correct valuation approach was to value
separately each category of assets as if
it was the only asset offered for sale in a
transaction. However on appeal the full
Federal Court preferred to measure the
market value of the individual assets on
the basis that they "are to be ascertained
as if they were offered for sale as a
bundle, not as if they were offered for
sale on a stand alone basis." This meant
that a hypothetical purchaser of the
TARP assets might expect to acquire the
mining information and the plant and
equipment for less than their production
or acquisition costs and without material
delay. This reflects the reality that
information and plant will generally be
sold to the purchaser of the relevant
mine. The result was that the TARP
assets exceeded the non-TARP for a least
one relevant date, and the transaction
was taxable, subject to the application of
the U.S./Australia double tax treaty.
subject to inconsistent provisions of
relevant double tax treaties. The U.S.
limited partners may have had the
benefit of protection under the U.S./
Australia double tax treaty if the relevant
tax payer was a U.S. resident. As noted,
for U.S. purposes the limited partnership
was regarded as fiscally transparent (i.e.
a pass through situation). However, with
some exceptions, Australian tax law
treats a corporate limited partnership as
a separate taxpayer, generally taxed as if
it was a company, so that apart from the
treaty Australian tax law would treat the
taxpayer as a Cayman Islands limited
partnership rather than looking through
to the U.S. limited partners.
The trial judge paid heavy regard to
the OECD commentary on the model tax
treaty on which the Australia/U.S. double
tax treaty was based, to find that the
U.S. limited partners were the relevant
taxpayers, and accordingly protected by
the double tax treaty.
said that the Australia/U.S. double tax
treaty did not apply because RCF (i.e.
the taxpayer assessed, being the Cayman
Islands limited partnership rather than
the partners), was neither a resident
of the United States nor a resident
of Australia.
Subject to any further appeal or
change in the law, one consequence is
that where there are TARP assets (e.g.
mining rights or real estate), a non-
Australian investor should consider
investing directly from an entity in a
treaty jurisdiction, to reduce the risk of
double tax. In addition, other structures
and specific advice should be considered.
While the context here is Australia/U.S.,
similar issues may occur under other
double tax treaties where there is an
interposed entity or structure, even a
fiscally transparent one, with a domicile
different to the parties of the treaty.