A Guide to the Law of Securitisation in Australia - Clayton Utz

(d) before the issue:(i) the company; or(ii) a dealer, manager or underwriter, in relation to theplacement of debentures, on behalf of the company,announces that, as a result of the issue, such rights willbe able to be created(e) the announcement is made in a way or ways covered by anyof paragraphs (3)(a) to (e) by reading a reference in thosesections to “debenture” as if it were a reference to such aright, and a reference to the “company”, as if it included areference to the dealer, manager or underwriter); and(f) under the terms of the debenture, interests in the debentureare able to be surrendered, whether or not in particularcircumstances, in exchange for other debentures issued bythe company that are not themselves global bonds.”5.3.4 Certain issues of debentures will always fail the publicoffer testSection 128F(5) provides that a company issuing a debenture willfail the public offer test if, at the time of the issue, it knew, orhad reasonable grounds to suspect, that the debenture or aninterest in the debenture, was being, or would later be, acquired(either directly or indirectly) by an associate of the company,other than in the capacity of a dealer, manager or underwriter inrelation to the placement of the debenture.Section 128F(9) gives “associate” the same meaning as in thecontrolled foreign companies provisions in section 318 of Part Xof the 1936 Tax Act (with some minor modifications relating topartners in partnerships). For example, pursuant to section318(2) companies are associated with each other if one of them(or its directors) “is accustomed or might reasonably be expectedto act in accordance with the directions, instructions or wishes ofthe other; or one company is in a position to cast, or control thecasting of, at least 50% of the votes in the other”.Even in circumstance where the debenture is acquired directly orindirectly by an associate, the public offer test will only be failedunder subsection 128F(5) if:• the associate is a non-resident and the debenture or interestwas not being, or would not be, acquired by the associate incarrying on a business in Australia at or through a permanentestablishment of the associate in Australia; or• the associate is a resident of Australia and the debenture orinterest was being, or would be, acquired by the associate incarrying on a business in a country outside Australia at orthrough a permanent establishment of the associate in thatcountry.Notwithstanding the above, subsection 128F(6) will still operateto disqualify the operation of section 128F if:• the interest on the debentures is paid to an associate of thecompany in respect of a debenture acquired broadly incarrying on business outside Australia; and• the payment is not received in the capacity of a custodian andfunds manager.This subsection applies even where the primary issue of thedebentures satisfies the other general requirements to section128F (eg. the associate test in subsection 128F(5)).5.3.5 The non-resident borrowing subsidiary exemptionAn exemption for wholly-owned non-resident special purposefinance subsidiaries, which issue debentures outside Australiaand on-lend the proceeds to a parent company in Australia, isprovided in section 128F(8).The exemption will generally apply if:“(a) the parent company beneficially owns all of the issuedshares in the capital of a company that is not a resident ofAustralia;(b) the subsidiary’s only business is raising finance for thepurposes of the parent company;(c) the subsidiary raises finance in a country specified in theregulations (but not Australia) by issuing a debenture in thatcountry; and(d) when the debenture is issued, the subsidiary is treated as aresident of that country for the purposes of the tax laws ofthat country.”The subsidiary must raise finance in a listed country. At thisstage, the United States of America is the only listed country.5.3.6 Anti-avoidance provisionsThe general anti-avoidance provisions in Part IVA of the 1936 TaxAct may be applied to schemes to avoid withholding tax. Theresult is that the Commissioner can make a determination thatIWT has not been paid in relation to the payment of interest by aresident and that a non-resident tax payer has received a tax34