Failing to consider stamp duty during, for example, an internal restructure of a corporate group with a physical presence or investment in Australia, risks exposing the group (or its directors) to interest and penalties on outstanding liabilities, or even criminal charges.
What is a corporate reconstruction exemption?
When a corporate group reorganizes its business structure, stamp duty may arise on the restructure, even if tax does not arise at a federal level. Most Australian states offer a corporate reconstruction exemption which removes the stamp duty liability on intra-group transfers if certain conditions are met. Exemptions are not granted automatically, however, they must be applied for.
Why should you consider a corporate reconstruction exemption?
Offshore restructures can also be subject to Australian stamp duty, particularly if they involve companies and trusts that are directly or indirectly entitled to Australian real property. In other words, Australian stamp duty can still arise, even if no Australian entity is directly involved in the transaction.
For example, a European corporate group decides to transfer one European subsidiary company under another. As a result of the restructure, one subsidiary will own all the shares and assets of the other, including the shares of a Singaporean company. The Singaporean company owns an Australian company which owns land in Australia. Stamp duty will be payable at rates of up to 7.25 percent on the gross market value of the Australian assets transferred (or deemed to be transferred), even though the Australian company is not a party to the transaction.
An application for a corporate reconstruction exemption should be considered to prevent an Australian stamp duty liability. Subject to certain conditions, the exemption may save the European corporate group from paying stamp duty on the value of the Australian assets.
Conditions to be satisfied
To be eligible for the exemption, the transaction must satisfy certain conditions. These conditions differ between Australian jurisdictions. For example, some states allow transfers between trusts and companies that are held by a common entity, whereas others only allow the exemption for companies.
Some states also require the transferor and transferee to be part of the same corporate group for certain periods. These could be 3 years before the transaction and 3 years after the transaction, depending on the state involved. Therefore, a corporate restructure which groups particular assets into a ‘package’, with the intention of then selling that package, will not qualify for the exemption. These are only some examples of the conditions that must be satisfied. When applying for an exemption, the facts and circumstances of each transaction must be analyzed to determine the relevant jurisdiction and whether its particular rules for an exemption are satisfied