AUSTRALIA Law and Practice Contributed by: Alastair Gourlay, Lewis Grimm, Joanne Dwyer and Kathryn Sutherland-Smith, Jones Day
specified amounts generally bearing a relation to interest. The most common fact pattern in which IWT can apply involves payments by an Australian resident borrower to a non-resident lender where neither entity is operating through a permanent establishment. Other payments which can fall within scope of the IWT regime include the fol - lowing. • Resident to resident an Australia resident borrower, operating locally, makes an inter - est payment to an Australian resident lender, operating through a foreign permanent estab - lishment. • Non-resident to non-resident a non-resident borrower, borrowing through an Australian permanent establishment, makes an interest payment to a non-resident lender, lending through operations in their local country. • Non-resident to resident a non-resident borrower, borrowing through an Australian permanent establishment, makes an interest payment to a resident lender lending through a foreign permanent establishment. There are also a number of exceptions and miti - gation strategies which can reduce IWT or other - wise protect lenders from the economic burden associated with IWT. The most commonly relied upon means of reducing IWT cost for lenders are one or more of the following. • Public offer exemption under section 128F of the Income Tax Assessment Act 1936 (Cth), this exemption provides complete relief from IWT for qualifying publicly offered debentures and debt interests. Satisfaction of the public offer test generally requires qualifying issuers to publicly offer the debt via one of several
prescribed methods (noting different rules apply to different kinds of debt). • Treaty relief either by a reduced rate or complete exemption, treaty relief is available under some of Australia’s bilateral tax trea - ties. The class of entities that are entitled to treaty relief from IWT is generally limited to financial institutions, but can include certain government entities, monetary institutions, central banks, and pension and superannua - tion funds. If available, relief is usually auto - matic, and it is not strictly necessary to obtain approval from the Australian Taxation Office, although those seeking increased certainty regarding the tax impact of their lending activities should consider the private rulings system. • Tax gross-up clauses if drafted effectively, these clauses can shift the economic burden of IWT onto the borrower by obliging the borrower to pay an additional amount (ie, the gross-up) on account of IWT, which the bor - rower would otherwise be legally required to deduct from a payment. The amount of the gross-up is generally not taken to be subject to IWT. 4.2 Other Taxes, Duties, Charges or Tax Considerations No state or territory in Australia charges ad valo - rem stamp duty on loan and security documents. For completeness, Australian tax implications may arise on the sale of secured property. 4.3 Tax Concerns for Foreign Lenders Generally, the primary concern faced by foreign private credit lenders lending to independent borrowers in the Australian market is the risk of IWT, although this risk is manageable via exemp - tions or mitigation strategies, as noted in 4.1. Withholding Tax .
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