Victoria Co Ltd v Deputy Commissioner of Taxation [2000] FCA 1622

FEDERAL COURT OF AUSTRALIA

Victoria Co Limited v Deputy Commissioner of Taxation [2000] FCA 1622

TAXATION AND REVENUE – income tax – public ruling by Commissioner on applicability of income tax law on currency exchange gain or loss – whether ruling applied to determine income tax liability of taxpayer. Income Tax Assessment Act 1936 (Cth) Div 3B (Pt III); ss 82U, 82V, 82Z, 82Z(3), 170BA, 170BA(1) Income Tax (International Agreements) Act 1953 (Cth) s 4 Taxation Administration Act 1953 (Cth) Pt IVAAA; ss 14ZAAA, 14ZAAE, 14ZAAF, 14ZAAG, 14ZAAH, 14ZZ Taxation Laws Amendment (Self Assessment) Act 1992 (Cth) s 12(2)

Commissioner of Taxation v Energy Resources of Australia Ltd (1996) 185 CLR 66 applied Commissioner of Taxation v Energy Resources of Australia Ltd (1994) 54 FCR 25 applied VICTORIA CO LIMITED (ARBN 050 584 202) v DEPUTY COMMISSIONER OF TAXATION WG 60-61 OF 1998 LEE J 15 NOVEMBER 2000 PERTH

IN THE FEDERAL COURT OF AUSTRALIA

WESTERN AUSTRALIA DISTRICT REGISTRY WG 60-61 OF 1998

BETWEEN: VICTORIA CO LIMITED

(ARBN 050 584 202)

APPLICANT

AND: DEPUTY COMMISSIONER OF TAXATION

RESPONDENT

JUDGE: LEE J

DATE OF ORDER: 15 NOVEMBER 2000

WHERE MADE: PERTH

THE COURT ORDERS THAT: The "appeals" be dismissed with costs. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA

WESTERN AUSTRALIA DISTRICT REGISTRY WG 60-61 OF 1998

BETWEEN: VICTORIA CO LIMITED

(ARBN 050 584 202)

APPLICANT

AND: DEPUTY COMMISSIONER OF TAXATION

RESPONDENT

JUDGE: LEE J

DATE: 15 NOVEMBER 2000

PLACE: PERTH

REASONS FOR JUDGMENT 1 These matters are "appeals" made by the applicant ("Victoria") under s 14ZZ of the Taxation Administration Act 1953 (Cth) ("the TA Act") against "appealable objection decisions" made by the respondent ("the Commissioner"). The decisions of the Commissioner disallowed taxation objections lodged by Victoria against assessments of income tax made by the Commissioner pursuant to the Income Tax Assessment Act 1936 (Cth) ("the Act") in respect of the income years of Victoria, 1 June 1993 to 31 May 1994 and 1 June 1994 to 31 May 1995. 2 In its taxation objections Victoria contended that the Commissioner should have allowed deductions in those income years of $3,431,856 and $12,128,501 respectively, thereby reducing the taxable income in each income year to nil. 3 The following facts were not really in issue. 4 Victoria is a company incorporated in Japan. At all material times it was registered in Australia as a foreign company under the "Corporations Law". For the purpose of the Act, and the Income Tax (International Agreements) Act 1953 (Cth) (s 4), it conducted its business in Australia in or through a permanent establishment. 5 On 5 December 1989 Victoria, and a number of subsidiaries, entered into an agreement ("the Sale Agreement") to purchase the interests of, inter alia, Genting Berhad, a company incorporated in Malaysia, and its subsidiaries, in the Burswood Property Trust ("the Trust") the trustee of which owned on behalf of the Trust the Burswood Resort Casino ("the Casino") situated in Western Australia. 6 The Casino was operated by Genting (Western Australia) Pty Ltd ("Genting") under a Casino Operation Management Agreement ("Casino Management Agreement") made between Genting and the Trustee and another. 7 As part of the Sale Agreement Genting agreed that on "the completion" date of the Sale Agreement it would enter into an agreement to assign the whole of its right, title and interest in the Casino Management Agreement to Victoria or its nominee for a consideration of $A55 million. 8 Pursuant to the Sale Agreement Victoria was required, by 15 December 1989, to pay to the Sumitomo Bank, Limited ("Sumitomo") in Japan, as stakeholder, the sum in yen equivalent to $A75,676,015 using a conversion rate of Ą112.07 to $A1 - namely, Ą8,481,011,001. 9 On 13 December 1989 Victoria was granted a Euroyen Special Overdraft Facility ("first overdraft") by Sumitomo to a limit of Ą8.5 billion for a term of five years. The first overdraft was fully drawn by Victoria on 15 December 1989 and a sum of Ą8,481,011,001 deposited by Victoria in an interest-bearing term deposit with Sumitomo. That sum, with accrued interest, was reinvested on maturity from time to time until 6 August 1990. 10 In May 1990 the State of Western Australia limited the interest in the Trust that Victoria may acquire pursuant to the Sale Agreement. Pursuant to the Sale Agreement, the sum required to be held on deposit with Sumitomo was reduced accordingly. Victoria became entitled under the Sale Agreement to recover from the deposit Ą3,531,368,736, with interest, an aggregate sum of Ą3,701,245,170. That sum was withdrawn by Victoria from the stakeholder deposit on 6 August 1990 and applied to a cheque account Victoria operated with Sumitomo. 11 On 21 May 1990 Victoria arranged a Special Overdraft Facility with Sumitomo in the sum of Ą10.3 billion for a term of three months ("second overdraft"). The second overdraft was fully drawn on the same day and the amount deposited by Victoria in interest-bearing accounts with Sumitomo. 12 On 27 June 1990 Victoria arranged another Euroyen Special Overdraft Facility with Sumitomo for a sum of Ą16 billion ("third overdraft"). On 31 July 1990 Ą10.3 billion was drawn on the third overdraft and used to repay the second overdraft in full. No other drawing was made on the third overdraft thereafter. 13 The "completion date" of the Sale Agreement was 13 August 1990. On that date Genting entered an agreement with Victoria ("the Casino Management Sale Agreement") for the sale and purchase of the whole of Genting's right, title and interest in the Casino Management Agreement for the sum of $A55 million. Victoria paid Genting that sum on that date. The sum was paid from Australian dollars Victoria purchased on 31 July 1990 with yen obtained from its cheque account into which some of the borrowed monies held in interest-bearing accounts had been transferred on that day, and on 7 August 1990 with yen from its cheque account into which on 6 August 1990 the balance of the stakeholder deposit to which Victoria was entitled under the Sale Agreement had been paid and a sum of approximately Ą5.3 billion transferred from another interest-bearing account to which the borrowed funds had been applied. For the purpose of the argument in these proceedings it was accepted that the exchange rate on 13 August 1990 was Ą117.07 to $A1 and that the cost in yen to purchase $A55 million on that day would have been Ą6,438,850,034. 14 On 31 May 1991 Victoria reduced the sum of Ą10.3 billion owing under the third overdraft to Ą10 billion. On 6 September 1991 Victoria arranged a loan with Sumitomo in the sum of Ą10 billion. Victoria applied that sum on the same day to the discharge of the third overdraft. The loan was for a fixed term of two years. Upon expiry of the loan on 7 September 1993 Victoria obtained another loan from Sumitomo in the sum of Ą10 billion, the whole of which was applied to the discharge of the previous loan. The replacement loan was for a term of seven years with monthly repayments of the borrowed sum. The loan was discharged in full by payments made by Victoria on 20 and 31 May 1994.