Resource Capital Fund III LP v Commissioner of Taxation [2014] HCATrans 235 (17 October 2014)

Last Updated: 22 October 2014

[2014] HCATrans 235

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
Sydney No S116 of 2014

B e t w e e n -

RESOURCE CAPITAL FUND III LP

Applicant

and

COMMISSIONER OF TAXATION

Respondent

Application for special leave to appeal

CRENNAN J
KEANE J

TRANSCRIPT OF PROCEEDINGS

AT SYDNEY ON FRIDAY, 17 OCTOBER 2014, AT 11.26 AM

Copyright in the High Court of Australia

MR A.H. SLATER, QC: If the Court pleases, I appear with my friend, MR B.L. JONES, for the applicant. (instructed by Clayton Utz)

MR M. RICHMOND, SC: If the Court pleases, I appear with my friend, MR M.J. O’MEARA, for the respondent. (instructed by Maddocks Lawyers)

MR SLATER: Your Honours, we put our submissions in this application in two stages: first, why we say it is a matter of general public importance; and second, why we say the decision of the Full Court is wrong and should be corrected. So if I may turn to the first of those. This matter directly raises an important issue in the construction of bilateral tax treaties based on the OECD model. Australia has entered into 54 such agreements and there are more than 3,000 such agreements worldwide. The primary point which we say this appeal raises has yet to be considered by any ultimate Court of Appeal and, apart from the decision below, by any intermediate appeal court.

The primary question is this: how does the treaty apply where one contracting state treats a relationship among taxpayers as the taxpaying person or entity, but the other contracting state treats the relationship as a relationship among taxpayers and taxes the parties? In the language of the fiscal authorities, one state treats the relationship as transparent and the other treats it as a taxpayer or entity. Put somewhat differently, the question is who is the proper taxpayer to be taxed in accordance with the treaty? Is it the notional separate taxpayer deemed to exist by one state, being in fact the relationship, or is it the parties to that relationship?

The OECD regarded the matter as being of sufficient importance that it published a report on the subject. Portions of that report included in – or adopted by the OECD commentary on the treaty are included in the judgment at first instance and were relied upon by the primary judge and by the Full Court. The finance ministers of the OECD group of 20 nations, meeting last month in Cairns, commissioned a study of the policy issues arising from the question.

CRENNAN J: Those matters are very interesting, Mr Slater, but what about the point that the applicant was not a resident of the United States?

MR SLATER: Well, that goes to the point that we say is significant, your Honour, and that is that - - -

CRENNAN J: Well, it was a corporate limited partnership subject to Australian revenue law.

MR SLATER: The notion that it is a corporate limited partnership is one which takes the terminology of the Assessment Act as imparting a character to the partnership which it did not have. The Assessment Act uses a variety of pieces of language which are pejorative in nature. One is in the overseas income area, tainted income, and one can readily see the pejorative nature of that. Here it describes the partnership as a corporate limited partnership, but it is not corporate; it is just a limited partnership which is given that appellation by the Assessment Act to distinguish it.

CRENNAN J: But it is an independent taxable entity in Australia.

MR SLATER: No, it is not. It is treated as if it were. The Act applies as if references in the Act to a company were references to the partnership relationship. The Act does not give it the status of a corporation, nor does the general law. That is our point. That is why this is significant.

KEANE J: But if the question is whether the double tax arrangements require a different result, how do you deal with the point that the double tax arrangements apply for the benefit of a resident of the United States, and your client is not?

MR SLATER: We say that they apply for the benefit of the residents of the United States who are the partners in the partnership. They are the only persons - - -

KEANE J: Well, if they were the people subject to assessment, one could understand your contention, but they are not.

MR SLATER: That is the essential problem, your Honour. They should have been the parties subject to assessment. The limited partnership does not exist at general law and it does not exist as a person under the Assessment Act. It is simply that the Act says where you see a reference to the partnership you treat it as a reference to a company. What we say is that the way the treaty works is that it protects the parties to the partnership relationship and it fails in that objective and the overriding effect given to the treaty by the International Tax Agreements Act is frustrated if the relationship, the partnership, is treated as if it were the taxpayer and unable to get the benefit of the treaty. It is unable to do so because it does not have the necessary attributes. But the members of the partnership do, and to tax the partnership and not to tax the members deprives the members of the benefit of the treaty. That is our fundamental point, and we say that - - -

CRENNAN J: But is it not assuming that under United States revenue law, whatever happens here in relation to the limited partnership would not be taken into account?

MR SLATER: No, your Honour, it is not assuming it. What happens in the US law will happen according to US law, but we say this is a matter where the treaty is given paramount force by our domestic statute. The treaty is not being observed by the way the Assessment Act is framed, and that is the conflict that we say emerges. Now, the Full Court dodged that conflict by saying, “Look at the limited partnership. It is called a corporate limited partnership. It is the taxpayer. It is not a resident, so it does not get the benefit of the treaty”. That is not the point we are trying to make. The point we are trying to make is that the persons who are entitled to the benefit of the treaty – the partners in the partnership – are being denied that benefit by the way in which the Act is being administered.

Your Honours, we say that that is an important question and we say that it has not come before any court yet and of itself it warrants a grant of leave. We say the essential vice in the course which the Commissioner has taken in reliance on the domestic provisions and in the reasoning of the Full Court is that the assessment has been made to Resource Capital Fund III Limited Partnership, the notional party, instead of being made to the partners in that partnership.

So, if I could turn to the second stage of our argument - the error in the reasons of the Full Court - the error is, as I have attempted to indicate to your Honours, that the court did not address the fundamental and threshold issue which is conformably with the treaty, who is the proper taxpayer to be assessed on the gains mode? That issue was squarely before the court. It was the basis of the primary judge’s decision at paragraphs 76 to 77 of his Honour’s reasons at page 32. Given the time, I am not going to read those – I am told that I have not taken up quite as much time as I thought, so I will take the time to read those paragraphs.

KEANE J: Time flies when you are having fun.

MR SLATER: You call this fun, your Honour? So if I could take your Honours to the top of page 32, his Honour says:

For the foregoing reasons . . . I am of the view that while Art 13(1) of the Convention authorises Australia, by its domestic law, to tax the US resident limited partners in RCF on their respective distributive shares of the gain derived by them . . . it does not authorise Australia to tax that gain to RCF, the limited partnership, as a non-transparent company.

It follows, in my view, that there is an inconsistency between the application of the Convention and the application of the Assessment Acts –

We respectfully say that his Honour was right about that. The double tax agreement applied to and afforded prima facie protection to the partners because of Article 7. Your Honours will find that at page 16 at line 35 of the application book and I draw your Honours’ attention to this, at the foot of the page:

The business profits of an enterprise of one of the Contracting States shall be taxable only in that State unless the enterprise carries on business in the other Contracting State through a permanent establishment situated therein.

It is symptomatic of the problem in the reasoning of the Full Court that Article 7 does not appear in the judgment of the Full Court. Article 7 applies to the gains made in Australia because 90 per cent of the capital of the limited partnership was owned by partners who are US residents. The gains were business profits of an enterprise they jointly conducted in Australia and they had no permanent establishment in Australia.

The primary judge, having regard to the operation of Article 7 to the business profits and to the OECD commentary on the problems arising from one state taxing the parties to the relationship and the other state taxing the relationship - and your Honours would find those at pages 11 and following and pages 27 and following of the application book but I will not take time to read them to your Honours – and having regard also to the arguments which were advanced by the applicant, addressed the question directly at page 27 of his judgment at line 31 in the heading “Who derived the gain for the purposes of the Convention?”, and his Honour - - -

CRENNAN J: In this context he relies on Article 13 as well, does he not?

MR SLATER: No, he addresses Article 13 because Article 13 was relied upon by the respondent before his Honour as an independent source of taxing power. That was the point at which he was addressing it and he says somewhere in his judgment – and I cannot put my finger on it right at the moment – that the argument about Article 13 does not really matter.

CRENNAN J: So it is Article 7 he relies on for the proposition that under the treaty a capital gain should have been treated as derived not by the limited partnership, but by the partners?

MR SLATER: For the proposition that - - -

CRENNAN J: As residents of the USA.

MR SLATER: Yes, that the partners were entitled to treaty relief under Article 7 and that the proper person to whom the assessment should have been issued was the partners.

KEANE J: Mr Slater, while we are interrupting you, I notice that in the judgment or the reasons of the Full Court at page 84, paragraph 12, their Honours do refer to Article 7 of the DTA.

MR SLATER: I do them an injustice then, your Honour, and I withdraw and apologise for the comment. In the Full Court, in summary, the Full Court began not with the double tax agreement, but with the domestic law. Your Honours see that on the page preceding that which your Honour has just taken me to, at paragraph 3 at about line 20:

The analysis must start with a consideration of RCF’s tax status in Australia. RCF is a corporate limited partnership –

Then at paragraphs 5 to 17, again which I will not read to your Honours, their Honours summarise the arguments and decisions below and then, in the following paragraphs, the arguments advanced in the Full Court. At page 88 at line 28 they come to their conclusion in paragraph 25:

the error was in the conclusion that it therefore follows that it is the limited partners of RCF, not RCF the limited partnership, that Australia is authorized to tax -

Now, the reasons for that conclusion appear over the page at page 90 in paragraphs 29 and 30. In the middle of paragraph 29 in the second sentence at about line 25 their Honours say:

There is no inconsistency between the DTA and the provisions of the Assessment Act with respect to the taxation of the gain in the hands of RCF. The inconsistency is between US tax law and Australian tax law with respect to the tax treatment –

With respect, it is that very inconsistency between different tax treatment of party states which it is the fundamental purpose of the double tax agreement to address. In our submission, the Full Court at a fundamental level mistakes the purpose of the agreement. In the first sentences of those two paragraphs, their Honours say:

RCF is an independent taxable entity in Australia and liable to tax on Australian sourced income and the DTA does not gainsay RCF’s liability to tax. There is no inconsistency . . . with respect to the taxation of the gain the hands of RCF.

Then in the next paragraph – throughout they are referring to RCF, that is, to the limited partnership and not to the partners:

Whilst US tax law treats RCF as a transparent entity for tax purposes and taxes the partners of RCF on their individual shares of RCF’s income, under Australian tax law RCF is not transparent for tax purposes but is a separate taxable entity . . . the gain is taxable in RCF’s hands.

Your Honours, in our submission, that reasoning proceeds on the premise that the only question is as to the application of the treaty to RCF, the relationship, the limited partnership. It disregards the basic issue in the appeal squarely posed by the judgment appealed from and that I have taken your Honours to at page 27, “Who derived the gain for the purposes of the Convention?”

The Full Court’s fundamental reasoning is this: assuming that the proper taxpayer is RCF is there an inconsistency between the double tax agreement and the Assessment Act? Their Honours answer that no because RCF is not entitled to treaty protection because RCF is not a resident. In doing that, your Honours, what the Full Court did was to take as a premise an answer to the question posed by the treaty and by the judgment below and, unsurprisingly, the reasoning leads, starting with that premise, to the conclusion that the appeal should be answered conformably with that premise. Fundamentally, in our submission, the Full Court’s reasoning is flawed by the assumption of that premise.

We respectfully submit that the primary judge correctly both identified and resolved the basic issue in the appeal. We submit that the Full Court’s reasoning in reversing the primary judge is fundamentally wrong. The essential proposition we advance as the reason why the Full Court is wrong is that Australia as the source state should accord treaty protection to the US resident partners and it should do so by treating the partners as the taxpayers who derive the profit, and not inconsistently by taxing the limited partnership.

Curiously, this is a proposition with which the respondent agrees. If I could take your Honours to page 124 of the application book, the last two lines in paragraph 13, our friends say:

For the limited purpose of considering what treaty relief the partners are entitled to under the allocative rules in treaties between their country of residence and the source state (being Articles 6 to 21 in the case of the DTA), the source state –

that is, Australia –

should treat the partners as having derived their partnership share of the income of the partnership directly.

That is the point we make. That is what the Full Court did not do. Our friends in their submissions say in a footnote that there are mechanisms to deal with that. The two mechanisms they suggest are the mutual agreement procedure provided for by the agreement – we would respectfully say that that is not an appropriate solution. It is a matter for individual negotiation in individual cases between the Australian Tax Office and the US Internal Revenue Service, and that is inappropriate as a principal solution to the issue.

The other solution they propose is procedures for resolving disputes and, in our submission, the judicial consideration of the double tax agreement and of the relationship between it and the Assessment Act in this Court is the appropriate way in which to resolve that dispute. We would submit to your Honours that the question raised is important both in Australia where there are over 50 double tax agreements, and internationally. It is novel. It is difficult. It is clearly opposed by undisputed facts and, in our submission, it warrants a grant of special leave. If your Honours please.

CRENNAN J: Thank you, Mr Slater. Yes, Mr Richmond.

MR RICHMOND: If the Court pleases. In our submission, the application for special leave should be refused for three reasons. The first is that the three special leave questions do not arise; second, the Full Court decision is not attended by sufficient doubt; and, third, this is not a suitable vehicle for the resolution of the issues raised in the application due to Article 13 of the treaty.

Now, your Honours, in our respectful submission, the taxpayer’s argument in this case is an example of the aphorism that if something looks too good to be true, it probably is. We say the taxpayer’s argument looks too good to be true for essentially two reasons. First, the taxpayer says that the double tax treaty precludes the Commissioner from assessing RCF, the partnership, and the treaty only permits the Commissioner to assess the individual partners.

He seeks to eke this out of Article 7 but, for reasons I will seek to explain, that is an incorrect reading of Article 7. But in a case where, as here, the partnership is a limited partnership, Australia’s domestic law only permits the Commissioner to assess the partnership. He is precluded from assessing the partners individually by section 94K in Division 5A.

Hence, if the taxpayer’s argument is correct about the effect of the double tax treaty, the gain made by the partnership in this case would go untaxed in Australia merely because the partnership is a limited partnership, and that is so because if Division 5A had not applied to this partnership, the partners would not have been entitled to treaty relief by virtue of Article 13. So, merely because the partnership here was a limited partnership which was the only taxpayer the Commissioner could tax on the gain, the taxpayer says the treaty prevents - - -

CRENNAN J: What about treaty relief at the other end of the equation? I think the Full Court touched on this but did not say much about it - paragraph 30.

MR RICHMOND: Yes, your Honour, indeed. May I come to that when I deal with Article 7 - - -

CRENNAN J: Yes, surely.

MR RICHMOND: - - - because we certainly submit that, as my friend has pointed out in oral submissions, the treaty can be applied at the two different levels. It can be applied and should be applied at the partnership level and it may also be applied – that is, Article 7 - at the partner level in respect of their individual profits. But they are different profits to the profits that were taxed in this case.

Now, if I can just emphasise that the effect of the Commissioner’s – I beg your pardon, the taxpayer’s argument in this case is that this gain would go untaxed merely because domestic law requires the Commissioner to tax the partnership. My friend said earlier that the essential vice in the matter is that the Commissioner has taxed the partnership. Well, it is not a vice of the Commissioner. It is a requirement of the domestic tax law. Now, the effect of - - -

CRENNAN J: Well, the treaty does not say anything about who is the proper taxable entity.

MR RICHMOND: Indeed, your Honour. Now, as we understand it, the taxpayer says you get that from Article 7, but Article 7 does not say that the Commissioner – I beg your pardon, that the domestic law must assess any particular entity in respect of the business profits. Rather, it confers a benefit on persons who are residents of the United States in respect of profits which fall within Article 7.

Now, the other consequence, we would submit, absurd if the taxpayer’s argument if it were right, is that partners who are not residents of the United States would effectively get treaty relief because the taxpayer’s argument is that the assessment is bad; it is unauthorised by Article 7 of the treaty. The consequence is that those partners of the limited partnership here who are not residents of the United States would be free from Australian tax because the Commissioner is not in a position to assess them separately by virtue of Division 5A. So that would be, we would submit, an example of double non-taxation of a gain, which is clearly contrary to the purpose of the treaty.

Now, the second and related reason why the taxpayer’s argument, we would say, is too good to be true is that it completely undermines Article 13 of the treaty. Article 13 reflects a fundamental feature of all OECD model treaties and in particular all the treaties to which Australia is a party, which is that the source state is allocated the right to tax gains in respect of real property. Real property for this purpose includes shares in a land rich company. That this is fundamental to the structure of the OECD model treaty and Australia’s treaties and this treaty in particular is shown by Article 7(6), which excludes from Article 7 income to which another article in the treaty applies and that includes Article 13.

The effect of the taxpayer’s argument, if right, is that the $58 million gain from the disposal of real property in Australia cannot be taxed in Australia where that profit is made by a limited partnership which is taxed under domestic law as a separate legal entity. In our submission, one would expect to find some clear words in the treaty if that were the intention. To the contrary, we would submit there is nothing in the treaty that goes anywhere near indicating that intention.

Now, if I can turn to the terms of the double tax treaty, which I think ultimately are the way one resolves this issue, your Honours will find the treaty at tab 1 of the bundle and we see at page 5 of the bundle at tab 1 Article 1(1) which identifies the persons who are entitled to claim the benefits of the treaty, and they are “residents of one or both of the Contracting States”; relevantly here, residents of the United States.

Now, the term “persons” is defined on the next page in Article 3(1)(a) and, importantly, to include a partnership. “Resident” is defined in Article 4 on page 111 of the reprint - page 9 of the bundle - in paragraph (b) to include in the case of a US person, a partnership, but only to the extent that the profits of the partnership are subject to US tax.

So what those provisions clearly indicate is this, that the treaty contemplates a partnership as being a person and potentially having a residence in the United States and potentially claiming the benefit of the treaty. It is not in dispute that in this case, of course, RCF, albeit a person, for the purpose of the treaty was not entitled to claim the benefits because Article 4(1)(b)(ii) did not apply to it. It was not a resident of the United States within the meaning of the treaty.

Then we come to Article 7 on page 13 and in paragraph (1) we see an exemption for business profits of an enterprise of one of the contracting states. Then in Article 7(6) on the next page we see the exclusion for profits dealt with by other articles and, relevantly here, Article 13 is found at page 20, which is the one dealing with real property.

Now, that is a very important carve-out, as we say, indicating that Article 7 is not intended to apply to profits from the disposal of real property. But coming back to Article 7(1), it applies to:

business profits of an enterprise of one of the Contracting States -

It is necessary in the case of a partnership to distinguish two categories of profit. There is the partnership profit. If the partnership, which is a person for the purposes of the treaty, is a resident of the United States, then the partnership profit is capable of being exempt entirely from Australian tax under paragraph (1).

There is nothing odd, we would submit, in the treaty operating in that way. It is clear by its terms that it does, we would submit, and it is clear from the decision of the Court of Appeal in the Padmore decision, which is included at tab 7 of the bundle, that treaties can properly operate at the partnership level in relation to business profits.

CRENNAN J: Well, this was a capital gain, was it not?

MR RICHMOND: This is a capital gain, your Honour, but it passes into assessable income and becomes a business profit. There is no dispute between the parties that capital gains are within Article 7 potentially subject to Article 13. Now, if RCF had sought to claim the benefit of Article 7 on the basis that it was a resident of the United States, then Article 13 would have applied to exclude the benefit of Article 7 from relief to RCF.

The second category of relevant profits of an enterprise is the individual partner’s share of the partnership profit. Had the partners themselves sought to – and they are still in a position where they are entitled to – claim the benefit of the treaty, they can do so in respect of their own business profits, including profits being their share of the profits of the partnership enterprise.

RCF says that it is in a better position than if the DTA had actually applied to it. That is, it says that it is able to satisfy the Commissioner’s assessment of the $58 million gain and we say, well, that would not be right because of Article 13 and similarly, if Article 7 is applied at the level of the partners. In this case, on the facts of this case, those partners would not be able to obtain the benefit of Article 7(1) in respect of their own business profits being their share of the partnership profit by reason of the exclusion in paragraph (6) of Article 7. The partnership share of each individual partner who is a resident of the United States would be excluded from Article 7 and would be subject to Australian tax by virtue of Article 13.

Now, the individual partners of RCF did not seek to contest the assessment in this case. Rather, the party contesting the assessment is RCF, that is, the limited partnership, treated as a person under the income tax legislation. That person, not being entitled to the benefit of the treaty that is the end of the matter in this appeal, as the Full Court found. That entity cannot take advantage of the treaty because it is not a resident of the United States.

But in order to show that that result is not inconsistent with the treaty we make the following observations about the position of the individual partners. First, as your Honour Justice Crennan just pointed out, the Full Court recognised in paragraph 30 of the judgment below that the individual partners are, insofar as they are residents of the United States, potentially entitled to treaty relief.

Now, we would say in this particular case they would not be able to obtain it by virtue of Article 13, and that is the essential reason why this case is not a suitable vehicle for dealing with the matters that my learned friend seeks to have the Court address, because the individual partners, if they were the persons that ought to have been assessed, would not have been entitled to treaty relief.

But, second, if one considers the case where Article 13 does not apply to exclude the business profits of a partner of a partnership which is resident in the Cayman Islands, as this partnership was, because the gain is made in respect of property other than real property, one would have potential application to Article 7. Nothing in the decision of the Full Court affects the position of partners who are resident of the United States in respect of gains made by a partnership of which they are a partner where they are assessed in respect of those gains. They would be, in effect, through the partnership being assessed under Division 5A.

Each of those individual partners could claim relief under Article 7. They cannot in this case because of Article 13, but in an appropriate case they would be entitled to claim treaty relief under Article 7. It indicated that that would be through the mutual agreement procedure in Article 24. Article 24 clearly provides a mechanism whereby partners can obtain treaty relief where the wrong entity in the taxpayer’s submission has been assessed for the tax.

The Commissioner has issued a ruling which is set out in the Full Court’s judgment materially at paragraphs 32 and following where the Commissioner has said that he will apply treaty relief at the level of the individual partners in respect to their share of the profits of the partnership, and that is a binding ruling. So the Commissioner has indicated to taxpayers that if they seek to obtain the benefit of the treaty through, you would say, Article 24, there is a mechanism for doing it and he indicates in that ruling how it should be done. So there is no failure in the decision of the Full Court to allow individual partners to claim treaty relief insofar as those individual partners are entitled to do so. In this case, they would not be; in other cases they might.

If I may turn to the special leave questions and indicate why we say they do not arise, these are found at paragraph 111 of the application book. In relation to the first question, we say it does not arise because Division 5A does not negate treaty relief. The individual partners who are residents of the United States are prima facie entitled to claim treaty relief if and to the extent that it is available to them. Nothing in the decision of the Full Court denies them that ability. They can do that and, so far as Australian tax is concerned, by claiming relief under Article 7 insofar as it is applicable, subject to Article 13 of course in this present case.

But they also obtain treaty relief by claiming a credit in the United States for the Australian tax paid at the partnership level, and the OECD commentary indicates clearly that the resident state – in this case the US – should allow the US resident partners of a partnership which derives a gain subject to tax in the other contracting state – here Australia – that state should allow the partners a foreign tax credit, and we submit that is the position under the US Australia DTA. So they are entitled to relief. There is no negation by virtue of the decision of the Full Court of treaty relief under the treaty.

Second, we would submit that nothing in the treaty requires that the Australian statute tax the partners rather than the partnership. As I have indicated, Article 7 does not indicate who should be taxed. Rather, it provides relief to persons who are residents of the United States and, as I have sought to submit, that can operate at both the partnership level and the partner level in an appropriate manner.

As we indicated in our written submissions in relation to the third matter, double tax treaties are not designed to tell the contracting states who they should tax. We deal with this in our written outline at paragraph 5. The DTA does not indicate who the proper taxpayer should be. Rather, it

provides relief to persons who are residents of the United States, in this case, insofar as they can bring themselves within the terms of the treaty and, as I have indicated, that is possible for both the partnership where it is a resident of the United States, although it is not in this case, and the partners where they are residents of the United States insofar as their relevant profits are concerned under Article 7.

But ultimately we would submit that this appeal is not a suitable vehicle for any of those questions to be dealt with because Article 7 is subject to Article 13, which would preclude the individual partners in this case from claiming relief in respect of Australian tax, in the same way that it would preclude RCF from doing so. There is nothing further. They are our submissions.

CRENNAN J: Thank you, Mr Richmond. Yes, Mr Slater.

MR SLATER: Your Honours, a very preliminary and not altogether material point. Our friend said that the partners take no role in this, that the partners were not a party to the proceedings. In a sense, they are. The partnership is the party to the proceedings and that means that the partners are the parties to the proceedings, but because of the way in which the assessment has been raised on the collective relationship, the partners are unable to test properly their individual liability to tax.

That is also the flaw with my friend’s argument based on Article 13. Whether and to what extent Article 13 applies to individual partners is a matter which the individual partners might wish to contest and there might be grounds on which they could contest it, grounds going both to the way in which Australian tax law works and to the way in which US tax law works. But those are not matters which the partners can contest while the assessment is only to the collective vehicle.

As to my friend’s argument about double non-taxation, it is accurate to say that the way in which the Income Tax Assessment Act is framed makes it not open to the Commissioner to assess the individual partners, but rather to assess the partnership. But that is a problem with the relationship between the Assessment Act and the treaty. It is a flaw in the Assessment Act, not a flaw in the argument. It is a matter for fixing the Assessment Act to make it accommodate and accord with the treaty, rather than saying that it is a bonus which the taxpayers in this case are seeking to obtain.

Your Honours, in our submission, the arguments which my friends have advanced show that there is a real contest between the parties. Nothing that my friend says disputes that it is a contest of general importance. In our submission, it is a contest which merits the attention of this Court. If your Honours please.

CRENNAN J: In this matter the primary judge found that the Commissioner of Taxation was not authorised to tax the applicant on a capital gain pursuant to the operation of the International Tax Agreements Act 1953 (Cth) which, during the year in question, included in Schedule 2 the Convention between the Government of Australia and the Government of the United States of America for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income.

An appeal brought by the Commissioner was allowed by the Full Court of the Federal Court of Australia. The Full Court found that the applicant, a limited partnership formed in the Cayman Islands, was an independent taxable entity in Australia and liable to tax on Australian sourced income and, as the applicant was not a resident of the United States of America, it was not entitled to the benefits of the double tax convention between Australia and the United States of America.

In our view, the decision of the Full Court is not attended by sufficient doubt to warrant a grant of special leave. Special leave to appeal is refused with costs.

AT 12.07 PM THE MATTER WAS CONCLUDED