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21 Aug 13 Commissioner refused special leave in Part IVA case - Macquarie Bank

The High Court (Hayne, Crennan and Keane JJ) has refused the Commissioner special leave to appeal from the decision of the Full Court of the Federal Court in FCT v Macquarie Bank Limited [2013] FCAFC 13 (15 February 2013).

The case concerned the sale by Mongoose Pty Ltd (Mongoose) of shares in Minara Resources Ltd (Minara), a listed company incorporated in Australia, at a profit. Mongoose was owned by Mongoose Acquisition LLC (MALLC), a limited liability company incorporated in Delaware, USA. Macquarie Bank Ltd (MBL) acquired all the shares in MALLC and MALLC and Mongoose became members of the MBL consolidated group.

The vendors of MALLC, being non-residents of Australia, paid no Australian tax on the profit they derived on the sale of MALLC to MBL. That profit reflected part of the increase in the value of the shares in Minara whilst owned by Mongoose.

The cost to MBL of acquiring all the membership interests in MALLC was $438,928,590. That was also MBL's pushed down tax cost of Mongoose's interest in Minara for the purposes of the consolidation provisions in Pt 3-90 of ITAA 1997 Act (see Div 705). In consequence of Mongoose's sale of the Minara shares, for the year of income ended 30 September 2004 (in lieu of the year of income ended 30 June 2004), MBL returned, as head company of the MBL consolidated group of which Mongoose was, by then, a subsidiary member, an assessable gain of $41,408,357 being the difference between the proceeds of the disposal by Mongoose of the Minara shares ($480,336,947) and MBL's tax cost of Mongoose's interest in Minara ($438,928,590).

Prior to joining the MBL consolidated group, Mongoose's cost base in the Minara shares was only $161,829,478. The Commissioner made two Part IVA determinations and issued amended assessments to both MBL and Mongoose based on Part IVA, including a gain of $318,507,469 (being the difference between $480,336,947 and $161,829,478) in their respective assessable incomes.

The Commissioner argued that if the scheme had not been entered into, Mongoose would have sold the Minara shares otherwise than as a subsidiary member of the MBL consolidated group and would have derived a greater assessable capital gain. This was the "counterfactual" or alternative postulate that gave rise to the impugned tax benefit.

All three judges of the Full Court (Emmett, Middleton and Robertson JJ) held that Part IVA did not apply to the arrangement, as none of the parties to the scheme had the dominant purpose of enabling Mongoose to obtain the relevant tax benefit. Middleton and Robertson JJ also agreed with the trial judge (Edmonds J) that there was no tax benefit, having regard to the interaction between the consolidation provisions of the ITAA and Part IVA.

In dismissing the application for special leave to appeal, Hayne J said:

"Having regard to the unanimous conclusion reached in the Full Court about the dominant purpose of the impugned transaction, this is not a suitable vehicle in which to explore any question of principle about the intersection between Part IVA of the Income Tax Assessment Act 1936 (Cth) and Part 3-90 of the Income Tax Assessment Act 1997 (Cth). An appeal to this Court would enjoy insufficient prospects of success to warrant a grant of special leave. Special leave to appeal is refused, in each application, with costs."

For a copy of the transcript of the High Court application, go here


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