Background
The BYWATER INVESTMENTS LTD & ORS v FC of T case involved four tax payers who were foreign incorporated companies. The main proceeding in the case was that the tax payers contended that they were not tax payers in the Australian government as they were not residents in the Australian country for the virtue of tax purposes, under the central management and control test of residency as per the provision of the Income Tax Assessment Act 1936. The complainant establishments were all included outside of Australia and were bought by two Companies based on Cayman Islands. The only shareholder was Borgas in the cayman holding company, a businessman, who was residing in Switzerland. He was the director of each of the appellant companies and was present as the owner of the companies. The commissioner was against the claim of the companies that they were not residents for the purpose of taxation. The main judge in his investigation originate or discovered that that Gould was the true owner of one of the Cayman Island companies. He was a Sydney founded accountant, he was contributing the major power to employ and eliminate shareholders, and also measured the overall presidency of the company. Thus the judge contended that the company was a resident company for payment of taxes, hence the contention of the company was not correct in this regard. But the complainants prior to the high court argues that the chief judge found that since the primary shareholders and directors were all resident abroad, there was no other option then to give the ian control of the company in the hands of honor, hence the company is not responsible from tax purposes. (Timebase.com.au, 2017)
The main provisions regarding the concept of residency as per the section 6(1) of the Income Tax Assessment Act 1936 (Cth) (the ITAA 1936) was –
Resident or resident of Australia means:
(a) a person, and a company, who is residing in Australia and will also include a person:
(i) Whose permanent place of residing is in Australia, Only if the main offcial or the Commissioner is pleased that the person’s stable place of dwelling is not Australia;
(ii) who has in fact been in Australia, constantly or irregularly, for a period of more than one half of the year of income, if not the Commissioner is pleased that the person’s usual place of residence is exterior toAustralia and that the person is not thinking about taking in residence in Australia in the coming years
Provisions Regarding Residency Test as per Income Tax Assessment Act 1936
(iii) Who is
(A) a person who is the member of the superannuation scheme created by deed under the Superannuation Act 1990; or
(B) any employee who is appropriate for the purpose of the Superannuation Act 1976; or
(C) the wife, or a child who is below the age of 16, of any of the person person who is enclosed by sub?subparagraph (A) or (B); and
(b) a company which is included in Australia, or which, not being included in Australia, take on any professional business in Australia, and has any of its vital administration and rule in Australia, or its main polling power self-conscious by owners who are the Australia dwellers.
The decisions taken by the court was in line with the following staed provisions, the tax payers contended that they were not residents of the country on the baiss of their area of operation and hence were not required to pay the relvant taxes, however the contention was rejected in the court of law, where after all the scrutiny and analysis it was deciphered that the company was resident in the country as per the relevant tax laws, and was required to pay the required amount of taxes. The company cannot take advanatage of the double taxation agreement also, it is not in the hands of the compay. (Clark and →, 2017)
The high court anonymously dismissed the appeal of the company. The judge held that the company is usually a resident where the meeting are held, however when the board merely act as a puppet in implementing the decisions of any outsider, who is an outsider who has the sole decision making power of the company, and the board implements such decision as if they were made an outsider. In this case the judge found that Gould has the supreme decision making power and te board was just implementing his decisions. The mere fact that the board was located abroad dint upheld the board role of not being tax payer in the Australian government.Tha uthorities supported this conclusion that ultimately led to Esquire Nominees Ltd v Federal Commissioner of Taxation [1973] HCA 67. The court rejected the plea of the authorities that the main authority for the residency purpose was deciphered from the main area of residence of the main board members or where the board meeting were held. The plea of the appellate was rejected that the authority must be deciphered by following the line of authority of where the main board meetings were held, and who were responsible for the same. The courts made its stand clear that the person who is making the main decisions and is taking the role of authority, the entire residency will be decided form his perspective. Hence all the contention of the tax payers was rejected. The polarity also rejected the plea that a formalistic approach must be taken in constructing the residence requirement for making decisions on payment of taxes and also to provide certainty to companies and advisors and also to avoid the overall increased litigation, the court rejected the pleas on the basis that formalistic approach dint make any difference to the company and also that the concerns over uncertainty was exaggerated. The court found that Gould exercised complete control over the business of the company, and the argument for the company that it has a very simple business model, whose decisions were managed by its board of director was also rejected. (Law.ato.gov.au, 2017)
Court’s Decision and Analysis
Gordon dismissed all the appeals, on the basis that the in the case of deciding the residency of any company, the location of the decision making organs made all the difference, but this was not supported by any text that was stated in the law. Turning to Bywater, Chemical Trustee and Derrin, the impact of double taxation agreement of income was taken into consideration , where if any income was taxed doubly in two different countries, than relief will be provided in case the company is having a double taxation agreement with the other country, but even for granting relief, tax in the Australian country has to be calculated accordingly as per the relevant tax rates in the country. Since the income had Australian sources, each of the person who are part of this income would be required to pay taxes to the government, keeping in view any of the double taxation agreement that is present between the nations concerned. The double tax agreement provides relief in two cases: first where the company was only resident in UK and Switzerland for the reason of the overall tax laws in that country, or where the company is resident of all the three countries that is UK Australia and Switzerland but the “place of effective management” was in either of the two countries UK or Switzerland. nevertheless in both sictuations,, the debate was not to be given because the judge originate that control of all the corporations and the overall dominant organisation was in the pointers of Gould who were to be considered to be locals of Australia, and therefore the taxpayers were considered as resident of Australia . And also if we consider the place of effective business, the place of effective business cannot be deciphered by the residence of the principle organs of the company, as the business was being controlled by Gordon. For the purpose of tax purposes the place of residence was to be decided on the basis of facts and on the basis of any legal formalities, hence whatever was written in the law, regarding the organs of principal business area, was ignored by the judge because the actual residence of the main decision making organ is what matters and not the mere facts. The overall test of control and that of principal business are two different concepts and hence it is not needed that the effective control of the company is in the same place of its central management is located hence that also must be seen by the company.
Hence the overall contention of the company was rejected and it was decided that the company falls the ambit of residence as per the income tax rules of the Australian government and the four taxpayers will pay the required amount of tax that is calculated by the tax norms of the country. The company was required to pay taxes, and also ajudgement wss passed that the residency will not be dicphered bsed on legal norms only , but also on the total decision that will b etaken based on actual facts. The overall substance will prevail over form, that was the main outcome of this case. The company was trying to eascape tax assessment and it was not able to do so. The decision of the high court was in the favour of the tribunal that pleaded against the stand taken by the company to not pay taxes.
Clark, M. and →, V. (2017). Bywater Investments Ltd v Commissioner of Taxation; Hua Wang Bank Berhad v Commissioner of Taxation | Opinions on High. [online] Blogs.unimelb.edu.au. Available at: https://blogs.unimelb.edu.au/opinionsonhigh/2016/11/16/bywater-investments-hua-wang-case-page/ [Accessed 19 May 2017].
Law.ato.gov.au. (2017). Bywater Investments Ltd & Ors (S134 & S135 of 2016 ). [online] Available at: https://law.ato.gov.au/atolaw/view.htm?docid=%22LIT%2FICD%2FS134andS135of2016%2F00001%22 [Accessed 19 May 2017].
Timebase.com.au. (2017). TimeBase – Bywater Investments Ltd v Commissioner of Taxation; Hua Wang Bank Berhad v Commissioner of Taxation [2016] HCA 45: Whether Company a Resident. [online] Available at: https://www.timebase.com.au/news/2016/AT3981-article.html [Accessed 19 May 2017].
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