Debt Equity International tax & business

Chinese investment in Australian resources: Can the legal debt/equity distinction still create windfalls and impediments?

Source: Australian Tax Forum Journal Article

Published Date: 1 Dec 2014

 

Chinese direct investment into Australia is significant due to its scale and to the relatively unique circumstance of a developed country net beneficiary and developing country net provider, of direct investment. The Australian resources sector is the main target of such investment and it is in this context that certain tracking note' hybrid instruments offer marked Australian tax benefits in relation to the stamp duties or capital gains tax (CGT') that might otherwise apply to acquisitions and disposals of ordinary shares. The issue is that while the tracking notes are, in substance, equity investments and bear many similarities to ordinary shares, they are not legal form shares and the tax benefits arise because various tax provisions still turn on legal form.

Further, the tax advantages can be preserved by the use of interposed holding companies (for instance, in Hong Kong or Singapore) to route the Chinese investment. However, the use of tracking notes creates non-tax inefficiencies for the issuer and holder, increases compliance costs and uncertainty and impacts on the integrity of the Australian stamp duties and CGT provisions. Ultimately they amply demonstrate the difficulty inherent in applying established international taxation concepts to innovative instruments when different countries' laws and double tax agreements are involved.

Author Profile
Ian Murray

Author Profile
Nolan Sharkey

Sorry, this is subscriber only content.

To gain access to this material and much more - Subscribe Now.

(Note: Members can access Taxation in Australia journal articles without a Tax Knowledge Exchange subscription - please log in to access).

Already a Subscriber? Login now

Already a Subscriber? Login now

Details

The material is copyright. Apart any fair dealing for the purpose of private study, research criticism or review, as permitted under the copyright Act, no part may be reproduced by any process without written permission from The Tax Institute.

Unless expressly stated, opinions are not that of The Tax Institute, which accepts no responsibility for the accuracy of any of the information contained within it.

The Tax Institute
(ABN 45 008 392 372 (PRV14016))

("TTI")

The Tax Institute is a Recognised Tax Agent Association (RTAA) under the Tax Agent Services Regulations 2009. 

Copyright Statement

All materials provided on this site are protected by copyright and are owned by or licensed to TTI.

Except as expressly permitted by TTI or the copyright owner, any person or company who uses this site must not use, reproduce, redistribute, retransmit, publish or otherwise transfer, or commercially exploit, the materials or any information, software or other content, in whole or in part, which is available through this site.

Tags

Debt Equity International tax & business 2014

Share this page