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The role of foreign tax outcomes in defending cases under Pt IVA


Part IVA, the general anti-avoidance provision of the Income Tax Assessment Act 1936 (Cth), applies only where a taxpayer has a sole or dominant purpose of achieving a tax benefit. A tax benefit is a reduction in Australian tax liability when the scheme undertaken by the taxpayer is compared to a reasonable counterfactual. Recent case law suggests that, where taxpayers obtain both foreign and Australian tax benefits under a transaction, the foreign tax advantages may provide a defence to both the tax benefit and purpose elements of Pt IVA.

This article examines in detail recent cases which show that, where a tax arbitrage transaction is undertaken, it is possible to argue successfully that the purpose requirement of Pt IVA is not satisfied due to the foreign tax consequences of the transaction, and that tax arbitrage transactions that generate foreign tax benefits for a related party may be more likely to be protected from Pt IVA than tax arbitrage transactions which do not.

Author profile:

Gareth Redenbach CTA
Gareth was a New York-based in-house counsel for the Macquarie Group, responsible for managing transfer pricing and international tax issues across the Americas region, before returning to Melbourne in 2016 and joining the Victorian Bar. Gareth was previously a Senior Associate at Minter Ellison focusing on tax controversy, and began his career in the international tax department of PwC. Gareth is the former Chair of US Committee of Banking Institutions on Taxation Corporate Section and has taught taxation at the University of Melbourne. Current at 14 July 2016
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