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INCOME TAX ASSESSMENT ACT 1936

PART IVA - SCHEMES TO REDUCE INCOME TAX    View history reference

SECTION 177J  DIVERTED PROFITS TAX - APPLICATION  

 View history reference

Scheme for a purpose including obtaining a tax benefit etc.

177J(1)  

This Part also applies to a scheme, in relation to a tax benefit (the DPT tax benefit) if:


(a) a taxpayer (a relevant taxpayer) has obtained, or would but for section 177F obtain, the DPT tax benefit in connection with the scheme, in a year of income; and


(b) it would be concluded (having regard to the matters in subsection (2)) that the person, or one of the persons, who entered into or carried out the scheme or any part of the scheme did so for a principal purpose of, or for more than one principal purpose that includes a purpose of:


(i) enabling the relevant taxpayer to obtain a tax benefit, or both to obtain a tax benefit and to reduce one or more of the relevant taxpayer's liabilities to tax under a foreign law, in connection with the scheme; or

(ii) enabling the relevant taxpayer and another taxpayer (or other taxpayers) each to obtain a tax benefit, or both to obtain a tax benefit and to reduce one or more of their liabilities to tax under a foreign law, in connection with the scheme;

whether or not that person who entered into or carried out the scheme or any part of the scheme is the relevant taxpayer or is the other taxpayer or one of the other taxpayers; and


(c) the relevant taxpayer is a significant global entity for the year of income mentioned in paragraph (a); and


(d) a foreign entity is an associate (within the meaning of section 318) of the relevant taxpayer at any time in the year of income mentioned in paragraph (a); and


(e) that foreign entity:


(i) is the person, or one of the persons, who entered into or carried out the scheme or any part of the scheme; or

(ii) is otherwise connected with the scheme or any part of the scheme; and


(f) the relevant taxpayer is not any of the following:


(i) a managed investment trust (within the meaning of the Income Tax Assessment Act 1997);

(ii) an entity covered by paragraph 275-20(4)(f) of that Act (foreign collective investment vehicle with a wide membership);

(iii) an entity covered by paragraph 275-20(4)(h) of that Act (entity owned by foreign government etc.) that is a foreign entity;

(iv) a complying superannuation entity (within the meaning of that Act);

(v) a foreign pension fund (within the meaning of that Act); and


(g) it is reasonable to conclude that none of the following sections apply in relation to the relevant taxpayer, in relation to the DPT tax benefit:


(i) section 177K ($25 million income test);

(ii) section 177L (sufficient foreign tax test);

(iii) section 177M (sufficient economic substance test).

Have regard to certain matters

177J(2)  

For the purposes of paragraph (1)(b), have regard to the following matters:


(a) the matters in subsection 177D(2);


(b) without limiting subsection 177D(2), the extent to which non-tax financial benefits that are quantifiable have resulted, will result, or may reasonably be expected to result, from the scheme;


(c) the result, in relation to the operation of any foreign law relating to taxation, that (but for this Part) would be achieved by the scheme;


(d) the amount of the tax benefit mentioned in paragraph (1)(b).

Deferral of foreign tax liabilities

177J(3)  

For the purposes of paragraph (1)(b), a deferral of a taxpayer's liabilities to tax under a foreign law is taken to be a reduction of those liabilities, unless there are reasonable commercial grounds for the deferral.

Modification where thin capitalisation provisions apply

177J(4)  

Subsection (5) applies if:


(a) Division 820 of the Income Tax Assessment Act 1997 (about thin capitalisation) applies to the relevant taxpayer for the year of income mentioned in paragraph (1)(a); and


(b) the DPT tax benefit includes all or part of a debt deduction (within the meaning of that Act); and


(c) the calculation of the amount of the DPT tax benefit involves applying a rate to a debt interest (within the meaning of that Act).

177J(5)  

For the purposes of the DPT provisions, in calculating the amount of the DPT tax benefit, apply the rate to the debt interest the entity actually issued (rather than the debt interest that would have existed if the scheme had not been entered into or carried out).

Modification where foreign entity is CFC

177J(6)  

Subsection (6A) applies if:


(a) the foreign entity mentioned in paragraph (1)(d) is a CFC (within the meaning of Part X); and


(b) an amount of attributable income (within the meaning of that Part) of the foreign entity has been included as a result of the operation of that Part in the assessable income of:


(i) the relevant taxpayer; or

(ii) an associate (within the meaning given by section 318) of the relevant taxpayer, if the associate is a Part X Australian resident (within the meaning of that Part) and is not a trust or partnership.

177J(6A)  

For the purposes of the DPT provisions, reduce the DPT tax benefit to the extent to which the amount included in assessable income as mentioned in paragraph (6)(b):


(a) would not have been so included if the scheme had not been entered into or carried out; and


(b) is directly referable to the DPT tax benefit.

Schemes outside Australia

177J(7)  

This section applies whether or not the scheme has been or is entered into or carried out in Australia or outside Australia or partly in Australia and partly outside Australia.

Non-limitation in relation to other provisions in this Part

177J(8)  

This section:


(a) does not limit section 177D, 177DA, 177E, 177EA or 177EB; and


(b) is not limited by those sections.


 



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