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No, provided the requirements of subsection 128GB(3) of the Income Tax Assessment Act 1936 (the Act) are not satisfied.

Section 128GB of the Act ensures that the interest withholding tax provisions set out in Division 11A do not apply to interest paid by a person in respect of an "offshore borrowing" if when the borrowing took place the person was an OBU. In this regard, the definition of borrowing for the purposes of section 128GB includes the raising of finance by the issue of a security; (subsection 128AE(1) of the Act).

Section 126, which is a long-standing anti-avoidance provision, applies where a company borrower does not supply, to the Commissioner of Taxation, the names and addresses of bearer debenture holders to whom interest is paid or credited in respect of the bearer security. The section imposes a liability on the borrower to withhold tax, at a rate set by the Income Tax (Bearer Debentures) Act 1971, on the amount paid or credited.

Section 125 provides that Division 11 does not apply to certain interest payments. However, interest which is excluded from the interest withholding tax provisions by section 128GB is not specifically excluded from the application of Division 11 by section 125.

Having regard to the legislature's intention to provide an 'exempton' from interest withholding tax under section 128GB for interest payments on offshore borrowings by an OBU and the legislative purpose and history of section 126, Division 11 is not considered to operate where bearer debentures are issued by an OBU as part of an 'offshore borrowing'.

It should be noted, however, that in terms of section 121EA, the issue of a security offshore is not an offshore banking (OB) activity if the transaction is carried out as part of the company's business outside Australia at or through a permanent establishment (for example, a foreign branch of a company that is an OBU).