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LAMESA HOLDINGS BV v FC of T

Judges:
Einfeld J

Court:
Federal Court

Judgment date: 4 March 1997

Einfeld J

This matter concerns the liability of an enterprise of the Netherlands, Lamesa Holdings BV (``Lamesa''), to pay income tax in Australia in respect of profits derived from the sale of shares in an Australian publicly listed company. Lamesa has appealed to this Court against amended assessments issued by the Commissioner of Taxation for the years of income ended 30 June 1994 and 30 June 1996.

Outline of facts

In December 1991 Mr Leonard Green, a principal of Leonard Green and Associates LP (``LGA''), a limited partnership established in the United States, became aware of a potential investment opportunity in Australia. Arimco Resources and Mining Company NL (``Arimco''), a company listed on the Australian Stock Exchange which had a subsidiary called Arimco Mining Pty Limited (``Arimco Mining'') engaged in gold mining activities, was the subject of a hostile takeover bid, at a price which Mr Green was advised was less than the real value of the Arimco shares.

With this knowledge Mr Green approached his fellow principals in LGA who then agreed to mount a takeover offer for Arimco. As an initial step, a limited partnership of institutional, investment and financial entities resident in the US and managed by LGA, Green Equity Investors LP (GEILP) acquired 18.1% of the capital of Arimco. Conduct of the venture was delegated to Christopher Walker and Greg Annick, who were then respectively a principal and an employee of LGA in its Californian office.

The following events then took place:

  • 1. On 31 January 1992 GEILP acquired the issued share capital of the company now named Australian Resources Limited (ARL), but then called GEI Mining Holdings Pty Limited.
  • 2. On the same day ARL acquired the capital of the company now named Australian Resources Mining Pty Limited (ARM), but then called GEI Mining Pty Limited.
  • 3. On 6 February 1992 GEILP acquired the issued share capital of the applicant Lamesa, a private limited company incorporated in the Netherlands. GEILP thereafter transferred the capital of ARL to Lamesa.
  • 4. On 23 February 1992, ARM made a takeover bid for Arimco. The bid was successful. By the end of July 1992 ARM owned the whole of the capital of Arimco. The ownership structure was thereafter as follows:

`` Green Equity Investments LP (GEILP) (A limited partnership... in the USA)

owns 100% of Lamesa Holding BV (Lamesa) (incorporated in the Netherlands)

which owns 98.2% (with directors and senior executives of Australian Resources Ltd owning the balance) of

Australian Resources Limited (ARL) (incorporated in the ACT)

which owns 100% of

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Australian Resources Mining Pty Ltd (ARM) (incorporated in the ACT)

which owns 100% of Australian Resources and Mining Company NL(Arimco) (incorporated in Queensland)

which owns 100% of Arimco Mining Pty Ltd (Arimco Mining) (incorporated in NSW)

which owns gold mining leases''

5. In November 1993 ARL offered a public allotment of 70 million new shares and was listed on the Australian Stock Exchange. Following the issue Lamesa's interest in the capital of ARL was reduced to 67.35%.

6. In January 1994 Macquarie Bank proposed to Lamesa a sale of 50 million of its ARL shares. Messrs Walker and Annick authorised Macquarie to negotiate a sale, which it did on 31 January 1994.

7. In January 1996 Mr Annick on behalf of Lamesa authorised Macquarie Bank to negotiate the sale of the remaining shares held by Lamesa in ARL, which it did on 11 January 1996.

8. On 16 January 1996 the Commissioner issued assessments to Lamesa for the years of income ended 30 June 1994 and 30 June 1996 (the first assessments), including in its taxable income the profit on the sale of ARL shares on 31 January 1994 and 11 January 1996 respectively.

9. By notices dated 19 June 1996 Lamesa lodged objections to these assessments.

10. On 24 June 1996 the Commissioner issued amended assessments for the same years (the amended assessments) to which Lamesa lodged objections on 3 July 1996.

11. On 31 July 1996 the Commissioner gave Lamesa notice of his decisions rejecting the objections.

The assessments

The first assessments relied upon section 160ZO(1) of the Income Tax Assessment Act 1936 (``Tax Act''), to include alleged capital gains calculated under section 160Z(1) of the Tax Act in assessable income in each year. Lamesa's objections to the section 160ZO(1) assessments were allowed in full when the amended assessments were issued on 24 June 1996: the alleged capital gains were excluded from Lamesa's assessable income and, instead, the Commissioner's assessment of the profits on the sale of the ARL shares in each year was included in assessable income under section 25(1)(b) of the Tax Act. This provision states:

``25(1) The assessable income of a taxpayer shall include-

  • ...
  • (b) where the taxpayer is a non- resident-
    • the gross income derived directly or indirectly from all sources in Australia,

...''

The profits were assessed in the amounts of:

1994: $73,693,888

1996: $128,022,859

These are the assessments under appeal.

Double Tax Agreements

Lamesa submitted that the profits from the sale of the ARL shares are excluded from Australian tax by virtue of section 4 of the International Tax Agreements Act 1953 (Agreements Act) and the 1976 Netherlands- Australia Double Taxation Agreement (Netherlands DTA) which is in schedules 10 and 10A to the Agreements Act. Section 4 of the Agreements Act (including its schedules) has effect notwithstanding anything inconsistent with its provisions in the Tax Act: that is to say, a scheduled Double Taxation Agreement (DTA) overrides the Tax Act.

It should be noted here that Australia's DTAs are based upon models adopted by the Council of the Organisation for Economic Co-operation and Development (OECD models). Each of the OECD models proceeds upon the basis that the country of residence alone should be allowed to tax the activities of an enterprise extending into the other country unless the enterprise's activities in that other country have such an impact upon its economy that it is proper that the country of source should be allowed to tax them.

The issues

The first issue initially was whether Article 7 of the Netherlands DTA applies. This Article provides that the profits of a Netherlands' enterprise are taxable only in the Netherlands unless the enterprise carries on business in Australia through a permanent establishment

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situated here. The facts are that Lamesa did not at any time have an office, or branch, or any other place of management in Australia nor did it have any officer or employee resident in Australia. Lamesa did not own, lease or occupy any property of any kind in Australia or conduct any business or undertake any transaction in Australia other than the acquisition and resale of the shares in ARL. Lamesa's dealings in Australia have been conducted on its behalf by two categories of representatives, namely brokers or solicitors acting in the ordinary course of their business or profession, and attorneys, proxies or representatives appointed under section 249(3) of the Corporations Law acting within a limited scope of authority. During their opening submissions, the parties advised that it was no longer in dispute whether Lamesa had a permanent establishment in Australia. It is now common ground that Lamesa has the protection of Article 7 unless an exception under Article 7(5) applies (namely Article 13), and the only issue in relation to Article 7 is the question of costs.

The only remaining substantive issue is thus whether the profits arising from the sale of the ARL shares on 31 January 1994 and 11 January 1996 is income from the alienation of real property within the meaning of Article 13 of the Netherlands DTA. That Article is as follows:

``Alienation of Property

(1) Income from the alienation of real property may be taxed in the State in which that property is situated.

(2) For the purpose of this Article [ underlining added]

  • (a) the term `real property' shall include-
    • (i) a lease of land or any other direct interest in or over land;
    • (ii) rights to exploit, or explore for, natural resources; and
    • (iii) shares or comparable interests in a company, the assets of which consist wholly or principally of direct interests in or over land in one of the States or of rights to exploit, or to explore for, natural resources in one of the States.
  • (b) real property shall be deemed to be situated-
    • (i) where it consists of direct interests in or over land - in the State in which the land is situated;
    • (ii) where it consists of rights to exploit, or to explore for, natural resources - in the State in which the natural resources are situated or the exploration may take place; and
    • (iii) where it consists of shares or comparable interests in a company, the assets of which consist wholly or principally of direct interests in or over land in one of the States or of rights to exploit, or to explore for, natural resources in one of the States - in the State in which the assets or the principal assets of the company are situated.

(3) Gains from the alienation of shares or `jouissance' rights in a company the capital of which is wholly or partly divided into shares and which is a resident of the Netherlands for the purposes of Netherlands tax, derived by an individual who is a resident of Australia, may be taxed in the Netherlands.''

It should be noted that at the time of disposal by Lamesa of its shareholding in ARL, Arimco held rights to ``exploit, or to explore for, natural resources'' in respect of the Selwyn gold- copper mine, the Mt McClure gold mine and the Gidgee gold mine; that is to say, that Arimco held ``real property'' as that term is defined in Article 13(2).

Alienation of real property

Lamesa's prime facie argument is that Article 13 of the Netherlands DTA has no application as Lamesa made its profits from disposing of shares in ARL, not from the alienation of real property. It contends that the assets of ARL are not direct interests over land or rights to exploit or to explore for natural resources in Australia. Implicit in this argument is that the ``assets'' of ARL are shares in ARM. The further implication is that the ``assets'' of ARM are shares in Arimco and it is that company that holds ``shares... in a company, the assets of which consist wholly or principally of direct interests in or over land... or of rights to exploit, or to explore for, natural resources.'' In other words, the argument is that the gold

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mining leases are far removed from Lamesa by virtue of the interposed listed company ARL, its subsidiary and takeover vehicle ARM, the former listed company Arimco and by Arimco Mining, all of which existed long before LGA and GEILP or Lamesa had any interest in the venture.

The Commissioner's contention is that, in determining the ``assets'' of ARL, the Court should look to the underlying assets that give the shares in a subsidiary company their ultimate value. In the circumstances of this case, it was submitted that the ``assets'' of ARL, even though held through two 100% owned companies, are ``wholly or principally'' the ``assets'' held by Arimco Mining, namely the mining leases. The Commissioner further submitted that the parent company could, at any time, exercise its right to wind up all of the intermediate companies in the group and take a distribution in specie of the mining leases. And before any winding up, its control of the companies effectively gives it the right to exploit those mineral rights.

In my view, whether ARL could acquire the mining assets of Arimco Mining is in fact purely speculative. As the transfer of a mining lease is subject to the consent of the relevant State Minister for Mines, and since the acquisition of Australian urban land by a foreign controlled company is subject to the control of the Foreign Investment Review Board under section 21A of the Foreign Takeovers Act 1975 (Cth), the Commissioner's argument in this respect can be given little weight.

The question which needs to be answered is whether or not the mining leases are in fact the assets of ARL. In
GRE Insurance v FC of T 92 ATC 4089 at 4094-4095; [1992] 34 FCR 160 at 166 a Full Court of the Federal Court (Northrop, Davies and Jenkinson JJ) said:

``... Nevertheless, the part which a subsidiary plays in affairs which concern its holding company, or in the group of which both companies form a part, may throw light upon the character of the activities of the subsidiary.... In the present case, Unitraders was introduced into the affairs of GRE solely to ensure that the benefit of the s 46 rebate would not be lost in the event that underwriting losses brought GRE to the position that it had no taxable income. Unitraders was a separate legal entity from GRE but its activities reflected, indeed formed part of, the overall business in which GRE was engaged.''

The Commissioner submitted that ARL's activities ``reflected, indeed formed part of, the overall business'' in which its subsidiaries, and more specifically, Arimco Mining, were engaged. It was contended through documents and reports contained in the exhibits to the affidavit of Mr Annick, that ARL and its subsidiaries were treated as a group by all relevant persons, including Lamesa, and that the mining leases were regarded as the group's principal and most important assets, in substance, as assets of ARL.

Lamesa sought to distinguish GRE Insurance. The profits on the sale of equities by GRE's subsidiary, Unitraders, were held to be assessable because Unitraders' investments indirectly formed part of the insurance reserves and of the circulating capital of the parent company's business (at ATC 4093; FCR 164). On the other hand, in
AGC (Investments) Limited v FC of T 92 ATC 4239, a Full Court of the Federal Court (Beaumont, Gummow and French JJ) held at 4251 that the profits on the sale of equities by a subsidiary of an insurance company were not assessable in circumstances where there was no need to call upon the investments to maintain the liquidity of the insurance business of the parent. Lamesa submitted that like AGC (Investments) there is nothing in the present case indicating that the gold mining leases and business of Arimco Mining formed the main part of the business operations of ARL. In fact the evidence before the Court appeared to suggest that less than 50% of the group assets were land and mining right interests and as a result it would be inaccurate to describe the ARL group as a company the assets of which ``consist wholly or principally'' of land or mining right interests.

There is clearly evidence to establish the appropriateness of treating ARL and its wholly- owned subsidiaries as a ``group'' for certain purposes. However, I do not think it follows that ARL owned the gold mining leases and business of Arimco Mining. The legal principles governing groups of companies clearly state that wholly-owned subsidiary companies are separate legal entities and independent from their parent company. In AGC (Investments) at first instance (91 ATC

ATC 4235

4180; [1991] 21 ATR 1379), Justice Hill at ATC 4189; ATR 1390 formed the view that:

``There is no doubt the applicant is a separate legal entity from its parent company and that to attribute the business of the parent to its subsidiary would involve the impermissible lifting of the corporate veil.''

The legal consequences of this approach are that the assets of the subsidiary are not assets belonging to the parent company and as a result ARL's assets are not the mining leases. On this basis alone, Article 13 of the Netherlands DTA would have no application to the profits made by Lamesa from the disposal of shares in ARL.

Article 13 - ``direct interests''

It is important to determine the correct interpretation of the term ``direct interests'' in Article 13 in order to ascertain the Article's application to Lamesa's liability to Australian tax. Relevantly to this case, Article 13 deals in paragraph (2)(a) with these different types of Australian assets, namely:

  • (i) direct interest in or over land; and
  • (ii) rights to exploit or to explore for natural resources;
  • (iii) shares (or comparable interests) in a company whose assets consist wholly or principally of (i) or (ii).

Lamesa argued that Article 13 should be interpreted according to its natural meaning, that is to say, if the words of the Article are clear, and Lamesa contended that they are, and they do not give rise to manifest absurdity or unreasonable consequence, there is no need to depart from the clear words. Lamesa submitted that the word ``direct'' means that the interest in the real property is held immediately by the person or entity being referred to, and as a consequence, where another company is interposed between the real property and the company whose shares are sold, the provision does not apply. It was argued that there is no basis for implying into Article 13(2)(a)(ii) or of the Netherlands DTA the word ``indirect'' with respect to rights to exploit or to explore for natural resources when the word neither appears in the subparagraphs nor is necessary to give them efficacy. Furthermore, it is not merely the absence of the word ``indirect'' in Article 13(2) that determines the scope, but rather the express adoption of the word ``direct'' in paragraph (2)(a)(i) which needs to be emphasised in determining this issue.

The Commissioner relied first on Article 31 of the Vienna Convention in the Law of Treaties which states:

``A treaty shall be interpreted in good faith in accordance with the ordinary meaning to be given to the terms of the treaty in their context and in the light of its object and purpose.''

Secondly, it was submitted that it would be an unreasonable construction of Article 13(2)(a)(iii) to hold that only rights in respect of real property which were immediate were caught rather than, as the Commissioner argued, rights which are lineal (though not collateral). Thirdly, the Commissioner said that if the construction contended for by Lamesa were accepted, it would wholly defeat the purpose of the DTA and promote the purpose of no taxation being payable anywhere on or with regard to Australian real estate and mining resources.

In the alternative, the Commissioner referred to the words ``comparable interests'' in Article 13(2)(a)(iii), and contended that a controlling shareholding in the ultimate company of a group which has mining leases, where ownership through the group is 100% as in the present case, is a ``comparable interest'' to a shareholding in the company which actually owns the mining lease. In other words, by its shareholding in ARL, Lamesa held a ``comparable interest'' in Arimco. Article 13(2)(a)(iii) states that real property shall ``consist of shares or comparable interests in a company.'' I do not think this provision is applicable here as what were sold by Lamesa were shares and not some alternative.

As to the argument that the Court should construe subparagraph (2)(a)(iii) of Article 13 as meaning that interests in land and in rights to explore or exploit can be indirectly held as well as directly held, it was submitted that Article 13 reflects the intention of the Netherlands DTA that, subject to certain exceptions, any income derived from the alienation of real property may be taxed in the country where the property is situated. Otherwise a State's rights over its natural resources could be exploited without that State having a taxing right. In other words, a departure from the clear words of Article 13(2) of the Netherlands DTA is needed, for

ATC 4236

otherwise its construction will give rise to no tax being paid anywhere.

During the hearing, at the Commissioner's request, Lamesa conceded that it had not been taxed, and ``we would expect not [to be] taxable'', on the profit of the sale of ARL shares in the Netherlands (as a result of a specific exemption) or in the United States. Nevertheless, Lamesa argued that the interpretation of the Netherlands DTA cannot depend upon whether a recipient is taxable on the relevant income in the Netherlands, for if it did the general terms of Article 13 would have a different meaning depending upon whether the profit on the sale of the shares in question was or was not taxable in the Netherlands. Further, it would be absurd for taxation in Australia to depend on the fulfilment of those conditions when the Netherlands DTA does not even refer to them. Lamesa's point was that it is irrelevant to this Court's interpretation of the Australian treaty with the Netherlands whether profits from the sale of the ARL shares are immune from taxation in the Netherlands or the US.

I reject this argument. As it seems to me, the object and purpose of the Netherlands DTA is to avoid double taxation. As McHugh J said in this regard in
Thiel v FC of T 90 ATC 4717 at 4727; [1990] 171 CLR 338 at 357:

``The Agreement is one `for the avoidance of double taxation with respect to taxes on income'. Accordingly, it is necessary to interpret the words of the Agreement with that particular purpose in mind.''

The construction of Article 13 contended for by the Commissioner will not lead to double taxation, whereas Lamesa's suggested construction, upon its own concession, will lead to no tax being paid anywhere. The question therefore remains as to whether this is contrary to the ``object and purpose'' of the Netherlands DTA, in that the object and purpose is not only to avoid double taxation, but also to ensure that tax is paid somewhere.

Lamesa asserted that the Dutch practice has at times been to negotiate agreements with other countries so that profits of this kind are taxable in one place or the other. Paragraph 21 of the Official Commentary on Article 13 to the 1977 OECD Model made clear that if companies were concerned about an absence of tax in the country of residence, it should negotiate a specific limitation to Article 13:

``As capital gains are not taxed by all States, it may be considered reasonable to avoid only actual double taxation of capital gains. Therefore, Contracting States are free to supplement their bilateral convention in such a way that a State has to forego its right to tax conferred on it by domestic law only if the other State on which the right to tax is conferred by the Convention makes use thereof. In such a case, paragraph 4 of the Article should be supplemented accordingly. Besides a modification of Article 23A as suggested in paragraph 35 of the Commentary on Article 23A is needed.''

The Netherlands DTA does not contain any such specific limitation although the participation exemption of the Netherlands was well known when the treaty was negotiated (ie before March 1976). Professor Maarten J. Ellis, Professor of Law at Erasmus University, Rotterdam and a partner in a legal firm specialising in taxation law, who gave expert evidence in these proceedings, stated that the Netherlands had the exemption as early as 1941. It should be noted that specific limitations upon relief or reduction of tax in the country of source, depending upon the taxation of the item of income in the country of residence, were not uncommon both before and after the Netherlands DTA was concluded.

The admissibility and weight that any agreements containing such specific limitations between the Netherlands and other contracting States can have is questionable, especially in light of the fact that no expert evidence was given of the context in which such agreements operate. As a result, the existence of such specific limitations in other agreements can be of little or no assistance in the present case. I also do not think that such a specific limitation can be inferred in the Netherlands DTA. There is no evidence to support such an inference and no evidence was given to explain its absence in the Netherlands DTA. As a result, I do not see how it can be argued that the object and purpose of this treaty is to ensure that tax is paid in one of the two contracting states. In that event, the ``object and purpose'' test is not of any assistance in this case quite simply because neither party's suggested construction of Article 13 would conflict with this agreement's only clear object and purpose of avoiding double taxation.

ATC 4237

That conclusion still leaves adrift Article 13's application to Lamesa's sale of the ARL shares. In Thiel the High Court held that in construing a Double Tax Agreement it was permissible to take into account extrinsic material and to consider the corresponding version of the Agreement in the language of the country with whom Australia had concluded the Agreement.

Extrinsic material

Lamesa submitted that the ordinary meaning of the English text, which encompasses only shares of companies whose predominant assets are ``direct interests in land or in rights to exploit or explore for natural resources'', is confirmed by the Dutch text. There are a number of decisions which support the view that the Dutch text is relevant to the interpretation of the English text given that uniformity is desired in both states: eg
James Buchanan & Co v Babco Forwarding & Shipping Ltd [1978] AC 141 at 152-153;
Fothergill v Monarch Airlines Ltd [1981] AC 251 at 273-293.

Professor Ellis in his report in evidence at pp 7/13-8/13 pointed out that the Dutch word for ``rights'' in the phrase ``rights to exploit, or to explore for, natural resources'' in Article 13(2)(a)(ii) and (iii) does not include indirect interests, for if it did a word other than ``recht'' (meaning ``right'') would have been used in its place. Furthermore, in (a)(i) where the English text refers to ``interest'', in Dutch the word ``belang'' is used. Professor Ellis' contention was that an indirect ``belang'' would probably still qualify as a ``belang'', therefore the actual word ``direct'' is needed to preclude indirect interests in or over land being considered as real property. It is first important to ascertain what weight can be given to such evidence.

In Thiel the joint judgment of Mason CJ, Brennan and Gaudron JJ at ATC pages 4719-4720; CLR page 344 stated:

``... As the English and German texts of the Agreement were agreed to be equally authoritative, the meaning of `enterprise' might have been illuminated by evidence of the meaning of the corresponding German text, but no such evidence was given and the parties before this Court were unable to agree on a translation of the German text.''

Thus the authority of the High Court in Thiel is to the effect that evidence of the meaning of terms used in the other language version of a double tax agreement is admissible and both texts are equally authoritative. As Professor Ellis' evidence would appear to suggest that there is no divergence in the meaning of the Dutch and English versions, it seems that Article 13 is to be given a literal interpretation.

Further extrinsic material, referred to in Thiel as permissible by Mason CJ, Brennan and Gaudron JJ, who agreed with McHugh J, is consideration of the 1977 OECD Model and Commentary in construing a double tax agreement. Dawson J added an important caveat to this view, namely that the OECD model and commentaries are only applicable to those bilateral treaties subsequently concluded. In this case, the Netherlands DTA was concluded in 1976 and as a result the Commissioner submitted that the 1977 OECD model and commentaries may not apply as extrinsic aids to the interpretation of that Agreement. However, Professor Ellis explained (annexure 2 p 2/13 footnote 1) that the text of the 1977 OECD Model and the Official Commentary thereto had been largely formulated and published before the conclusion of the Netherlands DTA in 1974, and for that reason the Official Commentary to the 1977 OECD Model is relevant to the interpretation of the Netherlands DTA. Furthermore, the relevant paragraphs from the 1977 OECD Model are the same or substantially the same as the corresponding paragraphs of the 1963 OECD Model.

Under the 1977 OECD Model, gains from the alienation of real property are taxable in the country of situs but profits on sale of shares in landholding companies are taxable only in the country of residence unless the negotiators of a treaty specifically provide to the contrary. So much is made clear in paragraphs 23 and 24 of the Official Commentary to Article 13 of the 1977 OECD Model:

``[Paragraph 1]

23 Certain tax laws assimilate the alienation of all or part of the shares in a company, the exclusive or main aim of which is to hold immovable property, to the alienation of such immovable property. In itself paragraph 1 does not allow that practice: a special provision in the bilateral convention can alone provide for such an assimilation. Contracting States are of course free either to include in their bilateral conventions such special provision, or to confirm expressly

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that the alienation of shares cannot be assimilated to the alienation of the immovable property.

[Paragraph 2]

24 Paragraph 2 deals with movable property forming part of the business property of a permanent establishment of an enterprise or pertaining to a fixed base used for performing independent personal services. The term `movable property' means all property other than immovable property which is dealt with in paragraph 1. It includes also incorporeal property, such as goodwill, licences, etc. Gains from the alienation of such assets may be taxed in the State of which the permanent establishment or fixed base is situated, which corresponds to the rules for business profits and for income from independent services (Articles 7 and 14).''

An examination of the OECD Model and Commentary appears to support the view that assimilation is expressly confined to shares in companies with direct interest in land or rights to exploit or explore for natural resources.

There was some debate over the admissibility of decisions of the Hoge Raad (the Netherlands' highest court in relation to tax matters), evidence of some of which was annexed to the affidavit of Professor Ellis. The Commissioner suggested that the Hoge Raad's approach to treaty interpretation is different from that in Australia and that there is no authority which permits recourse to foreign decisions in the context of a DTA. Professor Ellis stated that the Hoge Raad does adopt the principles laid down in the Vienna Convention and interprets DTAs in accordance with their ordinary meaning in their context and in light of their object and purpose (Report annexure 2 p 2/13-3/13). I do not think recourse can be had to decisions of the Dutch court in the interpretation of tax agreements between the Netherlands and countries other than Australia, but I think that an interpretation of the Netherlands-Australia DTA by the Hoge Raad would be both admissible and persuasive given that uniformity in the application of the Agreement in both countries is desired. As no decisions tendered by Lamesa relate to the Netherlands-Australia Agreement, the argument is purely speculative in this case.

It is possible for the Court to look behind the corporate veil to examine the purpose and creation of certain companies or corporate groups to ascertain whether a particular company is in fact a ``sham''. I do not think that this has been proved in these proceedings. When GEILP acquired the issued share capital in ARM, it was acquiring a controlling interest in the capital of a listed public company. It did not bid for land or interest in land or seek to explore for or exploit minerals. The business continued to be managed by its existing managers and GEILP provided financial input only. It cannot be held that Lamesa acquired direct interests in land or rights to exploit or explore for natural resources. As a result, it cannot be held that Article 13 of the Netherlands DTA applies to the profits arising from the sale of ARL shares.

Conclusion

I therefore allow the appeal and will make the appropriate orders. The Commissioner will pay Lamesa's costs of the Article 13 case. If costs are sought on the Article 7 case, they are to be addressed in writing within 28 days of the delivery of this judgment.

The Court:

1. Allows the appeal.

2. Allows in full the applicant's objection dated 3 July 1996 to the amended assessment dated 24 June 1996 for the income year ended 30 June 1994 and declares that no amount of tax (including any additional tax or penalty) is payable in respect of that income year.

3. Allows in full the applicant's objection dated 3 July 1996 to the amended assessment dated 24 June 1996 for the income year ended 30 June 1996 and declares that no amount of tax (including any additional tax or penalty) is payable in respect of that income year.

4. Orders the respondent to pay the applicant's costs in respect of the Article 13 case.

5. Orders that if costs are sought in respect of the Article 7 case, application is to be made by submissions in writing within 28 days of the delivery of this judgment.


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