FEDERAL COURT OF AUSTRALIA Visy Packaging Holdings Pty Ltd v Commissioner of Taxation [2012] FCA 1195 Citation: Visy Packaging Holdings Pty Ltd v Commissioner of Taxation [2012] FCA 1195 Parties: VISY PACKAGING HOLDINGS PTY LTD (ACN 095 132 317) v COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA File number(s): VID 979 of 2010 VID 1123 of 2010 VID 1133 of 2010 VID 1144 of 2010 Parties: VISY INDUSTRIES AUSTRALIA PTY LTD (ACN 004 337 615) v COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA File number(s): VID 980 of 2010 VID 1131 of 2010 VID 1137 of 2010 VID 1145 of 2010 Parties: VISY PACKAGING PTY LTD (ACN 095 313 723) v COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA File number(s): VID 1124 of 2010 VID 1135 of 2010 Parties: VISY CARTONS PTY LTD (ACN 095 321 592) v COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA File number(s): VID 1126 of 2010 VID 1138 of 2010 Judge: MIDDLETON J Date of judgment: 2 November 2012 Catchwords: INCOME TAX – Allowable deduction – Income Tax Assessment Act 1997 (Cth) s 8-1 – number of transactions part of overall scheme – profit-making purpose. Legislation: Corporations Act 2001 (Cth) Evidence Act 1995 (Cth) Income Tax Assessment Act 1936 (Cth) Income Tax Assessment Act 1997 (Cth) Taxation Administration Act 1953 (Cth) Cases cited: Australian Securities and Investments Commission v Hellicar (2012) 286 ALR 501 BP Australia Ltd v Federal Commissioner of Taxation (1965) 112 CLR 386 Chapman (NT) v Federal Commissioner of Taxation (1968) 117 CLR 167 Commissioner of Taxation v Cooling (1990) 22 FCR 42 Commissioner of Taxation v Visy Industries USA Pty Ltd [2012] FCAFC 106 Dasreef Pty Limited v Hawchar (2011) 243 CLR 588 Federal Commissioner of Taxation v Becker (1952) 87 CLR 456 Federal Commissioner of Taxation v BHP Billiton Finance Ltd (2010) 182 FCR 526 Federal Commissioner of Taxation v BHP Billiton Limited (2011) 244 CLR 325 Federal Commissioner of Taxation v Citylink Melbourne Limited (2006) 228 CLR 1 Federal Commissioner of Taxation v Myer Emporium Ltd (1987) 163 CLR 199 Federal Commissioner of Taxation v SNF (Australia) Pty Ltd (2011) 193 FCR 149 Federal Commissioner of Taxation v Whitfords Beach Pty Ltd (1982) 150 CLR 355 GE Capital Finance Australasia Pty Ltd v Commissioner of Taxation [2011] FCA 849 Hallstroms Pty Ltd v Commissioner of Taxation (1946) 72 CLR 634 Henry Jones (IXL) Limited v Commissioner of Taxation (1991) 31 FCR 64 Hobart Bridge Company Limited v Federal Commissioner of Taxation (1951) 82 CLR 372 King v Jetstar Airways Pty Ltd [2011] FCA 1259 Macquarie Finance Ltd v Commissioner of Taxation (2005) 146 FCR 77 Metal Manufactures Ltd v Federal Commissioner of Taxation (1999) 99 ATC 5229 Smorgon v Australia and New Zealand Banking Group Ltd (1976) 134 CLR 475 Spassked Pty Ltd v Commissioner of Taxation (2003) 136 FCR 441 Spassked Pty Ltd v Commissioner of Taxation (No 5) (2003) 197 ALR 553 Steinberg v Federal Commissioner of Taxation (1975) 134 CLR 640 Summons v Federal Commissioner of Taxation (1986) 80 ALR 95 Sun Newspapers Ltd v Federal Commissioner of Taxation (1938) 61 CLR 337 Tesco Supermarkets Ltd v Nattrass [1972] AC 153 Tweddle v Federal Commissioner of Taxation (1942) 180 CLR 1 Visy Industries USA Pty Ltd v Commissioner of Taxation (2011) 284 ALR 455 Westfield Ltd v Commissioner of Taxation (1991) 28 FCR 333 Date of hearing: 14, 15, 16, 17, 18 November 2011 Place: Melbourne Division: GENERAL DIVISION Category: Catchwords Number of paragraphs: 267 Counsel for the Applicant: Mr J De Wijn QC with Mr S Steward SC and Mr F O'Loughlin Solicitor for the Applicant: Deloitte Lawyers Pty Ltd Counsel for the Respondent: Ms H Symon SC with Ms M Baker Solicitor for the Respondent: Australian Government Solicitor IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY GENERAL DIVISION VID 979 of 2010 VID 1123 of 2010 VID 1133 of 2010 VID 1144 of 2010 BETWEEN: VISY PACKAGING HOLDINGS PTY LTD (ACN 095 132 317) Applicant AND: COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA Respondent JUDGE: MIDDLETON J DATE OF ORDER: 2 NOVEMBER 2012 WHERE MADE: MELBOURNE THE COURT ORDERS THAT: 1. The parties confer, and thereafter file and serve minutes of proposed orders no later than 4:00pm on 23 November 2012. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY GENERAL DIVISION VID 980 of 2010 VID 1131 of 2010 VID 1137 of 2010 VID 1145 of 2010 BETWEEN: VISY INDUSTRIES AUSTRALIA PTY LTD (ACN 004 337 615) Applicant AND: COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA Respondent JUDGE: MIDDLETON J DATE OF ORDER: 2 NOVEMBER 2012 WHERE MADE: MELBOURNE THE COURT ORDERS THAT: 1. The parties confer, and thereafter file and serve minutes of proposed orders no later than 4:00pm on 23 November 2012. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY GENERAL DIVISION VID 1124 of 2010 VID 1135 of 2010 BETWEEN: VISY PACKAGING PTY LTD (ACN 095 313 723) Applicant AND: COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA Respondent JUDGE: MIDDLETON J DATE OF ORDER: 2 NOVEMBER 2012 WHERE MADE: MELBOURNE THE COURT ORDERS THAT: 1. The parties confer, and thereafter file and serve minutes of proposed orders no later than 4:00pm on 23 November 2012. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY GENERAL DIVISION VID 1126 of 2010 VID 1138 of 2010 BETWEEN: VISY CARTONS PTY LTD (ACN 095 321 592) Applicant AND: COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA Respondent JUDGE: MIDDLETON J DATE OF ORDER: 2 NOVEMBER 2012 WHERE MADE: MELBOURNE THE COURT ORDERS THAT: 1. The parties confer, and thereafter file and serve minutes of proposed orders no later than 4:00pm on 23 November 2012. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY GENERAL DIVISION VID 979 of 2010 VID 1123 of 2010 VID 1133 of 2010 VID 1144 of 2010 BETWEEN: VISY PACKAGING HOLDINGS PTY LTD (ACN 095 132 317) Applicant AND: COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA Respondent IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY GENERAL DIVISION VID 980 of 2010 VID 1131 of 2010 VID 1137 of 2010 VID 1145 of 2010 BETWEEN: VISY INDUSTRIES AUSTRALIA PTY LTD (ACN 004 337 615) Applicant AND: COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA Respondent IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY GENERAL DIVISION VID 1124 of 2010 VID 1135 of 2010 BETWEEN: VISY PACKAGING PTY LTD (ACN 095 313 723) Applicant AND: COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA Respondent IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY GENERAL DIVISION VID 1126 of 2010 VID 1138 of 2010 BETWEEN: VISY CARTONS PTY LTD (ACN 095 321 592) Applicant AND: COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA Respondent JUDGE: MIDDLETON J DATE: 2 NOVEMBER 2012 PLACE: MELBOURNE REASONS FOR JUDGMENT INTRODUCTION 1 These proceedings concern 12 related applications made by four applicants (the taxpayers) to appeal against objection decisions made by the Commissioner of Taxation (the Commissioner). The applications were brought by four companies, Visy Industries Australia Pty Ltd (VIA), Visy Packaging Holdings Pty Ltd (VPH), Visy Packaging Pty Ltd (VP) and Visy Cartons Pty Ltd (VC). 2 At the relevant time, these companies were part of a group of companies, all ultimately owned by Pratt Holdings Pty Ltd (collectively 'the Pratt Group'). There were numerous Visy entities which were part of the Pratt Group at the relevant time, many of which are not involved in these proceedings. However, for simplicity, I collectively refer to those entities which are relevant to these applications as 'Visy'. These entities are all part of what may be termed the 'Visy Group'. 3 Focusing only on the Visy entities which are the subject of these applications, at the relevant time, VIA sat at the apex of the group, being the sole shareholder in VPH. VPH, in turn, was the sole shareholder in Visypak Operations Pty Ltd (VPO). In conjunction with VIA, VPH also owned Visy Industrial Packaging Holdings Pty Ltd (VIPH). VPO was the sole shareholder in VP and VC, as well as in Visy Films & Laminates Pty Ltd (VFL) and Visy F&L Holdings (NZ) Ltd (VFLH). VPO and VIPH also fully owned a number of other subsidiary companies which are also relevant to these proceedings. 4 I outline the genesis of, and interrelationship between, the relevant Visy companies further below. For now, it is sufficient to have a general idea of the applicant companies' positions in the Visy Group. 5 By way of overview, the applications brought by the four taxpayers principally concern the allowability of certain deductions and loss transfers that relate to events culminating in the disposal of shares by VIA, VPH and VPO in the year of income ending 30 June 2002 (2002 year). The Commissioner accepted that the principles determined in respect of the 2002 year would also determine the position for the subsequent year, which is also the subject of disputation between the parties. 6 As will become apparent from the reasons that follow, the context in which these deductions and loss transfers are claimed to have arisen involved (on my analysis) a common plan, scheme or strategy on the part of the participants (hereafter referred to as a 'scheme', for the sake of convenience). Briefly, that common scheme involved the acquisition and on-sale by Visy of various packaging businesses and assets of Southcorp Limited (hereafter referred to as 'Southcorp' – a term which includes its subsidiaries), specifically as a result of which Southcorp businesses and assets were acquired by various special purpose Visy subsidiaries. The special purpose Visy subsidiaries were, in turn, on-sold by their shares. The terms 'businesses' and 'assets' were used interchangeably by the parties in these proceedings. I do not think anything turns on a distinction between the two. Accordingly, for the purpose of consistency, I shall refer to 'businesses', which should be taken to include the assets thereof (unless the context otherwise requires). 7 I interpolate here that the parties and the witnesses referred to these terms, including the terms profit-making scheme or strategy, and it is convenient to continue to use these terms. I am mindful, however, of the comments made by the Full Court that there is a risk of using language or terms other than those actually used in the legislation or authority being applied: see Commissioner of Taxation v Visy Industries USA Pty Ltd [2012] FCAFC 106 at [52]. 8 At the relevant time, the Visy subsidiaries' shares (including those of VFL and VFLH) were directly owned by VIPH and VPO. VPO made a loss on the disposal of its VFL and VFLH shares, and VIA and VPH made a loss on the disposal of their VIPH shares. VPO, VIA and VPH then purported to treat these losses as deductible, which gave rise to tax losses for both VPH and VPO. These entities then transferred parts of their tax losses to other entities (being VIA, VP and VC) pursuant to Div 36 ("Tax losses of earlier income years") and Subdiv 170-A ("Transfer of tax losses within certain wholly-owned groups of companies") of the Income Tax Assessment Act 1997 (Cth) (the 1997 Act). VIA and VPH also claimed deductions in respect of parts of these losses in the year of income ending 30 June 2003 (2003 year), pursuant to Subdiv 170-D of the 1997 Act ("Transactions by a company that is a member of a linked group"). 9 As is the subject of further analysis later in these reasons for judgment, these proceedings do not raise any novel or overly complex principles of law. The determination of these proceedings principally turns on the facts. It is useful at this stage to briefly set out some of the key legal concepts in issue, in order to frame the forthcoming discussion of the relevant facts and the parties' submissions. 10 Whether a loss may be deducted from assessable income is governed by s 8-1 of the 1997 Act, which provides: (1) You can deduct from your assessable income any loss or outgoing to the extent that: (a it is incurred in gaining or producing your assessable income; or (b) it is necessarily incurred in carrying on a *business for the purpose of gaining or producing your assessable income. (2) However, you cannot deduct a loss or outgoing under this section to the extent that: (a) it is a loss or outgoing of capital, or of a capital nature; (b) it is a loss or outgoing of a private or domestic nature; or (c) it is incurred in relation to gaining or producing your *exempt income; or (d) a provision of this Act prevents you from deducting it. 11 This provision does not distinguish between outgoings incurred in carrying on a business and outgoings incurred in the ordinary course of carrying on a business. As the Full Court in Visy Industries USA Pty Ltd [2012] FCAFC 106 at [60] reminded us, "both are allowable deductions provided they are not outgoings of capital or of a capital nature". 12 Whether a party has incurred a tax loss for a given year is determined in accordance with Div 36 of the 1997 Act. Section 36-10 provides that a tax loss for an income year is calculated by adding up the amounts that may be permissibly deducted for that year (apart from tax losses for earlier income years), and subtracting total assessable income (as well as net exempt income, if applicable). The amount remaining is the tax loss for the relevant year. 13 It was previously noted that VPH and VPO purported to transfer their tax losses (or parts thereof) to other entities. One does not, at this stage, need to become mired in an in-depth consideration of the provisions of the 1997 Act that govern the transfer of tax losses between certain companies (being Subdivs 170-A and 170-D). This is because the loss transfers were not directly in dispute between the parties in these proceedings. Rather, the question of whether these transferred losses are ultimately deductible by the recipient companies hinges on the determination of the principal question in these proceedings – namely, whether the 'core' losses made by VIA, VPH and VPO on the disposal of their shares in various Visy subsidiaries were allowable deductions for the purpose of s 8-1 of the 1997 Act (and therefore capable of being taken into account for the purpose of determining the tax losses of VPH and VPO). If the Court was to ultimately conclude that the losses were not deductible and hence could not be used to calculate the relevant parties' tax losses for the relevant periods, no further consideration of the loss transfer provisions would be required. Transferred losses are not deductible under Subdiv 170-A by the recipient of the transfer if the transferor did not actually incur the relevant tax losses. 14 In this case (taking into account the arguments presented to the Court), determination of whether the 'core' losses made by VIA, VPH and VPO on the disposal of their shares in various Visy subsidiaries were allowable deductions for the purpose of s 8-1 of the 1997 Act requires an inquiry into the purpose of the scheme under which the shares in Visy subsidiaries and the Southcorp businesses were acquired and ultimately disposed of. However, the principal task for the Court is to identify and characterise the relevant transactions, and determine whether each of VIA, VPH and VPO had the requisite purpose or intention in entering into the transactions for the losses incurred thereunder to be deductible. 15 In brief, it was each taxpayer's case that the entire scheme under which the Southcorp businesses were acquired and the Visy subsidiary companies' shares were ultimately disposed of was a business transaction or commercial operation with the intention of profit-making. On this analysis, the losses made by VPH, VIA and VPO on the disposition of their shares in Visy subsidiaries were incurred in the course of gaining or producing assessable income (or carrying on a business for this purpose), and hence were deductible under s 8-1 of the 1997 Act. The taxpayers further submitted that, whilst it would be sufficient for their purposes if the Court accepted this assertion, it would also be sufficient if the Court accepted a narrower premise, namely, that the specific acquisition of the shares in VFL, VFLH and VIPH (viewed in isolation) was done with the purpose or intention of profit-making by sale or as part of a profit-making undertaking or scheme. 16 In contrast, the Commissioner contended that the VIA, VPH and VPO losses were not deductible, as they arose from the mere realisation of capital assets and were not incurred in gaining or producing assessable income from a business operation or commercial transaction (or series of transactions) that the taxpayers entered into with the purpose of making a profit or gain. 17 To this end, four main arguments were advanced by the Commissioner: (a) as the relevant transactions involved the acquisition and disposal of shares (which are CGT assets in their own right under s 108-5 of the 1997 Act), there is no principled basis for characterising the loss made on the disposal of the shares by reference to the acquisition of different assets, namely, the underlying Southcorp assets. (b) in the event that the losses made by VIA, VPH and VPO on the disposal of their shares may be characterised by reference to the acquisition of the underlying Southcorp assets, Visy's purpose in acquiring the Southcorp assets was to acquire the assets of Southcorp's rigid packaging business for the expansion of Visy's business operations (that is, they were 'synergistic assets'). The acquisition and proposed divestment by Visy of other 'surplus' assets was an integral part of Visy's acquisition of the synergistic assets. Acquisition of the surplus assets secured the synergistic assets for Visy and did so for the best possible price. The divestment of those surplus assets in an enterprising way does not, in itself, demonstrate that the requisite profit-making purpose existed in respect of the transaction. (c) to the extent that the witnesses claimed that Visy acted with a purpose of profit-making when it acquired the surplus assets, that claimed purpose of Visy cannot be attributed to the taxpayers. (d) even if the purpose of profit-making with respect to the divestment of surplus assets can be attributed to the taxpayers, it is apparent that both VIA and VPH abandoned their profit-making undertaking or scheme before realising a loss on the disposal of their shares in VIPH. 18 For the reasons that follow, I find in favour of the taxpayers in these proceedings. The specific legal principles to be applied in the circumstances and the particulars of the factual matrix in which the relevant losses were incurred are set out below. However, it is first necessary to set out the nature of the applications brought by the taxpayers in these proceedings. THE APPLICATIONS 19 VIA's applications concerned the following: (a) a deduction of $24,597,396 for the 2002 year comprising: (i) a loss transfer deduction of $634,320 in respect of a loss transferred from VPH to VIA; and (ii) a deduction of $23,963,076. A total loss of $29,953,845 was incurred by VIA in the 2002 year upon the disposal of 30 million shares in VIPH. These shares were originally acquired in January 2001 for $30 million, and were disposed of in June 2002 for $46,155. Including the incidental costs of acquisition and disposal, this resulted in a total loss of $29,953,845 (the VIA loss). $23,963,076 of this was applied in calculating VIA's taxable income for the 2002 year. (a) whether a penalty of $1,844,804.70 was payable in respect of the 2002 year. (b) a deduction of $5,990,769 for the 2003 year, being the amount of the VIA loss applied in calculating VIA's taxable income in the 2003 year. (c) whether a penalty of $539,169.20 was payable in respect of the 2003 year. 20 An additional issue also arose specifically in relation to VIA: whether the Commissioner was prevented by s 170 of the Income Tax Assessment Act 1936 (Cth) (the 1936 Act) from issuing the assessment of income tax for the 2002 year to VIA on or around 18 September 2008. 21 VPH's applications concerned the following: (a) a deduction of $3,798,519 for the 2002 year. A total loss of $86,125,225 was incurred by VPH in the 2002 year upon the disposal of 86 million shares in VIPH. These shares were originally acquired for $86 million in January 2001 and disposed of in June 2002 for $153,845.86. Including the incidental costs of acquisition and disposal, this resulted in a total loss of $86,125,225 (the VPH loss). $3,798,519 of this was applied in calculating VPH's taxable income in the 2002 year. (b) whether a penalty of $284,888.70 was payable in respect of the 2002 year. (c) a deduction of $17,267,988 for the 2003 year comprising: (i) a loss transfer deduction of $25,585 in respect of a loss transferred from VPO to VPH for the 2003 year; and (ii) a deduction of $17,242,403 being the amount of the VPH loss applied in calculating VPH's taxable income in the 2003 year. (d) whether a penalty of $1,554,118.90 was payable in respect of the 2003 year. 22 VP's applications concerned the following: (a) a loss transfer deduction of $4,919,344 in respect of a loss transferred by VPH to VP in the 2002 year. (b) a loss transfer deduction of $18,850,779 in respect of a loss transferred by VPO to VP in the 2002 year. This loss transfer deduction derived from an asserted entitlement of VPO to a deduction of $37,067,621 in the 2002 year upon the disposal of 41,000,000 shares in VFL and 20,400,000 shares in VFLH. VPO acquired the VFL and VFLH shares in January 2001 for $61,400,000 and subsequently disposed of those shares by agreement made in November 2001 for $24,332,379. Including the incidental costs associated with the acquisition and disposal of the VFL and VFLH shares, the total loss was $37,067,621 (the VPO loss), and $18,850,779 of this was transferred to VP. (c) whether a penalty of $1,782,759.15 is payable in respect of the 2002 year. 23 The taxpayers submitted that an incidental issue arose in relation to the VP applications: namely, whether VP "validly objected to the non allowance of a decline in value (depreciation) deduction on the basis contended for". However, this issue was not further developed either during the hearing or subsequently in the parties' submissions. 24 VC's applications concerned the following: (a) a loss transfer deduction of $16,118,331 in respect of a loss transferred by VPO to VC in the 2002 year, which loss derived from the VPO loss. (b) whether a penalty of $1,208,074.80 was payable in respect of the 2002 year. 25 In addition to having the above deductions and transfers disputed by the Commissioner, each taxpayer has been assessed as being liable to pay an administrative penalty equal to 25% of their respective shortfall amounts under s 284-75(1) of Sch 1 to the Taxation Administration Act 1953 (Cth) (TAA), on the basis that each taxpayer's shortfall amount resulted from a failure by it or its agent to take reasonable care to comply with a taxation law. WITNESSES 26 Before proceeding to outline the relevant facts, it is appropriate to make mention of the key witnesses in these proceedings. 27 Four witnesses gave evidence for the taxpayers. All were cross-examined. They were: (a) Mr Vincent O'Halloran, who affirmed two affidavits dated 1 July and 3 November 2011 respectively. In July 2000, Mr O'Halloran was Group Finance Director for the Pratt Group, a position that he still held at the time of affirming his first affidavit. In this role, he was responsible for all of the Pratt Group's financial matters. Amongst other things, he was particularly responsible for the Australian manufacturing arm of the Pratt Group, of which VIA and the other relevant Visy entities were a part. In 2000 and 2001, he was a member of the Pratt Family Advisory Board, a membership he maintained at the time of affirming his first affidavit. (b) Mr Gary Bentley Byrd, who swore an affidavit dated 29 June 2011. In 2000 and 2001 Mr Byrd was the Chairman of the Global Finance Committee for the Pratt Group globally and Chief Executive Officer of Pratt Industries (USA) Inc. At the time of swearing his affidavit, Mr Byrd was the President of Pratt Holdings (USA) Inc, the holding company of Pratt Industries (USA) Inc. Mr Byrd has been a member of the Pratt Family Advisory Board at various times between 1997 to the time of swearing his affidavit, including in 2000 and 2001. Prior to working for the Pratt Group, Mr Byrd was an investment banker, primarily working in mergers and acquisitions and leveraged buy-outs. (c) Mr Raphael Geminder, who swore an affidavit dated 29 June 2011. Mr Geminder, at the time of swearing his affidavit, was the Executive Chairman of the PACT Group Pty Ltd. He has attended Pratt Family Advisory Board meetings since 1990. Between 1990 and 2000 Mr Geminder worked with the Pratt Group in various roles, first in the United States and then in Australia. Mr Geminder and Mr Richard Pratt were the directors of VIA at the relevant times with Mrs Jeanne Pratt. In July 2000 he was appointed as the Executive Chairman of Visy Recycling Pty Ltd. During his time at Visy he was involved in a number of acquisitions and sale transactions. (d) Mr James McMurdo, who affirmed an affidavit dated 30 June 2011. In 2000, Mr McMurdo was Head of Industrial Coverage and a Director of the Investment Banking Division at Salomon Smith Barney (SSB). His role involved managing the relations with SSB's industrial clients and advising on mergers and acquisitions and financing. Prior to the transactions that are the subject of these proceedings, Mr McMurdo was responsible for building an investment banking relationship with Visy. 28 The Commissioner sought to tender evidence from one witness, Mr Antony Samuel, who affirmed an affidavit dated 29 September 2011. Mr Samuel, who had extensive experience as an accountant, also had experience in investigating accounting records for the purposes of audit, due diligence, valuation or disputes. Exhibited to Mr Samuel's affidavit was a report dated 29 September 2011, prepared at the request of the Commissioner, detailing his qualifications and valuations made in relation to the Southcorp businesses and the actual performance of the Southcorp businesses. For the most part, the report relied on data and other information tendered by the taxpayers and drew some conclusions from this material. I will return to this report later. 29 Mr Richard Pratt, the Chairman and the effective head of the Pratt Group, died prior to the trial of these proceedings. THE FACTS 30 As previously noted, in my view these proceedings do not raise any particularly difficult or novel issues of legal principle. Rather, these proceedings primarily involve an analysis of the events that took place – and a characterisation of these events – to determine the true nature of the scheme undertaken. In the main, the events are documented, and the commercial object of the scheme is apparent. However, the evidence of the witnesses led by each taxpayer is important in putting the events that occurred in context. This evidence assists in characterising the events and the true nature of the scheme and its constituent transactions. In these proceedings this became of some significance, particularly in view of the approach taken by the Commissioner in seeking to characterise the transactions in a way that was different to the characterisation advanced by the taxpayers. As I explain later, I accept each of the witnesses called by the taxpayers as a credible witness, and have relied upon their evidence to put the events that occurred in context. 31 With that introduction, I now make the following findings of fact. Where I refer to the evidence of a witness, unless otherwise stated it should be taken that I have accepted that evidence. 32 Until the late 1990s, Visy was principally involved in acquiring paper and other recyclable fibrous product and processing that product into corrugated cardboard cartons for supply to customers. This category of product is often referred to as "secondary packaging" because it is not the immediate source of packaging for goods. By contrast, "primary packaging" refers to items such as cans or PET bottles, which directly contain a product, such as food or beverage. Primary packaging is then placed inside secondary packaging. 33 In the late 1990s, Visy's main competitor was Amcor, which produced both primary and secondary packaging. Mr O'Halloran said that Amcor had a particular marketing advantage over Visy in the food and beverage sector. For example, for food and beverage can customers, Amcor could provide both the primary and secondary packaging contracts. Amcor referred to this as the "Power of One" marketing strategy. Mr O'Halloran said that as Visy did not offer primary packaging, it would often find itself "marginalised" when it came to the renegotiation of certain contracts. By contrast, Amcor had greater flexibility to tailor its contracts to its customers' needs. There was also evidence to the effect that it was publicly known that Mr Pratt had "occasionally expressed concerns over Amcor's ability to offer a one-stop packaging shop". 34 At that time, Southcorp carried on a number of packaging businesses, including primary packaging businesses. Relevant to these proceedings were those businesses in the Asia Pacific region, which were broadly categorised as follows: (a) 'Rigid Packaging' (Food Cans, Beverage Cans, PET products and the New Zealand Rigid Packaging business); (b) 'Flexible Packaging' (Cartons, Films & Laminations (both the Australian and NZ businesses), and NuWave, which was part of Films & Laminations generally); (c) 'Industrial Packaging' (Rigid Plastics Packaging, Steel Drums (Australia), Steel Drums (NZ), and Tubes (NZ)); (d) 'Textiles' (Industrial Textiles); (e) 'Technology' (Technology Systems (Australia) and Technology Systems (NZ)); and (f) 'Unallocated businesses' (businesses other than those in Australia or NZ, being PET Vietnam, Industrial Textiles Malaysia, PET Malaysia, PNG Meat Canning and Steel Drums Indonesia). (collectively, 'the Southcorp businesses') 35 Southcorp and Visy had some common customers who contracted with Southcorp for primary packaging and Visy for secondary packaging. From time to time Visy and Southcorp worked together on bundled transactions to provide a broader range of services to customers, allowing both companies to compete with Amcor's "Power of One" strategy. Southcorp acquisition first discussed July 2000 36 In July 2000, Visy began to investigate the possible acquisition of some or all of the Southcorp businesses. Messrs O'Halloran and Geminder said that they became aware of the proposal on 16 July 2000, at a Pratt Family Advisory Board meeting in Chicago. After the Board meeting, an informal meeting was called in Mr Pratt's hotel suite, where the possible acquisition of the Southcorp businesses was further discussed. 37 The investigation into the acquisition of the Southcorp businesses had been instigated by Messrs Pratt and Graham Kraehe (Southcorp Managing Director and CEO) earlier. On 14 July 2000, Mr Kraehe had faxed Mr Pratt a confidentiality agreement and a draft heads of agreement. A draft information memorandum was sent to Mr Pratt by Merrill Lynch International (Australia) Limited (Merrill Lynch) on behalf of Southcorp on 15 July 2000. It was apparent from Southcorp's information memorandum that a bid which encompassed all of the non-US Southcorp assets was more likely to be viewed favourably by Southcorp. 38 From the outset, there was discussion and debate as to whether Visy should acquire all of the Southcorp businesses on offer, or just those which were relevant to Visy's operations. According to Mr Byrd, who was present at both the Board meeting and the informal meeting in Chicago, it was apparent that there were some businesses that Southcorp wanted to sell that Visy "would either not want to acquire or retain because they were not compatible with the Visy business". Further, those present at the informal meeting had a general idea of the businesses that Visy would not retain, which were Textiles, PNG Meat Canning and Steel Drums Indonesia. The usefulness of Films & Laminations and Cartons to Visy's business was also debated. However, some of the businesses such as Food and Beverage Cans and PET were considered a "good natural fit" with the current Visy business and were not widely debated at that point. 39 It was apparent that there was a tension between buying only the businesses that Visy wanted to retain, and buying all of the Southcorp businesses at a discount. At the informal meeting, Mr O'Halloran recalled that: … most if not all present expressed views to the effect that this was a golden opportunity to buy assets at a significant discount to market given Southcorp's apparent desire to exit the business quickly. 40 Mr O'Halloran stated that Mr Pratt said that Visy may have an opportunity to acquire the businesses cheaply, as Mr Kraehe had told Mr Pratt that Southcorp was looking to make a "quick exit" to focus on its other businesses. Visy's ability to acquire certain businesses to grow and compete with Amcor's "Power of One" marketing strategy was discussed. Mr O'Halloran also recalled Mr Harry Debney expressing "firm views" that Visy was the logical trade buyer with "significant business synergies not readily obvious to others". The other obvious buyer, Amcor, would have difficulty overcoming trade practices legislation given its duopoly position. Initial investigations 41 At the informal meeting, Mr Pratt asked Mr O'Halloran to return to Melbourne and put together a due diligence team to manage the due diligence process. The first meeting of that committee was held on 22 July 2000. The due diligence process, undertaken under the auspices of this committee, continued through until 20 November 2000. 42 By July 2000, the acquisition investigation was known to those involved at Visy's end as "Project Crayfish". The due diligence committee re-examined many of the considerations raised in the informal meeting that took place in Chicago. In a presentation entitled "CRAYFISH Packaging Opportunity" which Mr O'Halloran says was distributed at the committee meeting, attractions of the Southcorp businesses acquisition are listed as "'Power of One' significance increasing" and "Financial return (positive carry)". Mr O'Halloran stated in evidence that he understood "positive carry" to mean that the Visy Group would make a profit on the sale of the businesses of which they intended to dispose. The presentation also considered "Significant Pitfalls", under which is listed, inter alia, "Acquisition of peripheral businesses – divestment risk". 43 It is apparent that at this time, the subsequent divestment of a number of the businesses to be purchased was being considered. 44 A preliminary view of the businesses which Visy wanted to keep (the retention businesses), those which Visy may want to keep, and those which Visy did not want to keep (the divestment businesses) was given in that presentation. 45 At that time, Visy proposed to keep the Rigid Packaging businesses. According to Mr O'Halloran, these assets were aligned with Visy's experience in the food and beverage sector, and were associated with high volume product with good margins. They would also allow Visy to compete with Amcor's "Power of One" strategy. 46 Those businesses which the due diligence committee considered that Visy may want to keep at that stage were Rigid Plastics, Steel Drums (Australia and NZ), Tubes and NuWave. Those which Visy did not want to keep were Films & Laminations, PNG Meat Canning, Industrial Textiles, Cartons and Technology. 47 Again, there was a discussion as to the best buying strategy. Messrs O'Halloran and Geminder recalled that there was concern that if Visy simply "cherry picked" those Southcorp businesses which had synergies with Visy's current business, they may miss the opportunity to purchase them at an attractive price. There was concern that Southcorp would be more likely to sell to a purchaser who was willing to buy all of the businesses. 48 Relevantly, Mr O'Halloran stated in evidence that: [t]he group expressed views to the effect that this was a great opportunity both to make a profit on the turn of some assets and to buy an asset pool which supplemented Visy's existing business at a discount to market… 49 The emphasis on achieving "synergies" by purchasing the Southcorp businesses in order to compete with Amcor's "Power of One" strategy was again outlined in a memorandum from Stephen Webster entitled "Crayfish Synergies" which was sent to Mr Byrd on or about 30 July 2000: Before identifying some of the potential synergistic fits with Crayfish and within Crayfish itself, it is important to restate the background to our interest and the initial strategic rationale. Rumours of a divesture of Crayfish have come and gone for over a year. During that same period, the issue of "Power of One" loomed large in the corrugated marketplace. The concept of a substantial marketplace advantage resulting from offering a one stop shop for large customers' total packaging needs was seen as a potential problem for a vertically integrated, single packaging group. The word potential is underscored because the actual marketplace power of the "Power of One" strategy is open to question. What is not in question though is that Amcor aggressively employed a 'Power of One" approach in several, large contested accounts in the past 18 months. Irrespective of its actual effectiveness, it is accurate to say that "Power of One" has been a concern and may well be an ongoing advantage to large packaging players. For example, the combined impact of "Power of One" and web-based commodity procurement sites may become a problem. How to measure that potential threat and its negative impact on our core business and, simultaneously, assess the synergistic benefits to our core business of having its own "Power of One" strength is a difficult question. But it is the fundamental issue to address in terms of synergies. 50 A memorandum circulated by Mr Debney on 6 August 2000 similarly contemplated the utility of acquiring the synergistic businesses. It asked: [c]an Visy build a major Australasian packaging giant by merging the desired elements of Crayfish with Visy's packing operations? Can it be competitive with Amcor's broad offering? Will it add major new value proposition for the share holders? Heads of agreement executed 51 On 28 July 2000, a heads of agreement was executed between Southcorp and VIA. The agreement was non-binding insofar as obligations to purchase businesses were concerned. However, it had the effect of giving Visy a period of exclusivity in which to investigate the acquisition of the Southcorp businesses. 52 Southcorp set up a data room to which Visy and those undertaking due diligence on Project Crayfish had access in early August. The data room contained all Southcorp divisional and corporate financial data. Mr O'Halloran said that he was responsible for the data room and due diligence of Southcorp's financial information. A number of Visy employees gathered information and analysed data to assess the value of the businesses on offer. PriceWaterhouseCoopers (PWC) had access to the data room. Visy executives also toured Southcorp's plants and were invited to management presentations to learn more about the Southcorp businesses. 53 Messrs O'Halloran and Geminder both noted that at this point there were continuing discussions about whether to buy all of the Southcorp businesses, or just those which Visy wanted to retain. Debate continued as to which businesses to retain and which to divest if all the Southcorp businesses were bought. 54 Mr O'Halloran recalled that by early August 2000, he and Mr Byrd expressed a preference to buy all the Southcorp businesses, and divest those which Visy did not want to retain. Mr O'Halloran said that an advantage of this course of action was that it would potentially reduce Visy's overall group debt if it made a profit on the sale of the divestment businesses. Substantial group debt had accrued in relation to other transactions, and would continue to accrue if the Southcorp businesses were bought. Mr O'Halloran stated in his first affidavit that: Visy could, in my view, buy all of the non-US Southcorp packaging businesses at a discount to their individual market value and sell the assets we did not retain at their full market value, in the expectation of making a substantial profit on the resale. The proceeds of sale would then be used to reduce the debt on the businesses Visy wanted to keep. 55 However, in addition to obtaining a discount by purchasing all of the non-US Southcorp businesses, another advantage was that the sale would remain private. Despite Messrs Byrd and Geminder expressing doubt as to whether any other organisation would wish to acquire the non-US Southcorp businesses, by August 2000, Mr Byrd said that Visy "did not want to take undue risk by opening up the deal to competitive process". 56 Around this time, Visy received a letter from Merrill Lynch dated 8 August 2000. According to Mr O'Halloran, the letter suggested that Merrill Lynch had been "swamped" with interest. Mr O'Halloran said he concluded that this would be interest in Southcorp's businesses being sold on a piecemeal basis, giving him confidence that Visy could later divest businesses it did not want to keep if it bought all of the Southcorp businesses. Retention of Salomon Smith Barney 57 According to Mr Byrd, in late July or early August, Visy decided to appoint an investment banker to advise and assist Visy with the Southcorp transaction. Mr Byrd said the rationale for this was two-fold. It would lend credibility to Visy's bid, as well as assist in analysing the expected sale price and the sale of the divestment businesses. 58 Mr Geminder recalled that SSB had made contact with Visy to offer its services early during Visy's due diligence. Other investment advisors such as Deutsche Bank Australia and Macquarie Bank had also offered their services to Visy. 59 On 10 August 2000, SSB gave an oral and written presentation to the Visy Group at Visy's offices in Melbourne. Mr Geminder recalled being particularly impressed with Mr Scott Baird, Managing Director and Head of SSB's Global Packaging Group. Mr Geminder said that he "understood that he was highly regarded as a financial analyst of packaging businesses". Mr McMurdo said that most of the input for the presentation came from Mr Baird and Mr Trace McCreary (Vice President, Packaging at SSB), who had "highly specialised expertise" in the packaging industry, and "had advised either the buyer or seller on virtually every large transaction". SSB came "highly recommended" by Mr Byrd and Mr Al Dunlap, who had a long-standing relationship with SSB in New York. 60 According to Mr Geminder, the key points from SSB's presentation were that: (a) Southcorp's preference would be to sell the Southcorp businesses as a whole; (b) the large number of disparate packaging segments of the Southcorp businesses made it unlikely that any trade buyers would be willing to acquire all of the businesses; (c) Southcorp had a number of alternatives available to it: (i) a trade sale by tender, which had risks associated with breaking up the businesses and an incomplete sale process; (ii) a trade sale to Visy; and (iii) a "spin off" or public float, which also had risks; (d) to extract full value for the Southcorp businesses it would be likely that Southcorp would have to consider selling the businesses separately or in various groups; (e) the fair market valuation range for the Southcorp businesses was in the range of $920 million to $1.066 billion; (f) it would be advantageous to Visy to propose a transaction that enabled Southcorp to dispose of all of the Southcorp businesses; and (g) if Visy wanted to purchase only the "retention assets", it would need to pay a significant premium. 61 Mr McMurdo stated that the value range of $920 million to $1.066 billion was for the businesses on a "break up basis". As is evident from the points above, an important consideration for Visy was that if Visy purchased all of the Southcorp businesses, it could obtain them at a significant discount to the price of the businesses if they were sold separately. 62 SSB's 10 August 2000 presentation valued Southcorp's businesses by reference to their 2000 EBITDA (Earnings Before Interest, Tax, Depreciation and Amortisation). Films & Laminations, however, did not have an EBITDA value as it had incurred losses. It was valued by reference to its 2000 sales. 63 According to Mr Byrd, it was common to value businesses by reference to a multiple of their EBITDA. SSB had valued Southcorp's businesses by different multiples for each business, varying from 4.00 to 7.00 (though they were generally in the range of 5.00 to 6.25). For example, the beverage cans business had an EBITDA value of $29 million in 2000. The SSB multiple range for the value of that business was 5.50 (for a low-range value) and 6.25 (for a high-range value). So the value of the business was estimated to be between $160 million and $180 million. Mr Byrd stated in his affidavit that the use of varying multiple ranges by SSB "is common and usually reflects the potential growth of EBITDA and the risk of obsolescence of the technology within the business". Mr McMurdo deposed that Messrs Baird and McCreary had a lot of detail about EBITDA multiple based valuations and the precise EBITDA valuation multiple for a type of packaging asset. 64 Messrs Geminder, Byrd and O'Halloran all made statements in their respective affidavits to the effect that they were impressed with SSB's presentation. Mr O'Halloran said that the presentation convinced him to proceed with a buy and divest strategy. Mr Geminder said that: Baird and his team were very impressive and I became confident in their ability to achieve the divestment assets sales for the values they had stated. Their presentation valued each of the businesses separately on a stand alone or break up basis and gave a low to high value for each business… I was, however, keen to buy the businesses at a substantial discount to the SSB valuation range and believed that Southcorp would sell at a significant discount if it could sell all of its non US packaging businesses to one buyer… My feeling, and I believe that of other Visy executives, was that if we could acquire the businesses for a total price calculated at about 5 times the overall EBITDA for all the businesses, that would enable us to make a tidy gain on the businesses to be sold. SSB convinced me and our team that tactically Visy would be in a better position than other potential buyers as few, if any, would be prepared to buy all the assets. SSB advised that if Visy bought all the businesses on offer it could sell the unwanted assets for a nice profit. 65 Two copies of the SSB 10 August 2000 presentation were tendered. One shows a number of markings made by Mr O'Halloran. During the SSB presentation, Mr O'Halloran calculated what Visy would expect on the sale of the various businesses if divested. On the low end of SSB's valuation, Visy would expect $175 million for Flexible Packaging; $205 million for Industrial Packaging; and $60 million for the Textiles, Technology and Unallocated businesses (collectively, Mr O'Halloran called these the "Non-Rigids businesses"). In total, this would amount to $440 million. On high-end SSB valuations, Visy would achieve sale proceeds of $526 million for the businesses. 66 On an EBITDA multiple of 5.00, the cost of acquiring these Non-Rigids businesses would be $385 million. Mr O'Halloran said that he was expecting to pay this amount, but was hoping to pay less. As events transpired, Visy paid $828 for all of the businesses, so for the businesses above, on an average spread basis, $388.76 million was paid for the Non-Rigids businesses. This was an EBITDA multiple of 5.05. Mr O'Halloran's estimate on this basis could be seen as relatively accurate. 67 Mr O'Halloran also considered other valuation factors not included in the SSB presentation, and jotted them onto his copy of the presentation. He included what he expected to be the depreciation and amortisation of the assets between the 30 June 2000 valuation and the time at which Visy would take ownership. This would reduce the book value of the assets. Mr O'Halloran also noted that the SSB figures did not contain any adjustment for head office costs which would be eliminated under Visy ownership and would improve the EBITDA of the businesses. 68 Mr O'Halloran also considered splitting the land and building assets from the underlying businesses and entering into long term leases in relation to each property. By doing so, Mr O'Halloran considered that Visy would make estimated profits of $26.4 million in addition to those considered by SSB. 69 Visy decided to formally retain SSB after their 10 August 2000 presentation. Visy and SSB spent some time negotiating the fee to be paid to SSB. Messrs Geminder and McMurdo recall that the final fee for advisory work on the acquisition of the Southcorp businesses was significantly less than that which SSB originally proposed. It was SSB's lowest acquisition fee of which Mr McMurdo was aware. 70 Visy had decided that SSB's main focus was to be the divestment side of the transaction. That being so, the fee structure was weighted heavily toward the successful divestment of the divestment businesses. For the fees for the divestment part of the transaction to be received, unconditional sales had to be effected within three months of Visy's acquisition of the Southcorp businesses, and proceeds had to be received by Visy within six months. Mr McMurdo stated that SSB agreed to the terms because it was confident that Visy "would sell the divestiture assets for the valuations in our 10 August 2000 presentation and SSB would therefore achieve a reasonable fee in aggregate". 71 The Commissioner, submitted that the fact that SSB's fees were structured to incentivise the divestment program made it evident that Visy saw the divestment as a risk rather than an opportunity for profit. 72 I do not accept this characterisation advanced by the Commissioner. The divestment was always seen as a risk, even as at July 2000. However, it had a positive side, which involved making a profit. It was a logical and commercial decision to have SSB focus on the divestment side of the transaction. Accepting that SSB was confident it could achieve a reasonable fee, it was content to negotiate the fee in the way it did. Undoubtedly there was a risk in divestment; but this does not mean the opportunity for a profit was not there. Nor does it mean that there was no intention to make a profit. 73 Returning then to the chronology of events, by an internal memorandum sent by Mr Debney and Mr Peter McKenna of Visy dated 11 August 2000, a number of potential offers to put to Southcorp were under consideration. The first offer contemplated that Visy purchase all non-US Southcorp businesses, and divest itself of those which were unwanted. The second offer contemplated an offer for only those businesses that Visy deemed were "definitely required", plus "those businesses that may be required in the long term" (emphasis added). The third was only for businesses which Visy definitely intended to retain (Rigid Packaging). 74 The amount of the contemplated first offer reflected an expected discount for "potential continuing losses and management time during the sale of businesses not required and the potential sale results for these businesses". An acquisition of all of the Southcorp packaging businesses was priced at $850 million for $615 million of assets. The defined divestment businesses represented $179 million of the total $615 million. The offer was that Visy would pay the $179 million if it succeeded in selling those businesses. In contrast, an alternative offer excluded the $179 million of assets that Visy "definitely" did not want. That offer proposed Visy would pay $734 million for $436 million worth of synergistic assets, being only $116 million (not $179 million) less than an offer to acquire all of the businesses. The first offer 75 In August 2000, a decision was made by Visy to proceed with an acquisition of all of the Southcorp businesses, with an intention of selling the businesses that Visy did not want. At this stage, however, a final decision had not been made about the identity of the businesses that would be retained, and those which would be divested. However, it was clear that some businesses would be divested. 76 An initial offer was made to Southcorp on 19 August 2000, for all of the Southcorp businesses. This offer – known as a "cocktail offer" – comprised a base price of $755 million, with a total value of $818 million. The additional $63 million could be "earned" by Southcorp, if, on the divestment of certain businesses by Visy, a minimum resale price of $170 million was reached. Southcorp would then receive the difference between the underwritten value of $170 million and the actual divestment proceeds up to $215 million. Any proceeds exceeding $215 million were to be split equally between Southcorp and Visy. This offer was rejected. According to Mr O'Halloran, had Southcorp accepted the proposal, Visy would have broken even under the underwriting arrangement. 77 Visy was well aware of the risks associated with the divestment of Southcorp businesses at this stage. Mr Byrd said that he did not think very hard about the offer which was put to Southcorp because he recalled Mr Kraehe saying there was "no way" that Southcorp would take part in the divestment risk with Visy. Southcorp would have preferred to move to a competitive bid process before accepting the divestment risk. 78 Nevertheless, Mr Byrd said that it was worth making the offer to Southcorp to try to get them to "seriously consider it". The second offer 79 By 28 August 2000, the Visy Group was beginning to firm up its intentions as to the businesses that were likely to be divested. They were likely to be Industrial Packaging, Flexible Packaging (excluding NuWave), Textiles, and the Indonesian and PNG businesses. At this point, Technology was listed as a retention business. 80 However, at this stage, no definitive decision about the retention or divestment of the various businesses had yet been reached. For example, in early August Mr Geminder said that Films & Laminations, Cartons, Textiles and PNG Meat Canning were divestment businesses. Visy was, however, unsure about Industrial Packaging. Mr Byrd said Visy was unsure about whether to retain or divest Cartons, but Textiles and PNG Meat Canning were definitely divestment businesses. Messrs Debney and McKenna's memorandum of 11 August 2000 again listed different divestment businesses. 81 However, the question of which businesses to retain and which to divest was further refined over time, and sometime between 5 September and the end of September 2000 (and in any event, certainly prior to 20 November 2000) it was settled that the proposed retention businesses were to be the Rigid Packaging businesses. 82 Between 19 and 28 August 2000, Messrs Pratt, Kraehe and Michael Tilley (Chairman of Merrill Lynch) had discussions concerning the purchase. On or about 28 August 2000, Mr Pratt met with representatives of Southcorp (including Mr Kraehe) and orally agreed in principle to acquire all of the Southcorp businesses for the global price of $818 million, subject to certain adjustments that were to take place upon completion. 83 Mr Byrd said that between 19 and 28 August 2000, he only had one discussion with Mr Pratt concerning the purchase price. He learned that Mr Pratt had "done the deal" only after Mr Pratt's meeting with Southcorp on 28 August 2000. 84 Mr Byrd said, however, that the "key decision makers" in determining the purchase price were himself, Messrs Geminder, O'Halloran and Pratt. Mr Pratt, however, was the one who took a "keen interest and ultimately committed to the price of $818 million". Mr Byrd said that they were also influenced by SSB's opinion as to the purchase price. 85 A letter from Mr Tilley of Merrill Lynch to Mr Pratt dated 28 August 2000 confirmed that: [t]he key elements of the transaction are that Visy will acquire Southcorp's Asia Pacific Packaging business on the basis of the audited accounts as at 30 June 2000 with net cash sale proceeds of A$818 million to Southcorp. Visy will accept the sell down outcomes from those assets if it wishes to divest. We also agree that Southcorp and Visy will finalise the terms of the sale agreement in good faith with neither party using the contract negotiating process to reduce the price payable by Visy or increase the price received by Southcorp beyond changes in the audited balance sheet at 30 June 2000. 86 Under the agreement negotiated by Mr Pratt, Visy would not share any of the risk or upside of the divestments with Southcorp. 87 A memorandum from Mr O'Halloran to Mr Byrd dated 30 August 2000 (copied also to Messrs Geminder and Herman Rockefeller (then Chief Financial Officer of Visy Holdings Pty Ltd)) makes it apparent that Visy felt the need to divest some of the Southcorp businesses quickly: Now the deal has changed to a straight cash deal of $818m it is imperative that we get a firm offer for the carton and laminates businesses prior to execution of the sale agreement contemplated by Crayfish for September 15 (but by us mid October). If we cannot get a firm offer, we will be required to inject at least $150m in equity. In our view this is the bare minimum equity requirement. 88 There was then some confusion between Visy and Southcorp as to whether the sale negotiated was an asset or a share sale. Mr Geminder stated that Visy was proposing an asset sale for the negotiated price. However, Southcorp subsequently informed Visy that it had agreed on the price of $818 million on the basis that it was a share sale. 89 It was Mr O'Halloran's recollection that, at a meeting at Mr Geminder's house in early September (at which he, Messrs Pratt, Geminder, Kraehe and Tilley were present), it was Mr Tilley's view there was no material difference between the tax consequences attaching to an asset sale on one hand, and a share sale on the other. However, Mr O'Halloran expressed the view that a share sale would cost Visy as much as $70 million in tax in the short term. Mr O'Halloran said he told Mr Tilley that Visy always presented its offers on an asset purchase basis. Mr Tilley said he would consider Southcorp's position. 90 Mr O'Halloran recalled that two days later, Mr Tilley told Mr Geminder that Southcorp wanted an additional $70 million for the Southcorp businesses. Mr O'Halloran said he and Mr Geminder met with Mr Pratt and he told Mr Pratt that the request for an extra $70 million was contrary to the spirit of the Southcorp agreement of 28 August 2000, in that it sought to negotiate an increase in price for the Southcorp businesses. 91 According to Mr O'Halloran, he and Mr Geminder advised Mr Pratt that Visy should withdraw from the transaction rather than pay the additional $70 million. Mr Geminder subsequently drafted a letter of withdrawal from the sale process, and went to see Mr Kraehe at Southcorp's Melbourne offices. Upon Mr Geminder's return, he told Mr O'Halloran that Southcorp had agreed that the transaction would proceed at the price of $828 million on the basis of an asset sale, on the condition that Southcorp was entitled to allocate the value of goodwill to the businesses being sold. Mr Geminder told Mr Kraehe that he would confirm that this proposal was acceptable from Visy's point of view. Mr Geminder also recalled meeting with Mr Kraehe and agreeing that the deal would be done at $828 million on the basis of an asset sale. 92 Mr Geminder recalled in his affidavit that: [e]ven at $828 million I considered that we had bought the businesses well and had obtained a significant discount. $828 million represented a discount of $165 million on the midpoint of the SSB valuation which I had confidence in. 93 On or about 8 September 2000, Visy received the proposed allocation of the goodwill component of the purchase price from Southcorp. Mr O'Halloran reanalysed the data already available to him and the proposed purchase price to determine if it was reasonable. He stated in evidence that he was concerned to ensure that the allocation did not reduce the overall profitability of the transaction or result in losses on the sale of the divestment businesses affecting total group EBITDA and EBIT. 94 The allocation of goodwill was not just made by Southcorp, as Mr O'Halloran had some input into the calculations. Cross-examination did take place concerning Mr O'Halloran's allocation of the purchase price to each separate business and his valuation of each business, and some doubt was thrown up as to his calculations. However, I do not consider that the cross-examination went so far as to undermine either the evidence led as to the various judgements he (and other controlling minds within the Visy Group) made as to the future prospects of profit, or their focus on making a profit from the divestments. 95 According to the Commissioner, the approach taken by Mr O'Halloran at the time as to the allocation of goodwill and valuation indicated an indifference to profit, and an emphasis on getting in the proceeds to fund the acquisition. However, even if I accepted that the Commissioner is correct in this analysis of Mr O'Halloran's approach, focussing on proceeds does not exclude the possibility of a purpose or intention to make a profit. A constant theme of all of the oral evidence was this purpose and intention relevant to the common scheme. 96 Returning to Mr O'Halloran's view, on a "conservative estimate" of the expected proceeds, he calculated that the anticipated gain to be made from the sale of the divestment businesses (listed in Mr O'Halloran's affidavit as then being the Industrial Packaging, Technology, Textiles and Flexible Packaging businesses, excluding both NuWave and PNG Meat Canning) was $32.4 million before SSB fees. This did not include the benefits of depreciation, or other variables such as expected gains on the resale of land or buildings. 97 In the period leading up to 28 August 2000, Visy was aware that some of the divestment businesses had either underperformed, previously failed to sell, or been publicly labelled as "unappealing". For instance, in the Report "Project Crayfish Draft Status Report – Phase One" prepared by PWC, dated 8 August 2000, Films & Laminations was forecast to have a net operating loss of $3.5 million for the 2000 financial year. Further, SSB's 10 August 2000 presentation noted that this business failed to sell earlier that year. In an article featured in the Australian Financial Review on 18 July 2000 (which was circulated to a number of Visy employees including Messrs O'Halloran, Byrd and Geminder), it was said that: … Southcorp risks destroying value if it dismantles the packaging business piece by piece. The better parts could be snapped up by buyers but this would leave some unappealing assets, forcing a fire sale at cheap prices or closures which would involve substantial write-downs. 98 However, whilst these matters were apparent to Messrs O'Halloran, Byrd and Geminder, at that stage it did not affect their own previously formed opinions and views about the profitability of the divestment sale. SSB's updated advice 99 On 20 September 2000, SSB gave Visy an updated view of the values of the divestment businesses (then listed as Flexible Packaging, Industrial Packaging, Textiles, Technology and "Overseas PET/PNG"). SSB advised that the total divestment value was then in the range of $416.4 million to $515.5 million. Mr O'Halloran stated that he observed that these expected values were higher than the 10 August 2000 presentation. Moreover, separate property sales proceeds of $90 million were projected by SSB in addition to the divestment proceeds. 100 To Mr Geminder, the projected divestment value of $416.4 million (at the lower end of the scale) was reasonable. Visy had already rejected an offer of $400 million for these businesses from CVC Asia Pacific (CVC), which had some impact upon Mr Geminder's view of the divestment value. Finance 101 Visy sought finance for the acquisition of the Southcorp businesses. In August and September 2000, various presentations (both in draft and final form) were prepared to put to Westpac and Citibank. Indicative lending terms offered by each bank were evaluated. 102 It was evident that Visy wanted or needed to reduce their overall level of investment through a program of asset sales. In a memorandum dated 1 September 2000, Mr Rockefeller notified Westpac of expected sales proceeds from divestment. Five key asset classes (debtors, Cartons, Rigid Real Estate, Steel Packaging and Industrial Plastics) were said to be ones that could be disposed of within the first 18 months of the Crayfish acquisition to "significantly reduce [Visy's] $850 million investment". 103 Visy's internal memoranda, presentation to Westpac (dated 27 September 2000) and final terms of lending offered by Westpac also indicate that the sale of the divestment businesses was of importance to the entire scheme. 104 In a discussion paper provided by Westpac on 8 September 2000, Westpac indicated that funding would be provided for the acquisition of all of the Southcorp businesses. The funding structure contemplated that Industrial Packaging, Flexible Packaging, and other businesses (to be defined) would be on-sold so that the proceeds could go toward repaying a $385 million tranche of the loan, due 18 months from the grant of the loan. Westpac also made it a requirement that the business sale proceeds had to equal or exceed the earnings gearing multiple paid for that particular business. This requirement was made more stringent in an updated discussion paper provided to Visy on 14 September 2000, where Westpac stipulated that the sale of each divestment business must achieve a multiple which exceeded the acquisition EBITDA multiple. 105 A cash flow model prepared by SSB dated 8 September 2000 to present to banks estimated low proceeds on the sale of divestment businesses. Mr O'Halloran stated a reason for this was that Visy's general approach was to set its obligations to its lenders on the most favourable terms it could with a view to "under promising and over delivering". I accept that the projections and views given to the lenders were not statements of what Visy expected to receive, but were conservative projections as stated by Mr O'Halloran. 106 In the second presentation to Westpac, dated 27 September 2000, the "Acquisition Rationale" of the proposed transaction is outlined. This refers to the "merged [Visy] entity" having: … a product offering that covers the packaging materials spectrum. The key benefits of the acquisition are increased competitive strength, attainment of critical mass and improved cross-selling opportunities. 107 The presentation then details the "strategic fit" of the Rigid Packaging businesses with Visy's existing business. 108 The presentation also gives a "Divestment plan and valuation overview". The rationale for divestment is stated to be to "retire acquisition debt", as well as to "retain core product focus", "consolidate current market position", and "retain competitive advantage in key markets". 109 I interpolate here to comment that, undoubtedly, obtaining the synergistic businesses as a capital investment was the driving aim or rationale of the scheme. If the synergistic businesses could have been purchased without any other businesses at a good price, this would have undoubtedly occurred. However, this did not occur. The scheme that was implemented was basically as previously described, involving the purchase of businesses that would be divested. In determining purpose or intention, the Court must focus on the scheme that was in fact implemented. Relevantly, there was a consistent desire to implement a divestment plan, involving the purpose of making profit from the divestment. The proceeds of any divestment may have been intended to retire debt, but this is not inconsistent with the intention to make profit. 110 Contrary to the submission of the Commissioner, nothing in the documentation involving Westpac detracts from that conclusion. Consistent with all the previous Visy planning, Westpac was being told that there was a carefully planned divestment strategy, as part of the acquisition of the businesses for synergistic fit. Westpac was further being told that the divestment proceeds (it being anticipated that a profit would be made from the divestment sales) were to be used to repay debt. 111 Returning again to the chronology of events, the final terms of borrowing were offered by Westpac on 24 November 2000. These terms required the aggregate sale proceeds for the divestment businesses (being the Flexible Packaging, Industrial Packaging, Textiles and Technology businesses) and related property assets to exceed $425 million. Westpac designated values for each asset within that aggregate group. Shortfalls on one asset were required to be made up by designated minimum amounts for other assets being exceeded. Mr Geminder counter-signed the letter of offer on behalf of VIA on 27 November 2000. The borrower of the funds at that point was to be a "special purpose vehicle to be incorporated ('SPV')". There was also to be "interlocking group guarantees from all SPV subsidiaries". July – September 2000 Southcorp businesses' results 112 On 10 November 2000 the results for the first quarter (July to September) of the year of income ending 30 June 2001 were provided to Visy for the Southcorp businesses. Mr Rockefeller analysed the results in a memorandum dated 15 November 2000, and noted that the "EBIT-variance to budget" of a number of divestment businesses was down. According to Mr O'Halloran, in relation to the first-quarter EBIT figures: [t]he results disclosed a minor variance (less than $1 million) to [last year] but this was not a real concern, a swing of that magnitude can be expected. Visy did not alter its expectations of value of the divestment assets and was not advised by SSB that it should. 113 Mr O'Halloran did agree in cross-examination that the variance warranted a re-examination of financial data. However, Mr O'Halloran said that on further inspection of the figures in the data room, the financial performance indicators following these most recent results were better than the indicators that led to the decision to purchase in September 2000. In answer to a number of questions from Senior Counsel for the Commissioner, Mr O'Halloran responded in the following manner: What – what we did was we went into the data room and had a look at the data. What – what Mr Rockefeller had sent me was this, together with a summary of the results, and we went into the data room and checked the reforecast numbers, which showed the reforecast numbers to be ahead of last year. I see. So the figures – the decline in the businesses was something that you noticed sufficiently to go back into the data room and have a look at. Is that what you're saying? Yes. Yes. Yes. But the decline that the figures showed didn't, in your view, warrant referral to Salomon Smith Barney for re-evaluation of those businesses? No. When we looked at the reforecast numbers we were satisfied that they were going to make better than last year in the sell assets, and – and certainly in the rigids as well. Well, rigids were going up, weren't they? Well, things go up and things go down. Right? There was that – that quarter, you might remember, was when the GST was implemented. Was also a run up to the Olympics, which caused a fair bit of disruption. Mr O'Halloran, the changes in these numbers didn't, in your view, warrant postponing the execution of the procurement agreement to ensure that there wasn't any further decline in the earnings of the businesses to be divested? No. Well, if those earnings continued to decline, then those businesses might prove to be unprofitable for Visy, mightn't they – those divestment businesses? It's possible. But you didn't think that warranted pause before signing up to the procurement agreement? It didn't warrant pause. We went into the data room. We picked up all the data in relation to the disposable assets, looked at them, and saw that the forecast numbers were greater than last year, appreciably. 114 No review of the values and expected profitability of the businesses proposed for divestment was undertaken at this stage by SSB. SSB eventually revised its valuations on or about 8 December 2000. By December, however, VIA and VPH had entered into an agreement which set in motion the sale transactions, to which I will shortly come. Incorporation of VPH 115 To this point, references to "Visy" have largely concerned VIA. On 20 November 2000, VPH was incorporated as a fully-owned subsidiary of VIA. VIA subscribed $150 million in share capital in VPH. 116 VPH was incorporated and capitalised for the purpose of entering into a procurement agreement with Southcorp, such that VPH would procure certain Visy entities with the ultimate purpose of purchasing the Southcorp businesses (Procurement Agreement). Details of the Procurement Agreement, and the process to be followed thereunder, are as follows. Procurement Agreement 117 On 20 November 2000, Visy and Southcorp concluded a formal Procurement Agreement. On the following day, a letter of offer for finance from Westpac identified the Rigid Packaging businesses as the retention businesses, and Industrial and Flexible Packaging, and Textiles and Technology, as the divestment businesses. 118 The terms of the Procurement Agreement were executed between VIA, VPH and Southcorp. The terms of the Procurement Agreement were to the following effect: (a) VPH would procure that 'purchasers' (as defined by the Agreement, but in fact subsidiaries of VPH and VIA) would enter into agreements to purchase (and would in fact purchase) the Southcorp businesses; (b) Southcorp would procure that the owners of those businesses would sell them to the purchasers; (c) the purchase price would be $822,661,970 subject to prescribed adjustments; and (d) VIA would guarantee the performance of VPH and the purchasers' obligations. 119 Mr Geminder recalls being content with Visy's purchase: To this point in time Visy had not been given any information that made me change my thoughts on values. SSB had not revised its opinions in any advice to Visy and they remained optimistic about achieving values estimated in their 10 August presentation. 120 The sale of the Southcorp businesses was announced on the Australian Stock Exchange the following day. 121 Following the execution of the Procurement Agreement, SSB and Visy continued to negotiate for, and work toward, the sale of the divestment businesses. Second CVC offer and further interest 122 On 29 November 2000, Visy received another offer from CVC for the divestment businesses. The headline price was $410 million. According to Mr Byrd, this number "reflected about a 5 times EBITDA multiple and was similar to the amount we had agreed to pay for the assets". 123 Visy countered this, offering the businesses for $450 million the following day. $400 million was proposed as the upfront cash price ($275 million for Industrial Packaging (including "steel drums, plastics, technical systems, textiles, PNG and PT Rheem"), and options to purchase Cartons and Films & Laminations for $130 million and $45 million respectively). According to Mr O'Halloran, the offer also excluded the NuWave, Tubes, Malaysian Textiles and Inpet businesses. CVC did not accept this offer. However, Mr O'Halloran said that such a significant offer so soon after signing the Procurement Agreement gave him confidence that they would make a significant profit when the divestment businesses were broken up and sold. Mr Byrd expressed similar optimism. Whether or not this offer would have produced any profit in fact, I do not decide. However, I do accept the evidence of Mr O'Halloran and Mr Byrd as to their positive reaction to the second CVC offer. 124 Pacific Equity Partners also sent an expression of interest to Visy Group on 5 December 2000. Nothing ultimately came of this. 125 In SSB's revised valuation, dated 8 December 2000, the valuations of the Southcorp businesses earmarked for divestment had reduced, with a low-end estimate of $362 million (based on the first quarter data) and a high-end estimate of $514 million (based on data for the financial year ending 30 June 2000). The variation in estimates depended on assumptions made as to the ongoing profitability of the divestment businesses. SSB explicitly noted that the first quarter results had been positive for the retention (Rigid Packaging) business, but the divestment businesses experienced a "difficult quarter", particularly the Cartons business. SSB's presentation to Visy made the following observation: • EBITDA for businesses being divested decreased $3.1MM. The most significant decline was experienced in Cartons, where EBITDA was down $1.8MM from the first quarter last year. • If a potential buyer annualises the first quarter change in EBITDA for Cartons for the rest of 2001, it results in a decrease of $7.2MM in EBITDA which when applying a minimum multiple of 5.0x results in a $36.0MM change in expected value. 126 Again, however, Mr O'Halloran said that the revised summary valuation ranges "did not concern [Visy]". Mr O'Halloran was still of the view that the divestment businesses would be sold at a profit. Incorporation of subsidiaries 127 On 8 December 2000 VIPH (then called 'Visy Packaging Operations Pty Ltd') was incorporated as a wholly-owned subsidiary of VPH. 128 In turn, on the same date, a number of companies were incorporated as subsidiaries of VIPH. They were: VP (Visy Packaging Pty Ltd), VC (Visy Cartons Pty Ltd), VFL (Visy Films & Laminates Pty Ltd), Visy Industrial Plastics Pty Ltd, Visy Tubes Pty Ltd, Visy Steel Products Pty Ltd, Visy Tech Systems Pty Ltd and Visy Textiles Pty Ltd. 129 On 11 December 2000, VPH acquired all of the shares in Garnerdale Pty Ltd, a shelf company of ABL Company Services (Vic) Pty Ltd. On 13 December 2000, Garnerdale Pty Ltd changed its name to Visypak Operations Pty Ltd (previously defined herein as 'VPO'). 130 On 18 December 2000 a number of subsidiaries were incorporated in New Zealand as subsidiaries of VIPH: VFLH (Visy F&L Holdings (NZ) Ltd), Visy Films and Laminates (NZ) Ltd, Visy Industrial Holdings (NZ) Pty Ltd, Visy Industrial Products (NZ) Ltd, Visy Tech Systems (NZ) Ltd and Visy Tech Holdings (NZ) Ltd. 131 The following companies were also incorporated in New Zealand on this date as subsidiaries of VPO: Visy Rigid Holdings (NZ) Ltd and Visy Rigid Packaging (NZ) Pty Ltd. 132 These companies were established for the purpose of, and in connection with, acquiring the Southcorp businesses. Mr O'Halloran stated that he was responsible for setting up the subsidiary companies for the purpose of completing the Procurement Agreement. The Visy Group structure set-up was designed to give flexibility to prospective purchasers. Mr O'Halloran stated: I wanted to give prospective buyers the option to purchase assets or companies that owned assets, and in the latter case I wanted to give prospective buyers a choice between a company in the jurisdiction of the underlying assets or a holding company in another jurisdiction. As the assets were being marketed to a variety of global firms it was important to provide as many acquisition options as possible. Adverse performance for October and November 2000 133 On or about 12 December 2000, Visy received the October and November results for the Southcorp businesses. Unlike earlier information coming to Visy, these results did cause some concern within Visy. Mr O'Halloran stated in his first affidavit that: [t]hese showed a significant deterioration in earnings which could impact on asset values and caused Visy quite a deal of concern. Visy immediately informed Westpac. 134 Mr McMurdo of SSB made similar comments, saying that the results were "troubling as they showed a significant decline in earnings in the divestiture assets". 135 SSB's analysis of these results specifically noted that "[t]he Industrial Packaging division has fallen off considerably in October and November missing last year's EBIT levels by $1.9 million and $3.7 million for each month". 136 Visy was subsequently informed by Westpac on 14 December 2000 that it needed to reassess its position as a financier to the acquisition. 137 Mr Byrd recorded in an email that he sent to himself on 15 December 2000 that SSB provided revised valuations for each of the divestment businesses of $80 million to $100 million for Cartons, $40 million for Films & Laminations and $125 million to $150 million for Industrial Packaging. 138 At that stage, the proposed completion date of the Procurement Agreement was 31 December 2000. Mr Rockefeller, as Chief Financial Officer of Visy Holdings Pty Ltd, sent Westpac a letter on 15 December 2000 which urgently requested a review of the finance arrangements, given the imminency of the proposed completion date. Attached to that letter was a report prepared by SSB dated 15 December 2000 with actual financial performance figures from 1 July 2000 and projections for December 2000. Mr Rockefeller's letter to Westpac stated: Taking into account current trading performance and trends in the businesses to be divested in the business plan, following discussions with our advisers, the expected sale proceeds have been revised. Preliminary analysis, based on the deteriorating performance, indicates the expected proceeds range is in the order of $150 million less than our previous estimates. Accordingly, we are proceeding on the basis that sale proceeds will now range between $220 and $288 million. 139 Mr Byrd said that "at this point it was evident there was a clear deterioration in the business and Visy would not be able to achieve the values we had hoped on the assets sales". 140 The Procurement Agreement contemplated that if, in the reasonable opinion of Westpac, there was a material adverse effect on the relevant Southcorp businesses, assets, operations, material contracts or conditions, financial or otherwise, then Visy could terminate the Procurement Agreement. Mr O'Halloran had discussions with Mr Robert Nicholls, Senior Relationship Manager at Westpac, as to whether Westpac would find that there had been a "material adverse effect". Mr O'Halloran said that he recalled Mr Nicholls indicating that this was unlikely. 141 However, on 19 December 2000, Mr Nicholls and a colleague wrote to Mr Rockefeller informing him that Westpac could not provide finance on the terms previously offered. Mr O'Halloran remarked that: [t]his left Visy in a difficult position as we were without funding for completion of the acquisition and without an ability to terminate the agreement, as Westpac had informed me that it did not propose to call a [material adverse event]. 142 A number of meetings between Visy and Southcorp executives ensued in December. VPH also sent correspondence to Southcorp, asserting that Southcorp had breached (or potentially breached) a warranty in the Procurement Agreement that no material information had been withheld from VPH. Southcorp denied any such breach. 143 The outcome of the meetings between the Visy and Southcorp executives was that Southcorp agreed to provide $150 million in vendor finance for two years to VIPH, on VIPH's undertaking that it procure equity capital of $30 million, which it would use to subscribe for equity in the capital of its special purpose subsidiaries (who were also guarantors under the terms of the vendor financing provided by Southcorp). 144 In late January 2001 Westpac approved the new funding arrangements, the final terms being to loan VPH $433 million, on the condition that VIA contributed a minimum of $150 million in equity to VPH. The $433 million was to purchase the "Target Assets", now identified as Rigid Packaging, Flexible Packaging and certain other assets (including property assets) and overseas PET assets. For the purposes of the loan, Westpac required minimum sale proceeds for Cartons, Films & Laminations and property assets to total $215 million. Not all divestment businesses were, however, the subject of this revised loan. 145 On 31 January 2001 a Supplemental Deed was executed by Southcorp, VPH, VIA and Pratt Holdings Pty Ltd, to amend the Procurement Agreement and make way for the completion of the transactions and vendor finance. 146 The Supplemental Deed also contemplated that until the $150 million loaned by Southcorp to VIPH was repaid in full, the relevant divestment businesses and assets (listed in cl 2.5) could not be sold under the "commercial value" as defined by the agreement. These values were significantly lower than the purchase price paid for these businesses and assets. Arrangements to fund purchasers 147 During December 2000 and January 2001, the following share transactions and debt funding took place to effect Visy's acquisition of the Southcorp businesses. 148 VIPH transferred to VPO: (a) its share in VP for $1 on 11 December 2000; (b) its share in VFL for $1 on or around 19 January 2001; (c) its share in VC for $1 on or around 19 January 2001; and (d) its shares in VFLH for $1 on or around 31 January 2001. 149 On or around 31 January 2001, the directors of VPO resolved: (a) to accept a loan of $435 million and further equity of $50 million from VPH to invest in the purchase of shares, the subscription for shares and the making of loans to subsidiaries, to enable the completion of the acquisition of the Southcorp packaging businesses; (b) to subscribe for equity of $40 million in VC; (c) to subscribe for equity of $41 million in VFL; (d) to subscribe for equity of $20.4 million in VFLH; (e) that, as a result of delay in the equity subscriptions, funds received would be treated and recorded in the company's books as unsecured short-term non-interest bearing advances in the interim period; (f) that it would lend the sum of $264,250,000 to VP, the sum of $65 million to VC and the sum of $20.8 million to Visy Rigid Holdings (NZ) Ltd; and (g) to acquire the shares in Southcorp Packaging Malaysia Sdn Bhd, Southcorp Singapore Investments Pte Ltd and VFLH. 150 On or about 31 January 2001, VIPH approved the issue of 30 million $1 preference shares to VIA and 100 million $1 ordinary shares to VPH. The price paid for the ordinary shares by VPH was initially stated to be $1 per share, but was subsequently reduced to $0.86 per share after the shares were issued on 27 June 2001. 151 On or around 31 January 2001, the directors of VIA resolved to subscribe for equity of $30 million in VIPH and $150 million in VPH. 152 On or around 31 January 2001, the directors of VPH resolved: (a) to subscribe for equity of $100 million in VIPH (although only $86 million was subsequently issued for the reasons outlined above); (b) to subscribe for equity of $50 million in VPO; (c) owing to the requirements of financial institutions, to treat the subscriptions for equity as unsecured short-term non-interest bearing advances until the subscriptions could be completed; and (d) to lend $435 million to VPO to enable VPO to complete the Southcorp acquisition. 153 On 31 January 2001, by the terms of a Loan Agreement entered into by VIPH, a number of other Visy entities and Southcorp, VIPH drew down $135,960,161 of the $150 million credit facility provided by Southcorp Finance Ltd, which had been given on the condition that VPH subscribe not less than $30 million in cash for ordinary shares in the capital of VIPH. Also at or around this time, as previously stated, VPH borrowed $433 million from Westpac on the condition that VIA contribute a minimum of $150 million in equity to VPH, and that minimum sale proceeds be realised for Cartons, Films & Laminations and property assets. 154 In his first affidavit, Mr O'Halloran set out a table, showing the companies which were formed or acquired as shelf companies, their respective capital and debt funding, and shareholders. This table shows the equity and debt funding that was ultimately provided to each entity, not that which the directors of the respective entities resolved to provide or receive. Also of note is that Mr O'Halloran listed VPH as having a $520 million credit facility from Westpac. In the final terms agreed upon, however, this was $433 million. The table has been amended to reflect this fact. 155 Mr O'Halloran's table is substantially reproduced here: Name of Visy company Shareholders Share capital provided Debt funding provided Lender Visy Packaging Holdings Pty Ltd (VPH) Visy Industries Australia Pty Ltd (VIA) $150,000,000 $520,000,000 credit facility Westpac [final terms: $433,000,000] Drawn down: $390,000,000 Visypak Operations Pty Ltd (VPO) Visy Packaging Holdings Pty Ltd (VPH) $50,000,000 $429,142,071.87 VPH $435 million Visy Industrial Packaging Holdings Pty Ltd (VIPH) Visy Packaging Holdings Pty Ltd (VPH) $86,000,000 $150,000,000 credit facility Southcorp Finance Limited Drawn down: $135,960,161 Visy Industries Australia Pty Ltd (VIA) $30,000,000 Visy Industrial Plastics Pty Ltd (VIP) Visy Industrial Packaging Holdings Pty Ltd (VIPH) $20,000,000 $79,827,165 VIPH Visy Steel Products Pty Ltd (VSP) Visy Industrial Packaging Holdings Pty Ltd (VIPH) $214,000 $61,312,198 VIPH Visy Tubes Pty Ltd (VT) Visy Industrial Packaging Holdings Pty Ltd (VIPH) $10,000,000 N/A Visy Textiles Pty Ltd (VTX) Visy Industrial Packaging Holdings Pty Ltd (VIPH) $24,730,000 N/A Visy Industrial Holdings Pty Ltd (NZ) (VIH(NZ)) Visy Industrial Packaging Holdings Pty Ltd (VIPH) $55,774,096 per accounts (NZD) N/A $44,548,000 per VIPH Journals (AUD) Visy Tech Systems Pty Ltd (VTS) Visy Industrial Packaging Holdings Pty Ltd (VIPH) $7,574,000 N/A Visy Tech Holdings (NZ) Ltd (VTH(NZ)) Visy Industrial Packaging Holdings Pty Ltd (VIPH) $3,037,352 per accounts (NZD) N/A $2,426,000 per VIPH Journals (AUD) Visy Films and Laminates Pty Ltd (VFL) Visypak Operations Pty Ltd (VPO) $41,000,000 N/A Visy F&L Holdings (NZ) Ltd (VFLH) Visypak Operations Pty Ltd (VPO) $20,400,000 N/A Visy Cartons Pty Ltd Visypak Operations Pty Ltd (VPO) $40,000,000 $62,213,576 VPO Visy Packaging Pty Ltd Visypak Operations Pty Ltd (VPO) $2 $289,332,297 VPO Visy Rigid Holdings (NZ) Ltd Visypak Operations Pty Ltd (VPO) $0 $21,613,273 VPO (VRHNZ) Completion and settlement 156 On 31 January 2001, VPH and Southcorp completed the sale and purchase of the Southcorp packaging businesses, pursuant to the Procurement Agreement. The subsidiaries of VIPH and VPO that were incorporated in December 2000 (as described above) entered into a number of separate agreements with Southcorp entities for the sale and purchase of the Southcorp packaging businesses. 157 The broad categories of Southcorp businesses to which I have referred were purchased by the following Visy purchasers: (a) the Rigid Packaging purchasers comprised: (i) VP; and (ii) Visy Rigid Holdings (NZ) Ltd, which, in turn, owned Visy Rigid Packaging (NZ) Pty Ltd; (b) the Flexible Packaging purchasers comprised: (i) VC; (ii) VFL; and (iii) VFLH, which, in turn, owned Visy Films and Laminates (NZ) Ltd; (c) the Industrial Packaging purchasers comprised: (i) Visy Industrial Plastics Pty Ltd; (ii) Visy Steel Products Pty Ltd; (iii) Visy Tubes Pty Ltd; and (iv) Visy Industrial Holdings (NZ) Pty Ltd, which, in turn, owned Visy Industrial Products (NZ) Ltd; (d) the Textiles purchaser was Visy Textiles Pty Ltd; and (e) the Technology purchasers comprised: (i) Visy Tech Systems Pty Ltd; and (ii) Visy Tech Holdings (NZ) Ltd, which, in turn, owned Visy Tech Systems (NZ) Ltd. 158 The Industrial Packaging, Textiles and Technology purchasers were in turn owned by VIPH Similarly, the Rigid Packaging and Flexible Packaging purchasers were in turn owned by VPO. 159 To return to the losses in issue (which comprise the claimed deductions), it is relevant that on 31 January 2001, the following entities acquired the following shares: (a) VPH acquired VIPH shares for $86 million; (b) VIA acquired VIPH shares for $30 million; and (c) VPO acquired the VFL shares for $41 million, and the VFLH shares for $20.4 million. 160 It was agreed that PET Vietnam would be sold pursuant to a share sale agreement. However, the purchase was not completed. 161 Some of the Southcorp entities which were included in the Procurement Agreement were not sold on 31 January 2001. They were the PNG Meat Canning, PET Malaysia, Steel Drums Indonesia and Industrial Textiles Malaysia businesses. The price paid on completion on 31 January was reduced accordingly. 162 To complete the settlement, two further agreements dated 23 May 2002 were entered into in relation to the PNG Meat Canning and the PET Malaysia businesses. Unlike most of the earlier 31 January 2001 agreements, these were share sale agreements. The remaining two businesses – Steel Drums Indonesia and Industrial Textiles Malaysia – were not sold. The total purchase price was reduced accordingly. 163 Based on the figures then available, I accept that by 31 January 2001 there was little or no prospect of a profit being made on the proposed sales of the divestment businesses. Moreover, there was little or no prospect of any profit being realised based upon SSB's revised valuation given on 15 December 2000 after the October and November 2000 results for the Southcorp businesses became available. 164 In this regard, the Commissioner's submissions included tables which compared the prospective purchase price of the businesses, the completion price, and SSB's valuation given on 15 December 2000, which I accept to be accurate. 165 For the divestment businesses acquired by VPO, the following table was provided: Asset Prospective Purchase Price Completion Purchase Price (pre adjustment) Acquiring entity Subscription for equity and debt funding Value advised by SSB on 15 December 2000 Cartons $111,052,000 $111,341,373 VC $40 million in equity and $62,213,576 debt $80 million to $100 million Films and laminates $63,246,000 $45,511,497 VFL $40 million $40 million in total $20,434,401 VFLH $20,400,000 166 For the divestment businesses acquired by VIPH, which was funded by $86 million in equity contributed by VPH, $30 million in equity contributed by VIA and a $150 million credit facility, the following table was provided: Asset Prospective Purchase Price Completion Purchase Price (pre adjustment) Value advised by SSB on 15 December 2000 Steel $108,609,000 $66,837,099 $125 million to $150 million in total $44,545,318 Plastics $103,595,000 $103,376,770 Tubes $9,805,000 $10,000,571 Textiles $29,459,000 $24,729,249 Technology $9,964,000 $7,575,405 $2,426,173 Total $261,432,000 $259,490,585 Divestment 167 Between January 2001 and February 2002, SSB and Visy continued to negotiate for, and work toward, the sale of the divestment businesses. SSB opened a dedicated data room and embarked upon a global marketing and sales strategy program in pursuit of this. 168 SSB received expressions of interest or indicative non-binding offers from numerous potential buyers. In October 2001, SSB gave Visy an overview of all indicative bids in relation to the Industrial Packaging businesses. Mr O'Halloran stated that although they appeared reasonable, they were non-binding, conditional offers, and, according to Mr O'Halloran, eventually "each of the potential bidders walked away from their initial offers in an attempt to wind [Visy] back on price". The VPO loss 169 On 2 November 2001, VPO entered an agreement for the sale of the shares in VFL and VFLH to AEP Industries Inc. The consideration for the sale under the agreement was $21,080,165 (after adjustments $24,332,379). These shares were acquired by VPO for a total of $61 million on 31 January 2001. Having regard to the incidental costs associated with the acquisition and disposal of the VFL and VFLH shares, the loss incurred by VPO on the acquisition of those shares was $37,067,621. 170 There was no further evidence as to why VPO accepted the offer that resulted in the VPO loss. The VIA and VPH loss 171 An SSB presentation dated 21 February 2002 indicated that, in relation to the sale of the Industrial Packaging businesses owned by VIPH, 47 parties were solicited, 11 indicative bids were received and three definitive proposals were received. According to Mr O'Halloran, these offers were either withdrawn or not formalised. 172 One month later, on 21 March 2002, Visy advised SSB by letter that they were terminating the retainer for the sale process for the Industrial Packaging businesses, "in light of the unacceptable responses received from prospective purchasers". In its letter to SSB, Visy expressly stated that it was pursuing different initiatives, including the liquidation of the Textiles division and the "revitalisation of the Industrial Packaging Division, which at some stage in the future, may lead to taking this Division and possibly certain other existing Visy business, to an IPO". Mr O'Halloran, however, maintained in cross-examination that Visy was still pursuing divestment options at this time. 173 In late 2001, Mr O'Halloran said he had discussions with Mr Geminder about Mr Geminder purchasing Visy's recycling business. In early 2002, Mr O'Halloran mentioned to Mr Geminder that Visy was proposing to sell the Industrial Packaging businesses and asked whether he was interested in acquiring them. Mr Geminder said he would consider it. In the cross-examination of Mr O'Halloran, it became clear that the Industrial Packaging businesses were always for sale, but the top offers had "fallen by the wayside". Some offers of about $80 million or $90 million remained. The initial plan was to extract Visy's non-core recycling assets and sell them in a bundle with the Industrial Packaging businesses. Ultimately, however, Visy resolved not to sell these recycling assets as they were too important to Visy's core business. 174 After conducting due diligence, Mr Geminder developed a joint venture with a Westpac subsidiary, Sixty Martin Place (Holdings) Pty Ltd (Sixty Martin Place), and offered to purchase the Industrial Packaging businesses. This he did independently of any association with the Visy Group. Sixty Martin Place and Salvage Pty Ltd (as trustee for the Geminder Family Trust) purchased the VIPH shares from VIA and VPH for $200,000. Of this, $153,846 was payable to VPH, and $46,154 was payable to VIA. According to Mr O'Halloran, the $200,000 consideration paid in fact: … represented Visy receiving $147 million for the assets of that business because that was the level of debt that was in the business for which Geminder's entity and Westpac became responsible. 175 In cross-examination, Mr O'Halloran said that this was "effectively the best offer [Visy] had at the time". Nonetheless, as a consequence of the sale of the VIPH shares, and having regard to the incidental costs associated with the acquisition and disposal of those shares, VPH incurred a loss of $86,125,225, and VIA incurred a loss of $29,953,845. These losses were affected by Subdiv 170-D of the 1997 Act, which provides that in certain circumstances, there will be a deferral of a deduction where CGT assets are disposed of to another member of a linked group (and certain other criteria are met). Accordingly, 20% of the deductions available were deferred. 176 On 27 June 2003, VIPH converted the preference share capital on issue to ordinary share capital. On 30 June 2003, VIPH effected a capital reorganisation, cancelling 1,202,499,999 fully paid shares and issuing 100 fully paid shares. 177 Following these 27 and 30 June 2003 transactions, the Subdiv 170-D deferral was lifted and the remaining 20% deduction entitlement matured. 178 On 20 June 2004, VIPH changed its name to Geminder Holdings Pty Ltd. 179 I add that VIPH did not hold the same underlying assets when VIA and VPH disposed of their shares in 2002 as it held at the time VIA and VPH subscribed for shares (31 January 2001). Although VIPH acquired the Technology business through its subsidiaries, Visy Tech Systems Pty Ltd, Visy Tech Holdings (NZ) Ltd and Visy Tech Systems (NZ) Ltd, Mr O'Halloran stated that Visy retained the Technology business. Consequently, VIPH must have transferred the Technology business to another Visy Group entity before VIA and VPH disposed of their shares in VIPH. There is no evidence as to the terms of this disposal, including whether or not it was done at market value. 180 It is appropriate to observe at this point that no party has suggested that difficulties of calculation of loss impact on the principles to be applied in these proceedings, as the losses have been able to be calculated. The proceedings have been conducted on the basis that if the taxpayers are otherwise successful, the amounts claimed to have been lost are effectively not in issue, subject to one incidental matter that arose in the course of the proceedings regarding the Films & Laminations business (which is referred to at the conclusion of these reasons for judgment). In some cases, there may be difficulties in determining what profit or loss has been made, which may be insuperable: see eg Chapman (NT) v Federal Commissioner of Taxation (1968) 117 CLR 167 at 171 per Menzies J. This is not one of those cases. Tax advice 181 Mr O'Halloran's first affidavit details the tax advice received from Mr Michael Wachtel of Arthur Andersen, and later Ernst and Young. Mr O'Halloran said that Mr Wachtel was regularly consulted throughout Visy's bidding for the Southcorp businesses and gave advice in meetings with Visy executives. Mr O'Halloran recalled that Mr Wachtel's advice during the bidding process was that anticipated profits from the transactions would be characterised as income. 182 After losses were in fact incurred by VIA, VPH and VPO, Mr Wachtel gave draft and final advice. The final advice, given on 10 November 2005, states: Based on the documents reviewed and the tax analysis undertaken, it is our view that the following are held on revenue account: - The non-core assets; - The shares in the special purpose companies; and - The shares in VIPH. In determining whether the above are held on revenue account, the following factors were considered: - the purpose of each company in acquiring the assets or shares; - the business carried on by the relevant company; - the way in which the acquisition was funded; and - the actual actions taken to support the purpose. VIA 2002 year tax return 183 On 20 June 2003, VIA lodged its income tax return for the 2002 year. On 18 September 2008, the Commissioner issued a purported original assessment to VIA for the 2002 year. CONSIDERATION 184 For the following reasons, I conclude that the taxpayers are successful in these proceedings. The 'core' losses were made by VIA, VPH and VPO as contended for by the taxpayers, and the ensuing deductions and loss transfers were valid. 185 The principle of law which is at the centre of this case is clear: if the intention or purpose of the relevant entity in entering into a transaction or upon acquiring an asset was to make a profit or gain, that profit or gain will be income, even if the transaction was extraordinary by reference to the ordinary course of that entity's business: see Westfield Ltd v Commissioner of Taxation (1991) 28 FCR 333; Commissioner of Taxation v Cooling (1990) 22 FCR 42; Federal Commissioner of Taxation v Myer Emporium Ltd (1987) 163 CLR 199; Federal Commissioner of Taxation v Whitfords Beach Pty Ltd (1982) 150 CLR 355; and Visy Industries USA Pty Ltd [2012] FCAFC 106. Similarly, if the intention or purpose was to make a profit or gain but a loss was ultimately in fact sustained, then a deduction in the amount of that loss would be permitted. 186 It is not necessary that the sole or dominant purpose of entering into the relevant transaction is to make a gain or profit. It is enough if a "not insignificant purpose" of the relevant transaction was to obtain a profit or gain: see eg Cooling (1990) 22 FCR 42 at 56-57. 187 Accordingly, in these proceedings, if the intention or purpose of acquiring the relevant shares (in the context in which that occurred), was to make a profit or gain, then the losses ultimately incurred are deductible. If that intention or purpose did not exist, then in the circumstances of these proceedings the losses incurred would be of a capital nature for the purpose of s 8-1 of the 1997 Act, and no losses could be deducted as sought by the taxpayers. 188 As previously noted, the Court's principal task is to identify and characterise the relevant transactions, and determine whether each of VIA, VPH and VPO had the requisite purpose or intention for the losses to be deductible. 189 It is to be recalled that this inquiry relates to each of VIA, VPH and VPO, in the context where each is a corporate entity. 190 In determining the nature of the transactions and their purpose, I take into account the documentation tendered in evidence and the evidence of the witnesses called. To a certain extent the inquiries as to the identity and nature of the relevant transactions and purpose are related. 191 The disposal of these proceedings depends in part upon my assessment of the evidence of the witnesses called by the taxpayers. I should say at the outset that I do not consider that, having regard to the weight of the evidence and the course of cross-examination, I should accept the submission of the Commissioner that I should give "little weight" to the statements as to purpose by various witnesses before the Court. Reference was made by the Commissioner to Federal Commissioner of Taxation v SNF (Australia) Pty Ltd (2011) 193 FCR 149 at 176 and Spassked Pty Ltd v Commissioner of Taxation (No 5) (2003) 197 ALR 553; [2003] FCA 84 at [196]-[198], which was affirmed in Spassked Pty Ltd v Commissioner of Taxation (2003) 136 FCR 441, see Hill and Lander JJ at 476. 192 No direct or real attack was made upon the credit of the witnesses called by the taxpayers. There were no contradictions in the evidence of any significance, and the evidence of each witness was objectively supportable by reference to the sequence of events and relevant documentation. Mindful of 'self-serving' statements of purpose (not being contemporaneous evidence of purpose), I nevertheless accept the evidence of each of the witnesses as truthful and compelling. Further, the oral evidence that I have referred to above was not challenged. Whilst I am not compelled to accept the evidence of a witness that is not challenged, I observe nothing in the other evidence referred to by the Commissioner that would lead me to not accept the evidence of the witnesses as called by the taxpayer. 193 The Commissioner's case, not based on a direct attack upon the evidence called by the taxpayers, was based instead on inferences to be drawn from certain documentation and the transactions themselves. I have accepted the evidence of the witnesses, and the documentation relied upon by the Commissioner does not contradict that evidence. It may be that the inferences to be drawn from the documentation referred to by the Commissioner are open, but such inferences are not so compelling as to support the Commissioner's case when read in light of the oral testimony. In any event, even accepting the Commissioner's view or characterisation of the evidence does not lead to a contrary conclusion as to the nature of the losses. 194 I make one other observation on the evidence of the witnesses, and this in no way reflects upon Counsel for the Commissioner who undoubtedly put the case as instructed. However, to some extent in the course of cross-examination, there was put to the witnesses, particularly Mr O'Halloran, imputations only half hinted at by the cross-examiner. These imputations were not followed up in any meaningful way. It brought to mind the conduct described by Alexander Pope in his 1734 poem "Epistle to Dr Arbuthnot" in which he referred to those "willing to wound, and yet afraid to strike". Despite this approach to cross-examination, in final submissions by the Commissioner, references were made to the oral evidence, with an invitation it not be believed. I have not accepted that invitation, and see no basis to do so. 195 In light of the clear view I have come to as to the nature of the events and scheme involved, this approach taken by the Commissioner is of no great importance. This is not a case where the oral evidence is incredible or unconvincing, or contradicted by other credible evidence, which may cause a Court not to accept evidence even if not the subject of cross-examination at all. To the extent there was an attempt to undermine Mr O'Halloran's evidence by inferences relied upon by the Commissioner, I prefer to rely upon the direct evidence of Mr O'Halloran. Significantly, the Commissioner did not attack the oral evidence directed to the intention or purpose of the relevant entities, but instead sought to argue that there was an indifference to profit, and a focus on proceeds from the divestment programme. The Commissioner sought to rely upon a number of factors in support of this conclusion. However, even accepting that there was a focus on proceeds, as I have said already, this does not preclude the simultaneous existence of a purpose of making a profit or gain. 196 Further, even accepting that there was a purpose of acquiring some businesses and a separate purpose of disposing of others, these purposes were not in conflict, and would be equally significant purposes in the actual transactions that went ahead. I do not consider that the proper characterisation is to view the divestment of some of the Southcorp businesses as merely being an integral part of a wider scheme for the acquisition of synergistic business. Undoubtedly the Visy Group did proceed to acquire the whole of the packaging business, and this was done in part to expand and strengthen then the capital structure of the Visy Group. However, equally significantly, the intent and purpose of the scheme was to divest some of the businesses that were not wanted. This was doing more than realising an asset in an enterprising way: see eg Steinberg v Federal Commissioner of Taxation (1975) 134 CLR 640 at 709-10 as per Stephen J. I do not see the acquisition as being on a capital account as it has sought to be characterised by the Commissioner: see eg Sun Newspapers Ltd v Federal Commissioner of Taxation (1938) 61 CLR 337 at 363-364 per Dixon J; Hallstroms Pty Ltd v Commissioner of Taxation (1946) 72 CLR 634 at 648 per Dixon J; Federal Commissioner of Taxation v Citylink Melbourne Limited (2006) 228 CLR 1 at 43 per Crennan J; and Macquarie Finance Ltd v Commissioner of Taxation (2005) 146 FCR 77, 106-107 per French J (as his Honour then was). 197 From a practical and business point of view, the purchase of the businesses that were ultimately divested, whilst facilitating the purchase of all the Southcorp businesses, also enabled the opportunity for profit upon divestment. 198 I say opportunity for profit, because when considering various options, an entity may not know which one will ultimately be to its commercial advantage. A participant in business can only rely upon his or her own judgement, sometimes based upon external advice. It may be, as is the nature of business, the plan of action set in motion does not achieve the desired result. This does not mean, however, that the entity putting in place that plan of action did not have an intention to achieve that desired result. The various witnesses called by the taxpayers in these proceedings were experienced businessmen, and gave evidence as to their opinions and views over the relevant period, and explained the opportunity for profit they sought to take advantage of at the time. 199 In these circumstances, I have proceeded to consider the issues before the Court relying upon the evidence of those who were actively and directly involved in the various events that occurred, based upon what the witnesses have said as to their opinions at the relevant time. It should also be noted that the Commissioner did not suggest to any witness that they did not undertake the tasks, or hold the opinions, they described in their evidence. 200 I then turn to identifying the directing minds for determining the intention and purpose in entering into the relevant transactions of the relevant corporate entities, namely, VIA, VPH and VPO. 201 In Whitfords Beach (1982) 150 CLR 355 at 370, Gibbs CJ set out orthodox principles by which a company's purpose can be established. Gibbs CJ said: … [i]n deciding whether what was done was an operation of business, it is relevant to consider the purpose with which the taxpayer acted, and, since the taxpayer is a company, the purposes of those who control it are its purposes. In Ruhamah Property Co. Ltd. v. Federal Commissioner of Taxation (1928) 41 C.L.R. 148 the majority of the Court regarded as important, if not decisive, the purposes with which the shareholders and directors of the company acted, although Isaacs J., who dissented, thought it erroneous to consider a company merely as machinery for carrying out individual purposes ((1928) 41 C.L.R., at p.p. 160, 162, 166). However, in my opinion Isaacs J. took too rigid a view of the effect of Salomon v. Salomon & Co. [1897] AC 22 if he thought that in determining the purpose with which a company acted it was not permissible to have regard to the intentions of the directors who controlled it. In the present case, the three companies which became the shareholders, or the two which became the managers (it matters not which), represented the directing mind and will of the taxpayer and controlled what it did, and their state of mind was the state of mind of the taxpayer: H. L. Bolton (Engineering) Co. Ltd. v. T. J. Graham & Sons Ltd. [1957] 1 Q.B. 159, at p. 172, cited in Tesco Supermarkets Ltd. v. Nattrass [1972] A.C. 153, at p.p. 171, 187; and see Bernard Elsey Pty. Ltd. v. Federal Commissioner of Taxation (1969) 121 CLR 119, at p. 121. 202 More recently, in GE Capital Finance Australasia Pty Ltd v Commissioner of Taxation [2011] FCA 849, Gordon J held that a senior executive had implied authority, by reason of his office, to relevantly make decisions on behalf of a company: see [63] to [65]. 203 It may well be that in certain circumstances it is the mind of a particular director that is to be treated as the directing mind and will of a company, but this is not necessarily so as a matter of law: see eg Tesco Supermarkets Ltd v Nattrass [1972] AC 153 at 170-171 (per Lord Reid) and at 187 (per Viscount Dilhorne); Smorgon v Australia and New Zealand Banking Group Ltd (1976) 134 CLR 475 at 482-3. 204 The directing minds in the present circumstances comprised a group of senior executives of the Visy Group who relevantly received advice, considered options, analysed data, and made the key decisions relating to the acquisition (and ultimate sale) of businesses from Southcorp, leading up the acquisition of the relevant shares on 31 January 2001. The evidence discloses that the key members of that group comprised Messrs Pratt, Geminder, Byrd and O'Halloran. Other than Mr Pratt, who was deceased by the time of trial, each of these key members gave evidence and was cross-examined. As I have said, I have accepted their evidence. 205 As previously outlined, Mr O'Halloran was the Group Finance Director for the Pratt Group with responsibility for "all of the group's financial matters". He was a member of the "bid team", and was relevantly responsible for putting together the "due diligence team", and for the "data room and due diligence of Southcorp's financial information". He was also responsible for setting up the companies to be used to complete the Procurement Agreement. He was a critical member of the group of senior executives who relevantly made decisions about the transactions entered into to sell the unwanted Southcorp businesses. 206 Mr Geminder was at the time a director of each of VIA, VPH and VPO. The other directors were Mr Pratt, now deceased, and Mrs Pratt. He was asked by Mr Pratt "to be closely involved with the evaluation of the assets and any bid for the assets" and was appointed "the leader of the bid team". For these reasons, Mr Geminder's evidence about his objectives, expectations, purposes and intentions may be attributable to each of VIA, VPH and VPO. 207 Mr Byrd was also a member of the "bid team". He was "heavily involved in the financial due diligence of the transaction" including "interrogating the financial statements and trying to get an idea of what the businesses were worth". He was a "key decision maker in determining the purchase price" together with Messrs Geminder and O'Halloran. 208 I accept that these individuals were the relevant controlling minds of each of the relevant companies for the purposes of developing the common scheme of the Visy Group; establishing and directing the various companies for the purposes of acquisition and sale of particular Southcorp businesses; determining the expectation of profit on the sale of these businesses; and ascertaining the likely value of these businesses. 209 The only other person identified by the Commissioner as a possible controller was Mr Pratt himself. I do not consider the evidence supports the view that he acted "alone". Rather, the evidence supports a finding that members of the bid team performed a variety of roles in the acquisition and subsequent divestment of the Southcorp businesses. As Mr O'Halloran said in cross-examination, "Mr Pratt was part of the team, he knew what was going on, we knew what he was doing". There can be no suggestion that Mr Pratt's expectations and objectives were different to those of Messrs O'Halloran, Geminder and Byrd. I accept, however, that Mr Pratt obviously reached the in principle agreement and agreed the price of $818 million with Southcorp. However, it is unreal to conclude from this, in light of the involvement of Messrs Geminder, O'Halloran and Byrd, that Mr Pratt "acted alone in entering into the in principle agreement". Where Messrs Geminder, O'Halloran and Byrd gave evidence in their affidavits that Mr Pratt subsequently told them he had "done the deal", that must be read in the context of their prior involvement, and that Mr Pratt had agreed the final price of $818 million on the basis that Southcorp did not share any of the risk or upside of the divestments. I consider (to the extent it is relevant) that Mr Pratt shared the same purpose as Messrs Geminder, O'Halloran and Byrd in entering into the in principle agreement. 210 Further, I do not consider there to be any disconformity between a wider "Visy" purpose, as against the purpose of any of VIA, VPH and VPO as individual entities. 211 VIA and VPH were in existence on 20 November 2000; and were parties to the Procurement Agreement concluded on that date. The Procurement Agreement contemplated a mechanism whereby individual contracts for the sale of particular businesses would be used. As has previously been considered in these reasons for judgment, Mr O'Halloran said that he arranged for separate companies to be established to buy each of the businesses "to accommodate the various ways in which purchasers may want to buy the assets we were to sell". 212 VPO existed as a shelf company on 20 November 2000, but was only relevantly acquired in December 2000. This was after the entry into the Procurement Agreement. The guiding minds of VPO were the same as those of the other entities – namely, Messrs Geminder, Byrd and O'Halloran. 213 A party may adopt a profit-making scheme, arrangement or plan which has already commenced (or such a scheme can be entered into on behalf of a party): see eg Steinberg (1975) 134 CLR 640 at 716-717 per Stephen J. Here, the Procurement Agreement was part of the wider scheme to divest businesses, and the guiding minds of Visy remained constant and in control of each relevant corporate entity at all relevant times. VPO became part of the implementation of the arrangements set out in the Procurement Agreement, and in this way could readily have attributed to it the same purpose or intention as the other entities and Visy itself. I say this because of the role of each of Messrs O'Halloran, Geminder and Byrd throughout the whole period up to 31 January 2001. The principal persons involved in the scheme remained constant throughout, much like the scheme itself basically remained constant leading up to the ultimate acquisition on 31 January 2001. 214 From the time of its incorporation, VPO was effectively required to carry out the purpose and intention earlier put in place as evidenced by (at least) the Procurement Agreement. There has been no suggestion that this was not permissible under applicable legislation or general law. Even if the reality was that as of 31 January 2001, no profit could be made by VPO as a separate entity, VPO had purchased the shares with the imputed intention and purpose of making a profit under the scheme it became part of. 215 In respect of VIA and VPH, the Commissioner then argued that those entities abandoned any profit-making scheme before realising their loss on the disposal of their shares. 216 In my view, I do not consider that the intention to divest for a profit was abandoned by VIA or VPH (or for that matter, by VPO), before the relevant sales which led to the 'core' losses. The evidence does not suggest, contrary to the submissions of the Commissioner, that the intention was abandoned when the profit forecasts declined, or when the SSB retainer was terminated, or when there was a disposal of the Industrial Packaging businesses to Mr Geminder and a Westpac subsidiary. 217 The decline in the profit forecasts did not, as far as the relevant entities were concerned, impact on the minds of Messrs O'Halloran, Geminder and Byrd. Their focus remained constantly on profit. They were committed to the scheme being fulfilled. 218 The fact that the SSB retainer was terminated does not indicate abandonment of either the requisite purpose or intention of profit-making, or of the relevant scheme or transactions themselves. The manner in which the divestment transactions were brought to fruition did not involve SSB. SSB was not required for the divestment scheme to be implemented. The SSB retainer was terminated because SSB was not performing in undertaking the task of divestment. 219 Similarly, the sale of certain divestment businesses to a different and independent company (involving Mr Geminder) and to a Westpac subsidiary (as joint venturers) does not indicate abandonment of the intention to sell at a profit. Consideration of other options for sale, including different purchasers, does not demonstrate abandonment of the main elements of the scheme contemplated. 220 In my view, none of the events relied upon by the Commissioner support the contention that supervening events of the type considered by Stephen J in Steinberg (1975) 134 CLR 640 at 714 in fact occurred to demonstrate abandonment. 221 Instead, the evidence (involving that of Messrs O'Halloran, Geminder and Byrd) indicates a continuum of conduct, all directed towards the successful and profitable sale of the businesses to be divested. It may be with the benefit of hindsight that endeavour in respect of some of the businesses was doomed, or it can be concluded there was unlikely to be a profit depending on market activity. But this does not mean that there was no continuation of the scheme put in place, at the very latest in place by 20 November 2000. It is not a matter of looking back now to see whether profits (modest or otherwise) would have been possible. The Court needs to determine whether there was an intention to make a profit or gain at the relevant time, and whether there was any abandonment of that intention by the relevant controlling minds. 222 Of course, the initial focus must be upon VIA, VPH and VPO, and the time VIA, VPH and VPO subscribed for the shares, namely 31 January 2001. I will return to the issue of the relevant time later in these reasons. 223 However, there is another question that needs to be addressed. For the taxpayers to succeed it must also be shown that, looking at each of VIA, VPH and VPO, the required nexus existed between the claimed losses and the transactions by which assessable income was sought to be earned. 224 If one characterises the relevant transactions in this inquiry as simply being the isolated subscription for shares by VIA, VPH and VPO on 31 January 2001, devoid of context, it may be that such nexus does not exist. However, this is to focus on this aspect of the scheme too narrowly, and in my view, in a way that is contrary to the evidence. 225 The facts speak for themselves to demonstrate the context in which the share transactions occurred on 31 January 2001. However, a number of salient features warrant mention. The controlling minds of the various participants remained constant throughout, as I have already mentioned. In the period from the July 2000 meeting in Chicago to 10 August 2000, when there was indecision as to purchasing strategy, the key executives of Visy involved in the acquisition (and the manner in which an acquisition would be structured) were Messrs Geminder, Byrd and O'Halloran. At or shortly after the SSB presentation when the 'buy and divest' strategy was adopted, the key Visy executives involved in decision-making were Messrs Geminder, Byrd and O'Halloran, with Mr Pratt being aware of and in agreement with the buy and divest strategy. The 18 August 2000 offer to Southcorp, by which Visy companies would participate in the proceeds of sale of Southcorp businesses and thereby profit, was formulated with the direct involvement of Messrs Geminder, Byrd and O'Halloran. That offer was rejected. A different transaction was agreed in principle by Mr Pratt on or about 28 August 2000. It ultimately transpired that there was a mismatch in understanding of what that transaction entailed. Southcorp appears to have understood the transaction as a share sale transaction, whilst Visy understood it as an asset sale transaction. That difference in understanding was resolved in a two-part process that involved Messrs Geminder, O'Halloran and Kraehe. Upon an increase in the aggregate purchase price by $10 million, with Southcorp having the primary right to allocate the value of goodwill to the businesses being sold, an asset sale structure was agreed. This process involved Messrs Geminder and O'Halloran on behalf of the Visy companies. 226 The evidence shows that the scheme and profit-making purposes or intentions of these controlling minds were developing to 20 November 2000, and that purpose or intention continued through to the time when the shares in VFL, VFLH and VIPH were purchased (and sold). During July and early August 2000, acquisition strategies were discussed and formulated. They matured following the SSB presentation on 10 August 2000 when Visy was advised that the businesses were readily saleable at values reflected in the EBITDA multiples set out in the SSB presentation. They were manifest in the profit-sharing arrangements detailed in the 18 August 2000 offer to Southcorp, and were the subject of review by Mr O'Halloran when purchase price allocations were received from Southcorp. 227 We then come to 20 November 2000. By reason of the entry into the Procurement Agreement, there arose a legally binding commitment to purchase the Southcorp businesses. The Procurement Agreement set out the process primarily as follows: (1) by cl 4.1 Southcorp agreed to procure the "Associated Vendors" to sell, and Visy agreed to procure the "Purchasers" to buy the "Packaging Business"; (2) the "Packaging Business" included the Films & Laminations business and the Industrial Packaging businesses (Steel Drums, Tubes and Rigid Plastics): cl 1.3; (3) "Purchasers" was relevantly defined to refer to a wholly-owned subsidiary of Visy: cl 1.1; and (4) the parties agreed that the sales and purchases were to be made under separate agreements, each involving a separate Purchaser: cl 1.5. 228 So VPH covenanted to procure that purchasers (as defined) would purchase the Southcorp packaging businesses and that is what happened: companies wholly-owned by Visy Group companies purchased the Southcorp packaging businesses. The corporate ownership structure that was put in place to facilitate this was at the direction of Mr O'Halloran, who wanted to facilitate realisation options allowing potential purchasers the flexibility in the manner in which businesses could be acquired. Allowing special purpose companies to purchase discrete businesses allowed realisation of businesses at a business sale level and at a company level by selling shares in the company that acquired the business. 229 Therefore, on 20 November 2000, the parties had committed to an unconditional contract. From a commercial and legal perspective, there was a commitment to a purchase and a price that was subject to alteration only for movements in working capital and depreciation and that would not otherwise alter, irrespective of the performance of the businesses from that date onwards. 230 The scheme continued to be implemented, but necessarily in accordance with the terms of the Procurement Agreement. Events that occurred after that time bear out the unconditional nature of the commitments made and the continuation of the scheme to realise the divestment businesses. In December 2000 difficulties were encountered. Nevertheless, work continued in marketing the divestment businesses, without immediate success and ultimately without any success in achieving the values that had been expected. Delays occurred, but only due to marketing difficulties and other vicissitudes of the commercial environment. 231 With this context in place I find that the relevant nexus did exist between the losses incurred and the earning of assessable income, and the relevant intention or purpose was to make a profit. 232 Finally, I note that there was some debate concerning the time for ascertaining the relevant purpose or intention. The time for determining the existence of a profit-making purpose is when the relevant transaction or transactions were entered into, which in these proceedings was 31 January 2001. As Gordon J said in Visy Industries USA Pty Ltd v Commissioner of Taxation (2011) 284 ALR 455; [2011] FCA 1065 at [78]: It is well established that a gain from a transaction will be assessable as ordinary income under s 6–5 of the 1997 Act if it was realised in an isolated business operation or commercial transaction in circumstances in which the taxpayer, at the time it engaged in the transaction, had the intention or purpose of making the gain: Westfield Ltd v Federal Commissioner of Taxation (1991) 28 FCR 333; 99 ALR 510 (Westfield); Federal Commissioner of Taxation v Cooling (1990) 22 FCR 42; 94 ALR 121 (Cooling); Federal Commissioner of Taxation v Myer Emporium Ltd (1987) 163 CLR 199; 71 ALR 28 (Myer Emporium) and Federal Commissioner of Taxation v Whitford's Beach Pty Ltd (1982) 150 CLR 355; 39 ALR 521. 233 However, one cannot look at the events on this date out of context. As previously explained, the subscription for shares was but one step in a wider scheme whereby the Visy Group purchased discrete businesses for the purposes of subsequent profitable disposition. The divestment programme was organised much earlier than 31 January 2001. Even though neither VPH nor VPO was originally part of this programme (assuming its genesis in August 2000), each became part of it later. This is apparent from the facts that I have found. 234 I am again mindful of the danger in making references to schemes and plans, but do so only to put the transactions that occurred on 31 January 2001 in context. By way of analogy only, and for the purpose of context, the following judicial observations are relevant. There is no requirement for the scheme to have been delineated in all of its eventual detail for it to be able to be concluded that such a scheme exists. A sufficient scheme will be present even if only a general, plan or expectation or intention has been formed. As Gibbs J (as he then was) said in Steinberg (1975) 134 CLR 640 at 699-700: I am in agreement with the view expressed by Mason J. that "it is not an essential element of a profit-making scheme in s. 26(a) that every step which culminates in the making of a profit should be planned or foreseen before the scheme is put into operation". Schemes may be precise or vague; every detail may be arranged in advance, or the working out of the plan may be left for decision in the light of circumstances as they arise. It is no objection to a plan that it allows room for manoeuvre. When property is bought with the purpose of making a profit in the easiest or most advantageous way that may present itself, and the taxpayer adopts "one of the many alternatives" that his plan leaves open, thereby returning himself a profit, he will rightly be said to be carrying out a profit-making scheme: cf. Premier Automatic Ticket Issuers Ltd. v. Federal Commissioner of Taxation (1933) 50 C.L.R. 268, at p. 300; Buckland v. Commissioner of Taxation (1960) 34 A.L.J.R., at p. 62; [1960] A.L.R., at p.p. 602-603; 12 A.T.D., at p. 169." 235 I observe that in Steinberg, the Court was willing to find a profit-making scheme notwithstanding that the asset acquired and the asset sold differed. I do not consider the fact that the taxpayer there acquired one asset (shares) and sold another (land) after distribution in specie of the assets of the company distinguishes that case from the present as a matter of legal principle. Once the profit-making intention has been found to exist in each of the relevant entities (VIA, VPH and VPO), being the entities which acquired and disposed of shares, then the conclusion I have reached follows. The scheme of the Visy Group may well have been to acquire assets and the scheme may well have been that of the Visy Group. However, this does not mean that each of VIA, VPH and VPO, on the facts as I have found them, is not also to be regarded as having had the same purpose. 236 Each company within the Visy Group (working together) sought to make a profit in the "easiest or most advantageous way" by using newly established companies to buy discrete businesses. This was the common scheme adopted or to be adopted by each participant. 237 Whilst the actual transactions which must be considered involved VIA, VPH and VPO and occurred on 31 January 2001, the true nature of the scheme and purpose are seen from an examination of the entry into the Procurement Agreement on 20 November 2000, whilst still having regard to all the events leading up to that date. The Procurement Agreement did not come out of nowhere. Nor did the transactions that occurred on 31 January 2001. 238 It is necessary to look to the whole factual matrix in which a transaction occurs. This approach was expressed by Hill J in Cooling (1990) 22 FCR 42 at 53 (Lockhart and Gummow JJ agreeing on this issue) as follows: This [the Duke of Westminster doctrine] however does not mean that in determining the legal effect of a contract between parties (and therefore the characterisation of the payment made under it as being income or capital), regard may not be had to the whole factual matrix of which the contract forms part. .. When one looks at the entire context in which the payment was made including the interrelationship between the firm and Bengil (the latter being but the alter ego of the former), his Honour was in my view entitled to find as he did that the payment was an incentive to the firm to cause it to move rather than a payment for services to be rendered by the firm. This being the case, the character of the payment as income is not to be determined by focusing upon the words of the letter of 29 November to the exclusion of all the circumstances surrounding the payment which provide the real context in which the task of characterisation is to be assayed. In my view, his Honour was not in error in considering what his Honour saw as "the reality of the situation", namely that the payment was made so that the firm would move to Comalco House and that it was made independently of the entity which formally took over the lease. 239 Put another way, the Court must consider the whole business context of what has occurred: see eg BP Australia Ltd v Federal Commissioner of Taxation (1965) 112 CLR 386 at 399. Other Issues raised by the COMMISSIONER 240 The Commissioner relied upon a number of cases reminding the Court that it should not ignore the formal steps taken by a taxpayer – see Federal Commissioner of Taxation v Becker (1952) 87 CLR 456; Hobart Bridge Company Limited v Federal Commissioner of Taxation (1951) 82 CLR 372; Summons v Federal Commissioner of Taxation (1986) 80 ALR 95; and Henry Jones (IXL) Limited v Commissioner of Taxation (1991) 31 FCR 64. 241 I have already concluded that in these proceedings, the scheme and purpose, whilst those of the Visy Group, were also the scheme and purpose of each of VIA, VPH and VPO. Each participant had the same purpose, namely to make a profit. The role of each participant was different, but each was part of the scheme in its own right. There is no ignoring of each distinct corporate entity in these proceedings. Each company within the Visy Group is being treated and considered as a separate and independent legal entity: see Federal Commissioner of Taxation v BHP Billiton Limited (2011) 244 CLR 325, at 343-344. Further, in approaching the matter this way, one is applying the principles relied upon by the Commissioner in such cases as Hobart Bridge (1951) 82 CLR 372 and Summons (1986) 80 ALR 95. The Court is not ignoring the independent existence of any of the corporate entities, nor is it treating each as the mere machinery for effecting the purposes of a wider Visy Group purpose. Instead, as I have said, the decisions of the guiding minds in these proceedings can be attributed to each relevant corporate entity. 242 As the Full Court said in Visy Industries USA Pty Ltd [2012] FCAFC 106 at [78]: Just as one has to determine the assessability of a receipt in the hands of a company by reference to its character in its hands and not by reference to its character in the hands of an affiliate (Federal Coke Co Pty Ltd v Federal Commissioner of Taxation (1977) 34 FLR 375 at 388 per Bowen CJ; at 404 per Brennan J), one has to determine the nature and character of an outgoing incurred by a company under both the positive and excluding limbs of s 8-1 by reference to its nature and character as incurred by the company itself, and not by reference to its nature and character as if incurred by an affiliate, or by the fictional group to which it belongs. This is not to exclude the relevance of the company's role in the group because that may throw light on the nature or character of its activities: GRE Insurance Ltd v Federal Commissioner of Taxation (1992) 34 FCR 160 at 166; but beyond that one cannot go. 243 Another one of the Commissioner's submissions focused on the acquisition of business assets and a subsequent sale of shares with the contention that they were different assets, such that any profit or loss made on sale of the shares does not take the character of a profit or loss that may have been made on a sale of the business assets. In making this submission, reliance was placed on the decision in Hobart Bridge (1951) 82 CLR 372. In support of these contentions, the Commissioner focused on the difference between the cost of the shares on the one hand and the cost of the assets on the other. 244 However, a profit-making scheme can have flexibility and options by which a profit is captured. 245 The acquisition of the shares in the asset-acquiring company is stamped with the same character as the acquisition of the asset by that company, where, as here: (a) an asset (to use the terminology invoked by the Commissioner) is acquired by a newly formed special purpose company (which only owns the asset so acquired); (b) it is acquired with the intention or purpose of subsequent realisation at a profit; and (c) the realisation plan entails or provides for realisation by alternative means (including by sale of the shares in the asset-acquiring company or by sale of the assets directly). 246 As a consequence, a sale of either the shares or the asset produces a profit or loss of the same character. 247 I agree with the submission of the taxpayers that the circumstances in Hobart Bridge (1951) 82 CLR 372 were different. There Hobart Bridge pursued a dual aspect business strategy to construct a bridge and exploit its rights to toll revenue, and to enjoy dividend income from a company (in which it was the majority shareholder) engaged in developing residential land. Developing the residential land would create a larger clientele for the bridge and make it more profitable, and the bridge would make the land more attractive and its development more profitable. In this sense the two aspects of Hobart Bridge's business were interconnected. Nevertheless, the Court concluded that the shares in the subsidiary were the means by which Hobart Bridge equipped itself to derive dividend income and their realisation was on capital account. If the realisation of the shares been part of or the fruition of a profit-making undertaking, the result would have been different. 248 The equivalence of the character of the shares and the underlying business assets is not displaced by the differing amounts paid for them. In these proceedings, those differences are explained by the debt funding provided to the purchasing companies. The businesses purchased from Southcorp were funded by a combination of the share capital and debt funding provided to the purchasing companies. A profitable sale of the businesses by a direct sale by a purchasing company, all other things being equal, would produce the same amount of profit available after debt repayment as would a sale of shares in the purchasing company with the debt not repaid at the time of sale. The same follows for a loss-making realisation. The differences in purchase prices, of the shares that were sold on the one hand and the businesses acquired on the other, is simply a reflection of the provision of debt funding. It does not reflect any relevant difference in the character of the business assets and shares acquired, nor the profits or losses that might be made. 249 I now come to the Commissioner's reliance on Mr Samuel's report. 250 Some reliance was placed upon Mr Samuel's report to show that Visy was not getting a discount on the businesses to be divested, and in reality there was no profit to be made in respect of these businesses. Visy was, it was submitted, getting a great bargain on the Rigid Packaging businesses, which it never intended to sell. This was submitted by the Commissioner during oral argument to have two implications: And that's the importance of Mr Samuel's report, because it shows that once the purchase price was allocated in particular, if not before that, Visy wasn't getting a discount on the assets to be divested. It was getting a great bargain on the rigid packaging assets, which it did want, and so that has two implications, your Honour. One is, it points to the global integrated purpose we say there is, in which the acquisition and divestment is subservient to and – well, it's more than that, your Honour, it's a necessary and integral part of acquiring the rigid packaging assets, because Visy is afraid it won't get them without them, and it's necessary and integral to getting the rigid packaging assets as a discount. But the other thing that it points to is doubt about whether there's really any sort of profit-making purpose such as that alleged, because the profit-making purpose has to be, not in relation to the whole, but demonstrable in relation to the assets which it was intended to sell. And when one can't find that purpose in relation to the assets which it is intended to sell ­ ­ ­ … It means you get the assets that you want more cheaply, and then the strategy is you sell off the ones you don't want and pay down your debt. So for that purpose it doesn't matter really whether one is going to make a profit. You just want to make sure you get the cash in the door and you can get it in quickly. And that's what the document I just showed you and pointed to – it's not so much making a profit as making sure you can get the cash in the door and get the good price on the assets that you want. And that's why we say there's one overall integrated purpose in which the divestment assets are nothing more than part of a strategy. There's no profit making purpose. There's one strategy to get assets which the group did want and part of that strategy involved taking on some they didn't and getting rid of them. 251 Undoubtedly, the businesses acquired from Southcorp were not all acquired for the same purpose. Some were acquired for the purpose of retention, giving the Visy Group synergies and an ability to compete with its principal competitor on a broader basis. Others were acquired with the purpose and intention of realisation at a profit. The evidence supports the existence of this purpose and intention. 252 The effect of the scheme was that the businesses which Visy wanted to keep were, together with the other businesses, purchased at a discount from what they might otherwise have been purchased for. The plan was to use the proceeds of sale of the divestment businesses (including the profit thereon) to repay part of the debt owed to Westpac. It does not matter that in the context of this scheme there was no true discount on the businesses to be divested. What matters is the intention or purpose of profit-making that existed at the relevant time. 253 Further, assets can be acquired for dual purposes, one of which is realisation at a profit sufficient to render the profit taxable as income. As indicated in his evidence, Mr O'Halloran directed the structure under which the businesses were acquired so as to facilitate flexible realisation options. The divestment businesses were acquired with the purpose and intention of realisation at a profit, intended to be used to retire debt and make the ongoing holding costs of the businesses to be retained lower. Accordingly, the divestment businesses were either acquired for a single purpose – realisation at a profit – or they were acquired for the dual purposes of capturing profits on their realisation and allowing the businesses to be retained to be acquired at a lower cost. On either footing any profit so captured would have been assessable as income. Accordingly, the loss that ensued is equally deductible. 254 I should say something more about Mr Samuel's report. 255 Mr Samuel did not purport to give an opinion, or at least, the Commissioner seemed not to be putting forward an opinion from Mr Samuel. Mr Samuel's report was a convenient summary of evidence already before the Court. This was accepted by the Commissioner. I ruled that the evidence of Mr Samuel was inadmissible under the Evidence Act 1995 (Cth). This was because the evidence did not explain or articulate how it applied to the facts, nor did it identify the facts with any or sufficient precision: see King v Jetstar Airways Pty Ltd [2011] FCA 1259 at [7] and [8], and Dasreef Pty Limited v Hawchar (2011) 243 CLR 588. However, in the end Mr Samuel's material was put forward and accepted as a submission, which could be relied upon by the parties, to the extent it was founded upon evidence already before the Court. In some respects the matters contained in Mr Samuel's report were responded to by the taxpayers' witness, Mr O'Halloran, who had reviewed Mr Samuel's report prior to the trial. 256 A great deal of criticism was levelled at Mr Samuel's report by the taxpayers. 257 For the reasons given above, based upon my acceptance of the evidence of the taxpayers, I do not think Mr Samuel's report (even if accepted) would preclude the taxpayers from succeeding in these proceedings. 258 Mr Samuel's report does not materially assist the Court in determining the essential issue: namely, whether there existed the required intention or purpose of profit-making. The conclusions sought to be derived from the report represent a hypothetical financial analysis undertaken years after the event by a third party. Whilst such an analysis may cause one to doubt the actual existence of the required intention or purpose, or to disbelieve a witness who asserts to have held such an intention or purpose, it is of little other use. 259 I have relied upon the contemporaneous documents, the nature of the scheme leading to the relevant transactions, and the evidence of those witnesses involved in the events, to make the assessment of the probability of the existence of the intention or purpose contended for by the taxpayers. 260 There was an attempt by the Commissioner to use data and figures, relied upon by Mr Samuel, but which were never used by the taxpayers, to supplant the analysis that was actually undertaken by the various directing minds of the relevant entities. The various analyses and considerations undertaken in 2000 by the controlling minds of the relevant entities were rational and were fundamentally matters of judgement for those people. Moreover, they were never directly attacked by the Commissioner. The relevant inquiry is not whether a taxpayer ought to have entered what was intended to be an income-producing scheme, but what the taxpayer did: see Visy Industries USA Pty Ltd (2011) 284 ALR 455; [2011] FCA 1065 at [92] per Gordon J. Hindsight cannot be used to second-guess commercial judgments made over 10 years ago: see eg Spassked (2003) 136 FCR 441 at [126] per Gyles J and Metal Manufactures Ltd v Federal Commissioner of Taxation (1999) 99 ATC 5229; [1999] FCA 1712 at [247] per Emmett J; Tweddle v Federal Commissioner of Taxation (1942) 180 CLR 1 at [7] per Williams J and endorsed in Federal Commissioner of Taxation v BHP Billiton Finance Ltd (2010) 182 FCR 526 at [18] per Edmonds J, with whom Sundberg and Stone JJ agreed; and Visy Industries USA Pty Ltd (2011) 284 ALR 455; [2011] FCA 1065 at [108]. 261 So even if Mr Samuel demonstrated a mismatch between what was paid for the businesses which were to be divested, and what was paid for the businesses to be kept, that mismatch does not lead to the conclusion that the purpose of the acquisition excluded or did not include a purpose of making a profit or gain. It is not for the Commissioner to now second-guess (through Mr Samuel) the opinions and judgements I have found to have existed and been made by the controlling minds of the Visy Group, and VIA, VPH and VPO. 262 One final matter as to the evidence. The resolutions of various relevant companies referred to the intention to sell the assets of the various businesses and make a profit on them. As the Commissioner pointed out, a resolution was made in respect of the Rigid Packaging businesses, in the same form and on the same day, as in respect of the other businesses. It is to be recalled it was never intended to sell the Rigid Packaging businesses. The Commissioner submitted that accordingly, I should not draw any conclusion from any of these resolutions because they were clearly in standard form, and could not be relied upon. 263 Undoubtedly the resolutions provide evidence of the truth of their contents, subject to evidence to the contrary – see Australian Securities and Investments Commission v Hellicar (2012) 286 ALR 501 at 519-520; [2012] HCA 17, and s 251A(6) of the Corporations Act 2001 (Cth). 264 However, in the circumstances of this case, I do not need to rely on these resolutions to reach the conclusion that there was an intention to sell the businesses other than Rigid Packaging, at a profit. If I had to I would accept the resolutions, other than the resolution concerning the Rigid Packaging businesses, as recording the true position, in light of the other evidence presented. In other words, the prima facie position recorded in the resolution stands, other than in respect of the Rigid Packaging businesses. With the Rigid Packaging businesses, I have evidence that contradicts the position stated in the resolution relating to it, and on that basis do not accept the statements made in that resolution. Other Matters 265 Other issues raised by the parties in their written submissions (including submissions as to penalty) do not need to be considered in light of the conclusions reached on the major issue in contention. 266 As to an issue that arose in the course of the proceedings concerning a matter of calculation (as distinct from any matter of legal principle) concerning the Films & Laminations business, I note that the parties were content to discuss that further and seek to agree upon a final position. If necessary, the Court can make directions to deal with any further consideration of that issue. 267 I will order that the parties confer and thereafter bring minutes to the Court reflecting the outcome of these proceedings (including costs). If the parties cannot agree as to a form of proposed orders, then appropriate directions can be made to determine the dispute between the parties. I certify that the preceding two hundred and sixty-seven (267) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Middleton. Associate: Dated: 2 November 2012