Definitions

Example A – Bifurcated corporate structure

An Australian reporting entity is a member of a foreign owned multinational corporate group that is split into:

• members of the group directly or indirectly owned or controlled by one ultimate parent entity owned or controlled by a group of publicly undisclosed persons (Group 1), and
• members of the group directly or indirectly owned or controlled by a different ultimate parent entity owned or controlled by a group of publicly undisclosed persons (Group 2).

While the directors, officers and shareholders of the ultimate holding companies of Group 1 and Group 2 are not publicly disclosed, they are either effectively controlled or at least 20% owned by members of the founding family of the groups.

The Australian reporting entity is a member of Group 1. The Australian reporting entity has:

• dealings with entities in Group 1 not resident for Australian tax purposes, and
• dealings with entities in Group 2 not resident for Australian tax purposes.

The Australian reporting entity is not dealing wholly independently with the entities in Group 1, as well as not dealing wholly independently with the entities in Group 2, and those dealings can be subject to Subdivision 815-B of the ITAA 1997 or the associated enterprises article of a relevant DTA.

International parties in Group 1 and international parties in Group 2 are international related parties of the Australian reporting entity.

Example B – Right to acquire equity

A Singaporean investor agrees to lend funds to an Australian reporting entity. Prior to the agreement, the Singaporean investor and the Australian entity did not have any common ownership or control, and the Singaporean investor and its associates did not have dealings with the Australian entity or its associates.

The Australian reporting entity grants the Singaporean investor a convertible interest entitling the Singaporean investor, or its nominated associate, to acquire equity interests carrying entitlement to 25% of any distribution of profits or capital by the Australian entity.

Upon the grant of the convertible interests to the Singaporean investor, the Singaporean investor and the Australian entity are not dealing wholly independently with one another with respect to any transactions or dealings between them and can be subject to Subdivision 815-B of the ITAA 1997 or the associated enterprises article of a relevant DTA.

From the time of the grant of the convertible interests, the Australian reporting entity and the Singaporean investor are international related parties.

Example C – Management and control

An Australian reporting entity is an Australian resident company for tax purposes. CanadaCo is a Canadian resident company for tax purposes. CanadaCo has been a long-term investor in the Australian reporting entity, holding interests in the Australian reporting entity, entitling CanadaCo to 30% of any distributions of capital. Both CanadaCo and the Australian reporting entity operate as exclusive suppliers of similar branded products in their respective regions of North America and Australasia.

In 2019, CanadaCo:

• reduces its capital interests in the Australian reporting entity from 30% to 19%, and
• appoints two of its executive employees to the Australian reporting entity’s board of directors who participate in the management and control of AusCo’s business.

At all times, the Australian reporting entity and CanadaCo are not dealing wholly independently with one another in relation to their commercial or financial dealings, and those dealings can be subject to Subdivision 815-B of ITAA 1997 or the associated enterprises article of a relevant DTA.

At all times, the Australian reporting entity and CanadaCo are international related parties.

Example D – Synthetic equity

An Australian reporting entity is an Australian resident company for tax purposes. MalayCo is a Malaysian resident company for tax purposes. MalayCo enters into a funding and investment arrangement with the Australian reporting entity which results in:

• MalayCo providing funds to the Australian reporting entity under an agreement titled ‘Loan Facility’, which is repayable by the Australian reporting entity at a certain date subject to other terms and conditions
• MalayCo acquiring an option to acquire some or all of the shares in the Australian reporting entity at its election for a price satisfied by reduction, offset or other satisfaction of the whole of part of the amount owing by the Australian reporting entity to MalayCo under the agreement titled ‘Loan Facility’
• MalayCo appointing a director to the board of the Australian reporting entity who has a veto or casting vote over a range of decisions.

After this arrangement is in place, the Australian reporting entity and MalayCo are not dealing wholly independently with one another in relation to their commercial or financial dealings, and those dealings can be subject to Subdivision 815-B of ITAA 1997 or the associated enterprises article of a relevant DTA.

After the arrangement is in place, the Australian reporting entity and MalayCo are international related parties.