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Australia: “Sufficiently influenced” is not control, but influence (High Court decision)

Australia: “Sufficiently influenced” is not control

The High Court of Australia on 11 March 2020 issued a decision settling the construction of the phrase “sufficiently influenced.”


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The case is: BHP Billiton Limited v. Commissioner of Taxation (Commissioner) [2020] HCA 5 (11 March 2020).


The case concerns members of a corporate group and whether income derived from the sale of commodities by one member (BMAG, an entity in LTD and PLC corporate group) purchased from PLC’s Australian entities would be included in the assessable income of the LTD group. The matter turned upon whether the PLC Australian entities were “associates“ of BMAG for purposes of section 318(2) of the Income Tax Assessment Act 1936 (Cth) (ITAA 1936).

The test in section 318(2) sets out that one company will be an associate of another in a number of circumstances, including when that company is “sufficiently influenced” by the other entity.

The High Court of Australia found that the concept of “sufficient influence” is directed to capturing relationships between entities which extend beyond relationships of effective control by one over the other. There are several important points from the decision, including:

  • The High Court rejected the taxpayer’s contention that based on the text or context of section 318(6)(b), “sufficiently influenced” should be read to require “effective control” by one entity of the other.
  • The term “sufficiently influenced” identifies a species of influence over the company or its directors that falls short of the control contemplated by other clauses in section 318 (majority voting interest) which is reinforced by the fact that influence can be asserted through communication of wishes, whereas control is exercised through commands.
  • “Sufficiently influenced” comprises a range of activities and influence, when a company (or its directors) as a matter of past or present fact, or future expectation, are accustomed, or under a formal or informal obligation, or might reasonably be expected, to act in accordance with the directions, instructions or wishes of the other entity.

Accordingly, each of the following is independently sufficient to attract the conclusion of “sufficient influence”—

  • Whether one entity acts, has acted or might reasonably be expected to act  “in accordance with” the directions, instructions or wishes of another entity requires a specific factual inquiry about how and why a company or its directors are accustomed to, must or might reasonably be expected to act in accordance with directions, instructions or wishes. The phrase does not import or require considerations of causation, as the taxpayer contended.
  • On the other hand, the High Court said that “…mere coincidence that a given act accorded with a relevant direction, instruction or wish of the other entity is not sufficient. Nor is it sufficient if a company is purely acting in its own interests in a way that happens to align with the wishes of another company.”

Based on this construction, the High Court held that LTD and PLC group were sufficiently influenced by each other, and therefore were associates of each other, by reason of the operation of their dual-listed company structure sharing agreement. Other aspects of the dual-listing arrangement, including matching dividend and voting arrangements, provided further reasons to conclude the entities sufficiently influenced each other. It was further noted that BMAG was indirectly owned and operated by LTD and PLC as part of a single unified economic entity and it was in that context that BMAG purchased commodities from PLC’s Australian entities. The High Court, therefore, concluded that LTD and PLC also both “sufficiently influenced” BMAG.

KPMG observation

There are potentially broader implications from the High Court’s judgment beyond the specific arrangement between the entities in corporate group because the term “associate” is found in approximately 160 sections across the Income Tax Assessment Acts 1936 and 1997 including in regard to the timing of capital losses, the debt-equity rules, thin capitalisation and the timing of research and development (R&D) deductions, among others. Given this decision, tax professionals believe the Australian Taxation Office will revise or update current guidance that involves the concept of sufficient influence.

For more information, contact a KPMG tax professional in Australia:

Sarah Dunn | +61 2 9335 8464 |

Annemarie Wilmore | +61 2 9346 5463 |

Daniel Osvath | +61 3 9288 5678 |

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