RECENT CASES

Joanne Dunne, CTAMinterEllison

Outline of presentation

Statistical analysis of the 2015 cases – win/loss, an historical review of overall success percentage, per Judge review The award for persistence in 2015 Some Australian income tax cases of note from Some Australian income tax cases of note from 2015 Very briefly, two foreign cases in 2015

C of IR v Trustpower Limited [2015] NZCA 253 MNR v BP Canada Energy Company [2015] FC 714

The statistics from the 2015 cases

Basis for statistical analysis

Survey of High Court, Full Federal Court and Federal Court tax cases for the period Jan 2015 – end Dec 2015: Excludes procedural and basic debt collection cases

(winding up orders etc) Excludes all AAT cases Excludes High Court special leave casesg p Excludes State tax cases

Overall win/loss statistics include all types of federal tax ie income tax, GST, FBT, PRRT (etc, etc)

Where a judgment is in part for ATO and in part for taxpayer 0.5 allocated

Court Total cases ATO win Taxpayer win

High Court 3 2 1

Full Federal Court 17 14 3

Statistical analysis – Overall win/loss

Federal Court 31 23 8

TOTAL 51 39 12% Success overall 76.5% 23.5%

Court Total cases ATO success rate

Taxpayer success rate

2011 24 50% 50%

2012 30 60% 40%

Tracking the success rate % 2011 - 2015

2013 31 74.5% 25.5%

2014 35 73% 27%

2015 51 76.5% 23.5%

What do these statistics mean?

Just like last year, celebrations at the ATO

Judge Total cases ATO win Taxpayer win

Collier J 1 1 -

Davies J 3 2 1

Edelman J 1 1 -

Statistical analysis - overall cases: Federal Court Judges

Edelman J 1 1Edmonds J 2 1.5 0.5Greenwood J 2 0.5 1.5Griffiths J 3 3 -Jessup J 1 1 -Logan J 2 - 2Mansfield J 1 1 -Pagone J 3 3 -

Judge Total cases ATO win Taxpayer win

Perram J 2 1 1

Perry J 3 3 -

Rares J 1 - 1

Statistical analysis - overall cases: Federal Court Judges

Robertson J 2 2 -

Siopis J 1 1 -

White J 2 2 -

Wigney J 1 - 1

TOTAL 31 23 8

Judge Total cases where part of Full Court ATO win Taxpayer win

Allsop CJ 3 2 1Besanko J 1 1Davies J 5 5**Edelman J 1 1Ed d J 4 3 1

Statistical analysis – overall cases: Judges sitting as Full Federal Court

Edmonds J 4 3 1Foster J 1 1Gilmour J 1 1Gleeson J 1 1Gordon J 1 1Greenwood J 2 1 1Jessup J 1 1Jagot J 1 1Kenny J 4 3 1

Judge Total cases where part of Full Court ATO win Taxpayer win

Logan J 3 2 1Middleton J 1 1Mortimer J 2 1 1Murphy J 1 1

Statistical analysis – overall cases: Judges sitting as Full Federal Court

Pagone J 11 8** 3* dissent in Blank

Perram J 2 2Roberston J 4 3 1Siopis J 2 2Wigney J 2 2Yates J 1 1

** while there was dissent from Justices Pagone and Davies in Channel Pastoral, the dissent would still have led to a result in favour of the ATO

Award for persistence: 2015 cases

Andrew Morton Garrett Mr Garrett’s efforts will likely win nothing else

but he gets this year’s award for persistence (vexatiously so)

Honourable mentions 2014 winner, Peter Paalvast 2013 winner Hua Wang Bank Berhad The LHRC litigation

Australian income tax cases

ElecNet – what is a “unit trust”?

Private ruling unsuccessfully sought that the Electricity Industry Severance Scheme (EISS) was a ‘unit trust’, ‘public unit trust’, ‘resident unit trust’, ‘eligible unit trust’ and not a ‘corporate unit trust’ - the taxpayer (trustee) appealed

At issue was whether the section 102M definition of ‘unit’ and ‘unitholder’ in relation to a prescribed trust estate could be relied upon when determining if there is a ‘unit trust’ for the purposes of all of Div 6C ITAA36

Also at issue was whether a ‘unit trust’ required a beneficial interest in all of the trust’s property

Justice Davies in the Federal Court: section 102M definitions were relevant, beneficial interest in any trust property required by the definition of ‘unit’

ElecNet – what is a “unit trust”? Full Court: allowed Commissioner’s appeal:

Taxpayer’s construct of ‘unit trust’ too wide; Commissioner’s too narrow

It is relevant to consider the definition of ‘unit’ in sec 102M – broader approach of Davies J correct

Core feature of a ‘unit trust’ is there needs to be a beneficial interest which was capable of being ‘unitised’ in any of the income/property of the trust (not all) – Davies J approach correct

However, a very close examination of Trust Deed is required

On the facts, the discretions available to the Trustee under the Deed militated against there being the required beneficial interests that could be unitised

Orica – Part IVA

OEH OUSSI(1) $

(2) RPS(4) on-

lend funds

OFL

Consolidated group

Australia US

(3) Loan funds to OFL in return for interest

received from OUSSI

Orica – Part IVA

‘Purpose’ Scheme was the means adopted by Orica Spotless applied: ‘shape or form’ of transaction

adopted indicated the presence of a dominant purpose to achieve the consolidated after tax benefits equal to the interest deductionsequal to the interest deductions

Citigroup cited: scheme only made sense because of the Australian tax deductions – Orica Group’s pre-existing tax losses not relevant

Insufficient evidence to suggest OUSSI would have otherwise funded externally, evidence shows that option was rejected – issue is what the purpose of the option Orica did choose was

Penalties

Liquidator cases

High Court confirmation provided in Australian Building Systems (in liq): unless there is an assessment, a liquidator is not required by sec 254 of the ITAA36 to retain money to meet future tax liabilities (in that case, from a CGT event)

Watch for a future test case in relation to the issue in Bell Group (in liq) a garnishee notice was issued by the Commissioner to

NAB over post-liquidation tax liabilities in respect of a settlement sum

question of notice validity – sec 254(1)(d) ITAA36 vs section 468(4) Corporations Act – and application of Bruton Holdings High Court decision

Cases to look out for in 2016

Full Federal Court appeals: Chevron Tech Mahindra Financial Synergy Holdings

Will Orica be appealed?Will Orica be appealed? Will Blank get to the High Court?

Foreign tax casesForeign tax cases

The usual plug of NZ as a tourism destination – only 3 hours away

NZ: Trustpower

Deductibility of expenditure to obtain resource consents – whether feasibility expenditure – capital/revenue

Unchallenged company evidence that the expenditure was incurred as part of a business process of considering whether to “build or buy” extra electricity capacity – operational expenditure

Extraordinary Court of Appeal holdings went beyond the Commissioner’s argument and overturned lower Court factual findings

Expenditure capital in nature

‘Feasibility’ expenditure tag meaningless

Expenditure not in course of carrying on business

Canada: BP Canada Energy Co

Taxpayer ‘uncertain tax positions’ - access to accountant papers sought - MNR ‘fishing expedition’

Tax accrual working papers sought (under the equivalent to sec 264) relating to contingent liabilities –MNR did not generally access these in accordance with policy

Taxpayer argued access to such papers would be a ‘compulsory self-audit’ and, using the self-assessment system as a shield, provided an interesting analogy

Federal Court held the material sought was compellable; the MNR policy was not a bar to seeking this material –similar holdings would occur in Australia

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© Joanne Dunne, MinterEllison 2016

Disclaimer: The material and opinions in this paper are those of the author and not those of The Tax Institute. The Tax Institute did not review the contents of this presentation and does not have any view as to its accuracy The material andInstitute did not review the contents of this presentation and does not have any view as to its accuracy. The material and opinions in the paper should not be used or treated as professional advice and readers should rely on their own enquiries in making any decisions concerning their own interests.