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Beware of Australian Stamp Duty on Your M&A Deals
Stamp duty in Australia is an indirect tax levied by the States and Territories. As there are eight States and Territories, there are effectively eight stamp duty laws. The stamp duty base has recently expanded so that it now has the potential to apply to all M&A transactions between multinationals if a target group has a holding company or subsidiary owning land or an interest in land in Australia. Stamp duty is charged at up to 6.75% on the unencumbered market value of the land or interest in land located in Australia. This is a significant impost and Australian stamp duty should therefore be considered early on in the transaction. Taxand Australia analyses the stamp duty changes and what multinationals, whether directly or indirectly owning land in Australia, need to consider when planning an M&A.
Australian stamp duty at rates of up to 6.75% can apply to transactions wholly outside of Australia between companies incorporated or resident anywhere in the world. The key is whether any subsidiary in the multinational corporate group owns land or an interest in land in Australia. The relevant head of stamp duty has, until recently, targeted groups with substantial land holdings. However, a new taxing model is now expanding the stamp duty base.
The transformation is from a "land rich" duty model to a "land holder" duty model. Under both models, if there is an acquisition of shares, duty is charged on the unencumbered market value of land in the relevant Australian State or Territory owned directly or indirectly through any subsidiary of the target company. An acquisition of shares can include a share issue, transfer, buy-back, cancellation or an alteration to the rights attaching to a share.
"Land rich" duty applies to an acquisition of 50% or more of an unlisted company if the company directly or indirectly owns land in Australia and land (consolidated & worldwide) represents 60% or more of total non-excluded property (consolidated & worldwide). Listed companies are not included and the 60% test is key in excluding companies from the duty base that do not have substantial land assets.
The new model is land holder duty. Land holder duty expands the duty base in two key respects. It extends to acquisitions of 90% or more of listed companies (in some cases at a reduced duty rate). There is no 60% test - only a modest dollar threshold of land in the relevant jurisdiction (the highest of which is $AUD2 million). In addition, in some cases landholder duty is also charged on goods. Given the low thresholds, land holder duty can apply to any industry. It can even apply where the only land assets of a company are tenant's fixtures.
Land holder duty presently applies in five out of the eight Australia States and Territories. From 1 July 2012 it will apply in six Australian States and Territories. Of the two remaining jurisdictions, one already has a hybrid model, namely: no land threshold or 60% test but only applies to unlisted companies.
The Australian stamp duty implications for an M&A deal need to be assessed very early in the process. Stamp duty efficiency is critical. The potential for multiple incidences of duty for setting up the acquisition structure and on any post acquisition restructure needs to be properly managed.
Multinationals directly or indirectly owning land in Australia should therefore consider Australian stamp duty early on in their M&A deal. Stamp duty should be considered both in relation to the acquisition of the target and also to any pre-deal restructuring, to ensure that multiple incidences of duty are not triggered. Pre-deal transfers of shares or assets between group companies may qualify for corporate reconstruction relief.
In preparation for assessing the potential stamp duty consequences of an M&A deal, parties should identify any land or interests in land located in Australia by location and estimate their value.
Your Taxand contact for further queries is:
T. 61 2 9210 6155
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