In: Accounting
You have recently commenced work for the Australian taxation division of YE International LLP an international accounting partnership. A partner in the Houston Texas office has contacted you and stated that one of his clients has a partly owned subsidiary in Australia that has asked him questions about four Australian Tax law cases, and accordingly he has told them that he would obtain an analysis of the cases. He is accordingly requesting you to provide the analysis for him to pass to the client. The cases are:
1st Tax Case: SNF (Australia) Pty Ltd v FC of T (2011) 193 FCR 149
2nd Tax Case: Resource Capital Fund IV LP v Commissioner of Taxation [2019] FCAFC 51
You have recently commenced work for the Australian taxation division of YE International LLP an international accounting partnership. A partner in the Houston Texas office has contacted you and stated that one of his clients has a partly owned subsidiary in Australia that has asked him questions about four Australian Tax law cases, and accordingly he has told them that he would obtain an analysis of the cases. He is accordingly requesting you to provide the analysis for him to pass to the client. The cases are:
2nd Tax Case: Resource Capital Fund IV LP v Commissioner of Taxation [2019] FCAFC 51
In providing your analysis, the following 5 points must be addressed:
1st The arguments and Facts of the case.
2nd What did the taxpayer say?
3rd What was the main issue?
4th What was the Commissioner’s argument?
5th What did the Judges say?
1st Tax Case - Detailed Analysis
a) This case is about the decision relating to payment of more than fair market value from products acquired from foreign related parties so that the Officer in charge, i.e, Commissioner, as per the rules would apply Transfer pricing approach to adjust the Purchase Amount for taxation purposes.
b) The tax payer brought certain chemicals from group companies overseas and sold them to end users.
c) The accounts submitted to tax authorities countinuously showed tax losses.
d) For the income of years from 1997 to 2003, Commissioner made determinations for the Fair market value of the chemicals so purchased from group companies overseas under Section 136AD(3) and Section 136AD(4) of the Act.
e) The Commissioner issue notices of assessment in 2007.
f) The Commissioner also disallowed tax payers obligations in respect of the assessment issue.
g) The taxpayer showed up evidences of sale by the overseas group company suppliers of chemicals to the third party purchasers for the assessment and determinations of arm length prices of the chemicals so purchased by the taxpayer.
h) The evidences submitted by taxpayer established the fact that the prices paid by the purchaser were low as comapred to those paid by thirdd party to overseas group company suppliers.
i) The court on presentation of evidence found that there was a global market for chemicals so imported / purchased by the tax payer. The prices for the chemicals imported could thereby be ascertained on independent basis and explainations offered by SNF (Australia) Pvt Ltd were on the non-geographic factors.
j) The court concluded, two of the three sets of transactions relied upon by the tax payer were comparable and correct. The court established the fact that although certain transaction were comparable but certain transaction were not comparable as the tax payer has not established the functional comparability.
k) The court rejected Commissioners submission of inquiry required by Section 136AD.
l) The court found that it is not essential for taxpayer to establish the fair market value of chemicals purchased.
m) The full court reviewing the objections to evidence was essential beacuse trial court failed to deal with objections in a proper manner.
2nd Tax Case - Detailed Analysis
Arguments and Facts -
a) RCF Management LLC entered into an agreement with Resource Capital Fund Management Pvt Ltd to receive administrative and management services.
b) RCF Management LLC disposed the shares and interest in Talison Lithium in March 2013. The Commissioner immediately issued notices of assessment. The assessment for RCF IV ascertained a taxable amount of $116,835,066 and tax payable (@ 30%) amount of $35,050,519. The assessment for RCF V ascertained a taxable amount of $61,577,787 and tax payable amount of $18,473,336.
c) The taxable amount was treated as Capital Gain amount and not an ordinary income gain.
d) When RCF IV and RCF V was treated as relevant tax authorities. RCF IV and RCF V submitted that partners were relevant tax payers.
e) The main issue was about taxing the taxable entities according to the nature of transaction and accordingly determing the amount to be paid by each entity.
f) Commissioner in RCF III assessed limited partnership as a seperate taxable entity and argued that Division 5A did not create limited partnerships as taxable entities.
g) The judge Pagone J said as , "There is to be excluded from the taxable value of capital gain, the value attributable to the assets used in processing operations rather than in the mining."
h) The Court decided that the profits made by two limited partnerships RCF (Resource Capital Fund) IV and RCF (Resource Capital Fund) V from the sale of shares and interests were not assessable to Australian tax as Capital gains because of the provisions of law conatined in Income Tax Assessment Act, 1997.