Commissioner of Taxation v Macquarie Bank Limited [2013] FCAFC 13

The Federal Court has handed down its decision in the case of Commissioner of Taxation v Macquarie Bank Limited [2013] FCAFC 13, a complex case involving income tax. The primary questions to be addressed included:

• whether a subsidiary member of a consolidated group is a taxpayer for the purposes of the  Income Tax Assessment Act 1936 (Cth) s 177F

• whether a subsidiary member or head company of a consolidated group is the relevant taxpayer obtaining a tax benefit for the purposes of s 177C

• the factors to be considered when finding the “dominant purpose” under s 177D(b)

Background

The case involved the sale by Mongoose Pty Limited of shares in Minara Resources Limited. Mongoose was a subsidiary of Mongoose Acquisitions LLC.   The membership interests in Mongoose Acquisitions were owned by two limited partnerships (the Vendors). Each of the Vendors was ultimately owned by MatlinPatterson LLC.

In March 2004 Macquarie purchased all of the membership interests in Mongoose Acquisitions from the Vendors, for a consideration of $438,928,590. Subsequently, Mongoose sold its shares in Minara for $2.90 per share.  As a consequence, Macquarie derived a gain, being the difference between the amount it paid for the membership interest in Mongoose Acquisitions and the value of that interest, having regard to the amount received by Mongoose on the sale of its shares in Minara.  The gain amounted to $41,408,357. Macquarie returned a capital gain of that amount for tax purposes.

Mongoose had acquired its shares in Minara in January 2003, and thus derived a gain between January 2003 and March 2004, when it sold the shares in Minara.  The question arising on the appeal was whether the gain derived by Mongoose was subject to capital gains tax.

Initial Findings

The Commissioner of Taxation found that the steps carried out constituted a scheme within the meaning of Pt IVA of the Income Tax Assessment Act 1936 and that one or more of MatlinPatterson, Macquarie, Mongoose, Mongoose Acquisitions and the Vendors had entered into or carried out the scheme for the dominant purpose of obtaining a tax benefit. Mongoose and Macquarie objected to the assessments and the Commissioner made unfavourable decisions on the objections.  On appeal to the Federal Court, a judge of the Court upheld the appeals and set aside the assessments.  The Commissioner then appealed to the Full Court.

Issues raised by the appeal

Emmet J identifies a number of issues raised by the appeal:

"The first question is whether, assuming the prerequisites of Pt IVA were otherwise satisfied, the Commissioner had authority to issue a determination under Pt IVA to Mongoose, despite it being a subsidiary member of the Macquarie consolidated group.  The second is whether the Commissioner was authorised to issue an amended assessment to either Mongoose or Macquarie on the basis of the determination made in respect of Mongoose.  The third is whether any taxpayer obtained a tax benefit for the purposes of s 177C.  The fourth question is whether any of the parties who entered into and carried out the scheme did so with the purpose specified in s 177D."

Conclusion

Emmet J concluded that both appeals should be dismissed, with the Commissioner to pay the costs of the appeals.

Middleton and Robertson JJ essentially agreed with this assessment, concluding:

"We propose to order that the parties confer and thereafter bring minutes to the Court reflecting the outcome of these proceedings (including costs) within 7 days.  We are of the tentative view that the appropriate orders should be that the appeals be dismissed with costs."

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