Introduction
A new tax amendment Act1has been passed which clarifies the application of the s128F2 interest withholding tax (IWT) exemption and will facilitate Australian borrowers' access to overseas loan markets.
What are the changes to the legislation?
For a number of years, there has been significant uncertainty in the Australian syndicated loan market as to the application of section 128F to syndicated loan agreements. Previously, it was unclear whether amounts owed under a syndicated facility were a "debt interest" and so many market participants relied on the old 128F subscription agreement method of documenting syndicated facilities. Now, under the changes, interest payments under a syndicated loan facility will be exempt from IWT if the facility satisfies all the usual requirements (including the "public offer test") and also:
- has at least two lenders
- is for more than $100 million
- is described as a "syndicated loan facility or agreement"
- each lender lends severally, but not jointly, to the borrower.
Good news all round
Aside from clarifying the application of IWT and simplifying the documentation of syndicated loan facilities, the changes should facilitate Australian borrowers' access to overseas loan markets and reduce the overall cost for borrowers of debt finance. (While lenders have the primary liability under the tax legislation for any IWT, the changes to the IWT legislation should also be of particular interest to borrowers as the borrower invariably carried the burden of IWT through a gross-up provision.)
Retrospective effect
The Act affects "debt interests" issued from 7 December 2006 (the day the Tax Laws Amendment (2006 Measures No. 7) Bill 2006, which initially proposed these changes, was introduced into Parliament). There are also transitional provisions for syndicated loan facilities entered into prior to 7 December 2006 which could also impact on drawings after 7 December 2006.
By Seab Rush & Nicholas Sedgwick
Footnotes
1. Tax Laws Amendment (2007 Measures No.3) Act 2007 received royal assent on 21 June 2007
2. Section 128F Income Tax Assessment Act 1936
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Sydney |
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Sean Rush |
t +61 2 9931 4905 |
e srush@nsw.gadens.com.au |
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