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Taxation – income tax (Cth) – assessable income – controlled foreign companies

BHP Billiton Limited v Commissioner of Taxation [2020] HCA 5 (11 March 2020) concerned Part X of the Income Tax Assessment Act 1936 (Cth) (ITA) which deals with Australian resident taxpayers who defer or avoid tax on foreign-sourced income by interposing entities in low-tax jurisdictions between the source of income and the Australian resident. Part X applies to Australian resident taxpayers with a sufficiently substantial interest in a controlled foreign company (CFC). It operates to attribute a share of the CFC’s income to the resident taxpayer.

The appellant, BHP Billiton Ltd (BHP Ltd), was an Australian resident taxpayer and part of a dual-listed company arrangement with BHP Billiton Plc (BHP Plc). BHP Billiton Marketing AG (BMAG) was a Swiss company and was a CFC of BHP Ltd. BMAG purchased commodities from BHP Ltd’s Australian subsidiaries and from BHP Plc’s Australian entities for sale into the export market. BMAG derived income from those sales.

There was no dispute that BMAG’s income from the sale of commodities it purchased from BHP Ltd’s Australian subsidiaries was to be included in the assessable income of BHP Ltd under Pt X. The question for the High Court was whether BMAG’s income from the sale of commodities it purchased from BHP Plc’s Australian entities was also to be included in the assessable income of BHP Ltd under Pt X. That question depended on whether BHP Plc’s Australian entities, the sellers of the commodities to BMAG, were ‘associates’ of BMAG for the purpose of s318(2) of the ITA.

For the purposes of Pt X, one company is an ‘associate’ of another if the company is sufficiently influenced by the other entity. The respondent, the Commissioner of Taxation, contended that BHP Plc’s Australian entities were associates of BMAG for three reasons: first, BHP Ltd was “sufficiently influenced” by BHP Plc; second, BHP Plc was “sufficiently influenced” by BHP Ltd; and third, BMAG was “sufficiently influenced” by BHP Plc and BHP Ltd. The High Court unanimously accepted all three of those contentions.

Kiefel CJ, Gageler, Keane, Gordon and Edelman JJ jointly. Appeal from the Full Court of the Federal Court of Australia dismissed.

David Kelsey-Sugg is a Victorian barrister, ph (03) 9225 6286, email dkelseysugg@vicbar.com.au. The full version of these judgments can be found at austlii.edu.au.

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