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UK Co has decided that the group will acquire a new business in Australia and has determined that the business will be held by Aus Co. In order to finance the acquisition, Aus Co requires $300 million. 7. UK Co directs UK Parent Co to incorporate a special purpose company in the Netherlands, Dutch Co. 8. UK Parent Co contributes $300 million to acquire all the issued shares in Dutch Co. 9. Dutch Co uses the funds contributed by UK Parent Co to make a loan with interest to Aus Co for a 9.5 year term. 10. UK Co, UK Parent Co and Dutch Co are connected entities of Aus Co as defined in subsection 995-1(1). 11. Aus Co incurs interest to Dutch Co pursuant to the loan agreement between Dutch Co and Aus Co. 12. Dutch Co in turn pays dividends to UK Parent Co. 13. UK Parent Co pays dividends to UK Co out of a pool of dividends received from subsidiaries, including Dutch Co. 14. UK Co pays dividends to its shareholders.

Paragraph 974-80(1)(d) will not be satisfied. Whilst interest payments from Aus Co to Dutch Co (a connected entity of Aus Co) will be a source of funds for Dutch Co which will ultimately be used as part of a pool of funds by UK Parent Co to pay dividends to UK Co which in turn pays dividends to shareholders in UK Co (the only ultimate recipients in relation to this scheme) , it is an insufficient basis for a conclusion that the scheme or series of schemes is designed to operate so that the return to Dutch Co is used indirectly to fund dividends to UK Parent Co the returns to the ultimate recipients. In order for paragraph 974-80(1) to be satisfied there must be a stronger connection between the payments of interest by Aus Co and payment of dividends to shareholders in UK Co which is evident from the way the scheme is structured such that it is reasonable to conclude that the dividends paid to shareholders in UK Co are indirectly a return from Aus Co.

Paragraph 974-80(1)(d) will not be satisfied. Whilst interest payments from Aus Co to Dutch Co will be a source of funds for Dutch Co which will ultimately be used as part of a pool of funds by UK Parent Co to pay dividends to UK Co (which in turn pays dividends to its shareholders ) , it is an insufficient basis for a conclusion that the scheme or series of schemes is designed to operate so that the return to Dutch Co is used to fund dividends to UK Co 's shareholders. In order for paragraph 974-80(1)(d) to be satisfied there must be a stronger connection between the payments of interest by Aus Co and payment of dividends to shareholders in UK Co which is evident from the way the scheme is structured such that it is reasonable to conclude that the dividends paid to shareholders in UK Co are indirectly a return from Aus Co. 2