant purpose of obtaining a tax benefit

TAXATIONPart IVA – whether either of the schemes identified by Commissioner satisfy requirements of s 177A and 177D

TAXATIONPart IVA schemes – revaluation of assets and declaration of dividend equal to amount of increase in value of assets – shareholder a related subsidiary company – payment of dividend largely funded by unsecured inter-company loan – shareholder subsequently injected additional equity into company which declared dividend – shareholder subsequently transferred shares to another subsidiary

TAXATIONPart IVA – whether taxpayer would have obtained the tax benefit that the Commissioner has identified in connection with narrow or wide scheme but for operation of Part IVA

TAXATIONPart IVA – manner in which scheme carried out – form and substance of scheme – time at which scheme carried out

At issue was a dividend by the applicant of US$318,000,000 in October 1998, made pursuant to a scheme within the meaning of Part IVA, which reduced the value of the shares and the capital gain.

Stone J dismissed the application by RCI Pty Ltd and found for the commissioner that they had obtained a tax benefit, or would but for s 177F of ITAA 1936, have obtained such a benefit in connection with a scheme within the meaning of Part IVA of the ITAA 1936 applies. Furthermore, the dominant purpose test was satisfied.

Brisbane Barrister – David Cormack

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