Income tax: does a 'permitted purpose' under subsection 215-10(2) of the Income Tax Assessment Act 1997 include making equity investments in a foreign entity (including a foreign subsidiary) by an Australian authorised deposit-taking institution (ADI) through a permanent establishment out of funds raised by the permanent establishment from the issue of non-share equity interests that meet the conditions of subsection 215-10(1)?

Yes.

There is only one specific proscription of the use of funds raised by a permanent establishment from the issue of eligible non-share equity interests. This is the exclusion in paragraph 215-10(2)(a) which, broadly, disqualifies any transfer of funds for use in the Australian operations of the ADI, its subsidiaries or any connected entities. This exclusion must be read together with paragraphs 215-10(2)(b) and 215-10(2)(c) dealing with pre-existing obligations. An explanation of the provisions mentioned is contained in paragraphs 2.101 to 2.109 of the Explanatory Memorandum to the New Business Tax System (Debt and Equity) Bill 2001 where the section was originally introduced as section 160APAAAA of the Income Tax Assessment Act 1936.

Having regard to the nature and scope of the exclusion, the business test contained in paragraph 215-10(2)(a) is not to be read down other than subject to the scope of the exclusion. The 'permitted purposes' are, subject to the exclusion, any business transactions of the ADI carried on at or through the permanent establishment. This includes the acquisition of equity in related (as well as unrelated) foreign companies or foreign entities treated as companies that are not covered by the exclusion.

This Taxation Determination does not restrict the operation of the anti-streaming and general anti-avoidance provisions.