Income tax: capital gains tax: James Hardie Industries NV transformation and re-domicile

This Ruling sets out the Commissioner's opinion on the way in which the relevant provisions identified below apply to the defined class of entities, who take part in the scheme to which this Ruling relates.

The relevant provision dealt with in this Ruling is section 104-155 of the Income Tax Assessment Act 1997 (ITAA 1997). [1]

The class of entities (Australian Shareholders) to which this Ruling applies are entities who: (a) are residents of Australia within the meaning of that expression in subsection 6(1) of the Income Tax Assessment Act 1936 (ITAA 1936); (b) owned ordinary shares or CHESS Units of Foreign Securities (CUFS) representing shares in James Hardie Industries NV (JHINV) at the time of the scheme; and (c) held their ordinary shares or CUFS on capital account at the time of the scheme.

This Ruling does not apply to Australian residents who held their ordinary shares or CUFS on revenue account.

In this Ruling, Australian Shareholders who held CUFS representing shares in JHINV at the time of the scheme are taken to be absolutely entitled to the shares covered by the CUFS.

In this Ruling, ordinary shares and CUFS are collectively referred to as 'shares'.

The Commissioner makes this ruling on the precise scheme identified in this Ruling.

The class of entities defined in this Ruling may rely on its contents provided the scheme actually carried out is carried out in accordance with the scheme described in paragraphs 12 to 28 of this Ruling.

If the scheme actually carried out is materially different from the scheme that is described in this Ruling, then: • this Ruling has no binding effect on the Commissioner because the scheme entered into is not the scheme on which the Commissioner has ruled; and • this Ruling may be withdrawn or modified.

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This Ruling applies from 1 July 2008 to 30 June 2010. The Ruling continues to apply after 30 June 2010 to all entities within the specified class who entered into the specified scheme during the term of the Ruling. However, this Ruling will not apply to taxpayers to the extent that it conflicts with the terms of a settlement of a dispute agreed to before the date of issue of this Ruling (see paragraphs 75 and 76 of Taxation Ruling TR 2006/10).

The following description of the scheme is based on information provided by the applicant. The following documents, or relevant parts of them form part of and are to be read with the description: • the application for class ruling dated 16 February 2009; • the documents received with the class ruling application dated 16 February 2009; • subsequent correspondence dated 19 March 2009, 8 April 2009, 24 April 2009 and 28 April 2009; and • draft Explanatory Memorandum in relation to the scheme. Note: Certain information from JHINV has been provided on a commercial-in-confidence basis and will not be disclosed or released under the Freedom of Information legislation.

JHINV is a public limited liability corporation (Naamlooze Vennotschap (NV)) registered in The Netherlands. JHINV has a primary listing on the Australian Securities Exchange (ASX) and also has a listing in the form of American Depository Receipts (ADRs) on the New York Stock Exchange (NYSE). JHINV was listed in October 2001, after shareholders voted to accept a recommendation by the board of James Hardie Industries Limited to restructure the company and establish JHINV, a company incorporated in The Netherlands, as the parent company.

The scheme that is the subject of this Ruling involves: • the transformation of JHINV to a European company (Societas Europaea or SE) (Stage 1); and • transfer of its registered office (referred to in this Ruling as corporate domicile), tax residence and head office from The Netherlands to Ireland (Stage 2).

Under Stage 1, JHINV will transform from a public limited liability corporation registered in The Netherlands (NV) to an SE. JHINV will thereafter become a 'Dutch SE', with its corporate domicile, head office and tax residence in The Netherlands.

Upon transformation of JHINV to a Dutch SE with its registered office in The Netherlands there will be some minor amendments to the Articles of Association of JHINV to adapt to the rules that apply to a Dutch SE.

To complete Stage 1, JHINV will enter into a merger with a newly formed subsidiary, Irish PLC. At the point of merger, Irish PLC will have no assets or liabilities apart from its initial share capital. The result of the merger will be the dissolution of the Irish PLC, with JHINV continuing as the surviving entity transformed to James Hardie Industries S.E. (JHISE), following an amendment to the Articles of Association.

The transformation of JHINV to JHISE following the merger and the amendment of the Articles of Association will involve a change of corporate form only, with the entity having the same assets and liabilities both before and after the transformation. JHINV has obtained independent legal advice which confirms that the transformation will not affect the company's continuity as a legal person in The Netherlands.

JHINV will need to change details of its registration in The Netherlands to reflect its change of corporate form to JHISE. However, as JHINV (prior to the merger) and JHISE (post merger) are the same legal entity, JHISE continues with the same registration number. Further, JHISE will continue to have the same registration number with the Ministry of Justice.

Under Stage 2 of the scheme, JHISE will move its head office and corporate domicile to, and become a tax resident of, Ireland. As part of Stage 2, the registered office and head office of JHISE will move from The Netherlands to Ireland.

The conversion of JHISE under Stage 2 will involve a change of corporate domicile only, with the entity having the same assets and liabilities both before and after the conversion. JHINV has obtained independent legal advice which confirms that from an Irish legal perspective, the transfer of registered office to Ireland will not result in a winding up of JHISE and no new legal entity comes into existence in Ireland.

The Memorandum and Articles of Association of JHISE will change upon its re-registration in Ireland to take account of the fact that the company will be subject to Irish law.

The relocation of JHISE's corporate domicile from The Netherlands to Ireland occurs under Council Regulation (EC) No. 2157/2001 on the Statute for a European Company (SE Regulations) and in accordance with the relevant parts of Dutch and Irish law.

The scheme does not involve any further steps.

Australian Shareholders of JHINV will not receive or be entitled to receive money or other consideration and will not incur any expenditure in relation to the amendment of the Articles of Association of JHINV under Stage 1 and the change to the Memorandum and Articles of Association of JHISE under Stage 2 of the scheme.

The shares held by the Australian Shareholders in JHISE after Stage 1 of the scheme will be the same shares that they previously held in JHINV.

The shares held by the Australian Shareholders in JHISE after Stage 2 of the scheme will be the same shares that they previously held after Stage 1 of the scheme.

JHINV will continue to have a primary listing on the ASX and also a listing in the form of ADRs on the NYSE.

The variation of the rights attaching to JHINV shares on JHINV's transformation to JHISE in Stage 1 of the scheme will cause CGT event H2 to happen in respect of those shares under section 104-155. However, no Australian Shareholder will make a capital gain or capital loss when CGT event H2 happens.

The variation of rights attaching to JHISE shares on the relocation of JHISE's corporate domicile to Ireland in Stage 2 of the scheme will cause CGT event H2 to happen in respect of those shares under section 104-155. However, no Australian Shareholder will make a capital gain or capital loss when CGT event H2 happens.

In Stage 1 of the scheme, JHINV will enter into a merger with a newly formed subsidiary, Irish PLC. The result of the merger will be the dissolution of Irish PLC, with JHINV continuing as the surviving entity transformed to JHISE, with its corporate domicile, head office and tax residence in The Netherlands.

CGT event H2 will happen on the transformation of JHINV to JHISE in Stage 1 of the scheme.

The amendments to JHINV's Articles of Association under Stage 1 of the scheme will result in minor alterations to the rights of Australian Shareholders in relation to their JHINV shares. These amendments will not result in the cancellation or redemption of the shares.

CGT event H2 happens if an act, transaction or event occurs in relation to a CGT asset and the act, transaction or event does not result in an adjustment being made to the asset's cost base or reduced cost base. The variation in the rights attached to the JHINV shares is an act, transaction or event in relation to those shares. Therefore, the variation results in the occurrence of CGT event H2.

Under subsection 104-155(3), an Australian Shareholder will make a capital gain if the capital proceeds from the event are more than the incidental costs incurred in relation to the event. An Australian Shareholder will make a capital loss if those capital proceeds are less than the incidental costs.

Subsection 116-20(2) provides that the capital proceeds from CGT event H2 happening are the money or other consideration received, or entitled to be received, because of the act, transaction or event. Paragraph 29 of Taxation Ruling TR 95/3 provides that 'consideration' for these purposes can include the benefit of mutual promises flowing to parties even if those promises are not in themselves property.

Incidental costs are defined in section 110-35 and include nine forms of expenditure.

The Australian Shareholders will not receive or be entitled to receive money or other consideration, including the benefit of any mutual promises in respect of the event happening. Further, the Australian Shareholders will not incur any expenditure relating to the amendment of the Articles of Association of JHINV.

Therefore, although CGT event H2 will happen in respect of the JHINV shares, the Australian Shareholders will not make a capital gain or capital loss as a result of the changes to the Articles of Association of JHINV proposed in Stage 1 of the scheme.

The acquisition date of the JHINV shares will not be affected when CGT event H2 happens.

In Stage 2 of the scheme, JHISE will move its head office and corporate domicile to, and become a tax resident of, Ireland.

CGT event H2 will happen on the conversion of JHISE from a Dutch SE to an Irish SE in Stage 2 of the scheme.

The amendments to the Memorandum and Articles of Association of JHISE upon its re-registration in Ireland will result in changes to the rights of Australian Shareholders in relation to their JHISE shares.

The variation of the rights attached to the JHISE shares is an act, transaction or event in relation to those shares. Accordingly, the variation will result in the occurrence of CGT event H2.

The Australian Shareholders will not receive or be entitled to receive money or other consideration, including the benefit of any mutual promises in respect of the event happening. Further, the Australian Shareholders will not incur any expenditure relating to changes made to the Memorandum and Articles of Association of JHISE.

Therefore, although CGT event H2 will happen in respect of the JHISE shares, the Australian Shareholders will not make a capital gain or capital loss in respect of the variation of the share rights proposed in Stage 2 of the scheme.

The acquisition date of the JHISE shares will not be affected when CGT event H2 happens.

The following is a detailed contents list for this Ruling: Paragraph What this Ruling is about 1 Relevant provision(s) 2 Class of entities 3 Qualifications 7 Date of effect 11 Scheme 12 Overview of the scheme 14 Stage 1 of the scheme 15 Stage 2 of the scheme 20 Other matters 25 Ruling 29 Appendix 1 - Explanation 31 Stage 1 of the scheme 31 Variation of share rights in Stage 1 of the scheme 33 CGT event H2 34 Stage 2 of the scheme 41 Variation of share rights in Stage 2 of the scheme 43 CGT event H2 44 Appendix 2 - Detailed contents list 48