ATO signals tough approach to highly-engineered cross-border structures

The determinations cover:

• Whether a private equity entity can make an income gain from the disposal of target assets it has acquired; and
• Whether the general anti-avoidance provisions in Part IVA of the Income Tax Assessment Act 1936 can apply to arrangements designed to alter the intended effect of Australia's double tax agreement (DTA) network.

The Myer group was bought in June 2006 by a group of investors lead by TPG, an American private equity fund. Its Myer exit strategy was meant to allow TPG's ultimate shareholders to pay tax only in their home jurisdiction. To do this, TPG deployed a common strategy that would allow the gain on the Myer sale to escape Australian taxation in a manner that was thought to be both effective and legitimate.