• Service: Tax, Corporate Tax, Topics, Tax Reform, Resource Taxation
  • Industry: Financial Services, Energy & Natural Resources, Oil & Gas
  • Type: Regulatory update
  • Date: 20/06/2014

Tax Insights

KPMG's analysis of tax issues and developments.

Martin Wiesinger

Martin Wiesinger
Director, Tax

+61 2 9335 7843

Can a decision on PRRT bear on debt/equity classification? 

by Martin Wiesinger, Financial Services Specialist

It was earlier this year, in Blank v Commissioner of Taxation [2014] FCA 87, that the torch first shone on what constitutes a financing arrangement for Australia’s debt/equity regime. The central matter being, objectively, was the scheme entered into or undertaken 'to raise finance'. The case brought distinction to the raising of finance (which contemplates expending the amount raised) and the raising of capital (which might be raised for other reasons, consider prudential regulation).

Although PTTEP Australasia (Ashmore Cartier) Pty Ltd v Commissioner of Taxation [2014] FCAFC 71 concerns Petroleum Resource Rent Tax (PRRT), the decision could also bear on what arrangements, objectively, are seen to be entered into to raise finance.


Here, the cash flows under a long-term contract for the supply of crude oil were adjusted to allow for the time value of money where the seller benefited economically from payments in advance of supply.


The Full Federal Court of Australia concluded that, as a matter of construction, it was the adjusted amount that was the bargained price stating that “...It was conceptually no different from the parties agreeing to accept an amount if paid in advance for a different amount if paid on the date of transfer”. In reaching this conclusion, the Court dismissed the Commissioner’s contention that the adjustment mechanism introduced a financing arrangement between the buyer and seller.


If correct, the decision would seem to have implications for a number of arrangements which might previously have been thought to give rise to a 'financing arrangement' for Division 974 purposes. In turn, the requirement to withhold from payments to non-residents and the classification of liabilities for thin capitalisation purposes could also fall for reconsideration.


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