Australian Tax Office sees TPG-Myer court ruling overturned

The ATO is seeking a winding up of two companies - Luxembourg-based NB Queen SARL and its Cayman Islands parent TPG Newbridge Myer - that formed part of a complex structure by which A$1.5 billion ($1.6 billion) from the sale of TPG's 81% holding in Myer was transferred to offshore investors. Judge John Middleton ruled that documents could only be served to Ben Gray, CEO of TPG Australia, if the two companies conducted business in Australia, The Australian reported. He said the ATO had presented no evidence to suggest that NB Queen and TPG Newbridge Myer met this test.

Had the ATO been successful and wound up the two companies, it could have appointed liquidators to trace the funds.

Proving that NB Queen and TPG Newbridge Myer conduct business in Australia would be difficult as any evidence must go beyond establishing that the companies maintain bank accounts, holds meetings of directors or shareholders, make investments or own property locally. According to an affidavit lodged with the court, Gray told the ATO that TPG Australia was an "investment banking adviser" to Newbridge Capital and TPG.

TPG maintains that that it met all of its local tax obligations regarding Myer and other investments.

Until the fallout from the Myer exit, it had been assumed that profits from private equity transactions were a capital gain and beyond the reach of the authorities if the fund in question was domiciled in a jurisdiction that has a double tax agreement (DTA) with Australia.

However, the ATO said that the profits were business income and therefore subject to local tax. It later stated that it would look through all entities thought to exit for the purposes of leveraging DTA advantages - such as the Luxembourg and Netherlands entities that formed part of TPG's structure - and make tax assessments based on the residence of the ultimate LPs.

Few industry participants expect the ATO to claw back any money from TPG. Given the uncertainty over tax treatment, private equity firms are now considering channeling their investments through Singapore, where it is easier to meet the substance levels required to qualify for DTA coverage.

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• Topics
• Australasia
• Regulation
• Buyouts
• TPG Capital
• Australia
• Offshore
• tax
• Exit