Tax Treaty Case Law around the Globe 2015

S. 3Australia: Hybrid entities – Resource Capital Fund III LP Case

Richard Vann

I. S. 4Introduction

Like many other countries, Australia has had to wrestle with the tax problems created by hybrid entities for some years now. The Australian Taxation Office (ATO) issued a binding public ruling in 2011 arising out of a private equity IPO of one of Australia’s two main department store chains. Although the ATO emerged empty handed as the money had left the country by the time it took action, it issued a series of rulings based on its analysis of the situation, two of them dealing with treaties. In relation to the treaty approach to hybrid entities, the ATO accepted the reasoning of the OECD Partnership Report and held that US resident investors in a Cayman Islands limited partnership (LP) that was fiscally transparent for US tax purposes were entitled to the benefits of the Australia – United States Tax Treaty, even though Australia taxed the LP as a company.

As is well known, the Partnership Report and subsequent Commentary changes sought to provide a framework for the application of treaties to partnerships that are characterized in different ways by the relevant jurisdictions. Under these chang...