Halgido Pty Ltd v D G Capital Co Ltd [1995] FCA 1163

IN THE FEDERAL COURT OF AUSTRALIA ) ) NEW SOUTH WALES DISTRICT REGISTRY ) No NG441 of 1995 ) GENERAL DIVISION )

BETWEEN: HALGIDO PTY LIMITED Applicant

AND: D.G. CAPITAL CO LIMITED Respondent CORAM: HILL J PLACE: SYDNEY DATED: 11 AUGUST 1995 REASONS FOR JUDGMENT The applicant, Halgido Pty Limited, moves the Court for an order under O8 r1 of the Federal Court Rules that the originating process issued by it in this Court be served outside the Commonwealth and in Hong Kong upon the respondent to the proceedings, D.G. Capital Company Limited. The applicant and the respondent are parties to a credit facility agreement which it is alleged was entered into between them in Hong Kong in 1989. Pursuant to that agreement it is alleged that the respondent agreed to lend to the applicant the sum of twenty-nine million Swiss francs, which loan was drawn down pursuant to a notice dated 24 January 1989. Under the facility agreement, interest was payable by the applicant to the respondent.

Because the respondent is a person outside Australia, s221YL(2A) of the Income Tax Assessment Act 1936 (Cth) required the borrower before the time of paying interest to deduct from the interest withholding tax effectively at the rate of ten per cent. As a result, the borrower claims to have been required to forward amounts of withholding tax to the Commissioner pursuant to s221YN of the Income Tax Assessment Act. Section 221YQ of that Act provides as follows: "(1)Where a person has refused or failed to make a deduction from a dividend, from interest or from a royalty in accordance with section 221YL or has contravened subsection 221YP(1), (2) or (3A) in relation to a dividend or interest, that person is liable, in addition to any other penalty to which he may be liable, to pay to the Commissioner - (a) an amount equal to any unpaid withholding tax payable in respect of that dividend, interest or royalty; and (b) an amount equal to any unpaid additional tax payable under subsection 128C(3) in respect of that withholding tax. (2) Where a person has paid to the Commissioner an amount payable by virtue of paragraph (1)(a), that person may recover an amount equal to that amount from the person liable to pay the withholding tax to which that first-mentioned amount relates. (3) Where an amount payable under subsection (1) has been paid to the Commissioner, the person liable to pay the withholding tax to which the amount relates is entitled to a credit equal to that amount. (4) Where a person has paid to the Commissioner an amount payable by virtue of paragraph (1)(b) of this section and the additional tax or any part of the additional tax to which the amount relates is remitted by the Commissioner under subsection 128C(4) - (a) any credit under subsection (3) that relates to the amount shall be reduced by an amount equal to the additional tax that is remitted; and (b) the Commissioner shall pay to the person who paid the amount to the Commissioner an amount equal to the additional tax that is remitted."