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Securitised licence structure for PPPs – ATO’s areas of concern

Securitised licence structure for PPPs – ATO’s concern

Minh Dao discusses areas of concern identified by the ATO regarding the securitised licence structure for PPPs.

Minh Dao

Partner, Deal Advisory Tax

KPMG Australia


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For nearly 15 years, the securitised licence structure has been used for social infrastructure Public Private Partnership (PPP) projects. The structure has been accepted by various State governments, financed by banks and positively ruled upon by the Australian Taxation Office (ATO).

In recent years the structure has been accepted as the standard market practice for social PPP projects. If taxpayers adopt the exact structure outlined Chapter 1 of the ‘Infrastructure & Privatisation Framework’, the ATO has stated that Part IVA would not apply because no aspect of the transaction structure appears to be driven predominantly by tax considerations.

However, in recent PPP projects, the ATO has issued 'Open letters' to bidders warning bidders that they have seen alternative structures which they have “serious concerns” about, and which they would discourage potential investors from considering.

The ATO has identified several areas of concern, including:

  • structures which they consider are designed to ensure all (or most) of the overall profits from the arrangement are derived by the Finance Trust, and are therefore received by non-resident investors as payments subject only to interest withholding tax, and
  • structures involving the use of a Finance Trust with substantial equity funded by the investors, and either:
    • the licence fees that are paid to this Finance Trust under the securitisation arrangement extract all or a substantial part of the profits made by the private sector under the arrangement, or
    • the Government makes payments to the Finance Trust that would otherwise reflect profits that would have been made by the Operating Entity, and
  • structures involving interest bearing loans to Finance Company that are funded by the equity investors.

Given the increase involvement of the ATO in the Foreign Investment Review Board (FIRB) process, bidders should be conscious of the ATO’s position when considering the appropriateness of the transaction structure and be prepared for potential delays when seeking private binding rulings for a transaction which exhibits one of the above ATO areas of concern.

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