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The Full Federal Court (Edmonds and Gordon JJ, Dowsett J dissenting) has dismissed an appeal by the Commissioner from the decision of Jessup J, who held that the taxpayer was entitled to partial scrip-for-scrip roll-over relief under Subdivision 124-M of ITAA 1997 on the sale of a wholly-owned subsidiary by means of a series of transactions devised by the advisory arm of Macquarie Bank Limited (MBL).

Before Jessup J, the Commissioner unsuccessfully argued that the taxpayer and the MBL entity which acquired the shares in the subsidiary did not deal with each other "at arm's length" within the meaning of s 124-780(4) of ITAA 1997, and that the taxapayer was not, therefore, entitled to the relief sought. Jessup J also held that Part IVA had no application to deprive the taxpayer of the roll-over relief to which it was otherwise entitled.

On appeal, the Commissioner again sought to argue that the parties were not dealing with each other at arm's length or, if they were, then Part IVA applied.

In relation to whether the parties were or were not dealing with each other at arm's length, Edmonds and Gordon JJ (with Dowsett J dissenting) held that they were dealing with each other at arm's length. Edmonds and Gordon JJ said, at para 117:

"AXA was motivated to sell its business. MBL wanted to acquire and on-sell that business. That the structure through which the acquisition would be achieved contained features attractive to AXA (including the scrip-for-scrip roll-over) does not make the transaction a non-arm’s length transaction. Many agreements negotiated between parties at arm’s length involve promises that will provide a benefit to a promisee. The fact that a purchaser of an asset seeks to obtain, for its own benefit, a collateral advantage from the purchase transaction (in this case the earning of fees) over and above the acquisition of the asset, cannot, without more, lead to a conclusion that the parties to the transaction were not dealing with each other at arm’s length. There is no evidence that the purchase consideration did not represent the market value of the asset and the fact that the vendor (AXA) had the right to participate in any profit arising to the purchaser (MBL) from the onward sale of the asset does not, in our view, reflect any such perception; on the contrary, it reflects the bargaining power which the vendor (AXA), acting in its own best interest, brought to bear on the overall architecture of the transaction."

In relation to Part IVA, the Full Federal Court unanimously rejected the Commissioner's arguments, with the result that the Commissioner's appeal was dismissed. The Court held that there was no tax benefit, on the basis that the taxpayer was able to demonstrate (by evidence of witnesses) that the only alternative postulate that the Commissioner relied upon on in the appeal was not one that, objectively, could reasonably be expected to have occurred.

FCT v AXA Asia Pacific Holdings Ltd [2010] FCAFC 134 (Full Federal Court; Dowsett, Edmonds and Gordon JJ; 18 November 2010).


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