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TELSTRA CORPORATION (TRANSFER OF SHARES - STAMP DULY) AMENDMENT REGULATIONS 1999 (NO. 1) 1999 NO. 161
EXPLANATORY STATEMENTStatutory Rules 1999 No. 161
Issued by the authority of the Minister for Communications, Information Technology and the Arts
Telstra Corporation Act 1991
Telstra Corporation (Transfer of Shares - Stamp Duly) Amendment Regulations 1999 (No. 1)
Background
Section 42 of the Telstra Corporation Act 1991 ("the Act") allows the Governor-General to make regulations under the Act.
The Telstra (Dilution of Public Ownership) Act 1996 amended the Act to provide for the sale by the Commonwealth of part of its equity interest in Telstra. Rules relating to how that sale was to be carried out were inserted by the Telstra (Dilution of Public Ownership) Act 1996 as Division 4 of Part 2 of the Act. Division 4 of Part 2 was amended by the Telstra (Further Dilution of Public Ownership) Act 1999.
Subsection 8AK in Division 4 of Part 2 provides an exemption from stamp duty and other State and Territory taxes for various matters related to the sale by the Commonwealth of its shares in Telstra.
Subsection 8AK(2) provides that stamp duty or other tax is not payable under the law of a State or Territory in respect of:
* a "designated matter"; or
* "anything done (including a transaction entered into or an instrument or document made, executed, lodged or given) because of, or for a purpose connected with or arising out of, a designated matter."
The definition of " designated matter" in subsection 8AK(1) provides that any of the matters listed therein will be a designated matter where the matter relates to the entering into or carrying out of a "Telstra sale scheme". The phrase "Telstra sale scheme" is defined in subsection 8AJ(2) as "a scheme the object of which is to achieve the transfer, or progressive transfer, of a part of the Commonwealth's equity in Telstra to other persons".
Paragraph (1) of the definition of "designated matter" lists as a designated matter "any other matter that is specified in the regulations". The Telstra Corporation (Transfer of Shares - Stamp Duty) Regulations 1997 (the "Existing Regulations") specify certain transactions which may be entered into as part of a Telstra sale scheme as "designated matters" for the purpose of section 8AK(l). Accordingly, the Existing Regulations effectively provide an exemption from State and Territory stamp duty for these transactions.
Telstra sale scheme
The sale of a further part of the Commonwealth's equity in Telstra ("Telstra 2") may occur by way of the issue of instalment receipts ("IRs") to investors under arrangements similar to those adopted for the sale of the first tranche of Telstra shares in 1997 ("Telstra 1").
Investors will pay the first instalment for the Telstra shares to the Commonwealth. On payment by investors of the first instalment, legal title to the Telstra shares will be transferred by the Commonwealth to the sale scheme trustee ("Trustee"). The Trustee will hold the Telstra Shares on trust for the benefit of.
(a) the Commonwealth, as security for the unpaid instalments; and
(b) the investors, in the remainder.
The investors will be issued with an IR evidencing their interest in the Telstra share. The IR will be issued by the Trustee. IRs will be quoted and may be traded through the Australian Stock Exchange ("ASX"), the New Zealand Stock Exchange ("NZSE") and SEAQ International, London (SEAQ), during the instalment period.
The sale-scheme would also provide that non-residents could hold IRs in the form of Interim American Depositary Shares ("Interim ADSs"), with each Interim ADS representing 20 IRs. Investors would be issued with Interim American Depositary Receipts ("Interim ADRs"), which are evidence of ownership of Interim ADSs and are tradeable on the New York Stock Exchange ("NYSE"). The issue of Interim ADRs would be effected by a United States depositary, who would appoint an Australian custodian as the registered holder of the relevant IRs.
On payment of the final instalment, legal title in the underlying Telstra shares would be transferred to IR holders. Legal title in the underlying Telstra shares would be transferred to the custodian upon payment of the final instalment by investors who hold Interim ADSs evidenced by Interim ADRs. Such investors would then be issued with American Depositary Receipts ("ADRs"), evidencing investment in American Depositary Shares. ADRs would be tradeable on the NYSE.
Existing Regulations
As outlined above, the Existing Regulations provide that certain transactions which may occur as part of the Telstra sale scheme will be "designated matters" for the purpose of section 8AK of the Act and will therefore be exempt from duty.
The Existing Regulations rectify certain anomalous outcomes which would otherwise result from the Telstra sale scheme, due to the non-uniform stamp duty laws applicable in each Australian State and Territory.
Regulations
The Telstra Corporation (Transfer of Shares - Stamp Duty) Amendment Regulations 1999 (the "Regulations") amend the Existing Regulations to:
* make it clear that the exemption from stamp duty in section 8AK(2) does not apply to marketable securities duty payable on the transfer of an IR (the "primary duty") but only applies to any additional duty payable in respect of the resulting change in beneficial ownership of the underlying Telstra share;
* extend the existing exemption from stamp duty for transactions which result in a person becoming registered before 31 December 1997 as the holder of an IR or an Interim ADS on registration of a transfer from the Telstra sale scheme underwriters or their nominees, to ensure that the exemption applies to transactions occurring as part of Telstra 2; and
* provide an exemption from stamp duty for transactions entered into for the purpose of correcting a clerical error or obvious mistake in relation to the pre-registration of a person for application for an IR, the processing of IR applications or the registration or issue of IRs.
Details of the accompanying Regulations are in the Attachment.
The regulations commence on notification in the Gazette.
ATTACHMENT
Clause 1 - Name of Regulations
Regulation 1 provides that the regulations are the Telstra Corporation (Transfer of Shares -Stamp Duty) Amendment Regulations 1999 (No. 1).
Clause 2 - Commencement
Regulation 2 provides that the regulations commence on gazettal.
Clause 3 - Amendment of Telstra Corporation (Transfer of Shares Stamp Duty) Regulations
Regulation 3 provides that the Telstra Corporation (Transfer of Shares Stamp Duty) Regulations are amended as set out in Schedule 1.
SCHEDULE 1 - Amendments
Item 1
Item 1 substitutes a new name for the Existing Regulations to reflect the current drafting practice for the naming of regulations.
Item 2
Item 2 makes consequential amendments to the opening words of regulation 3 of the Existing Regulations, as a result of the insertion of new subregulation 3(2).
Item 3
Item 3 amends subparagraphs 3(a)(i) and (ii) of the Existing Regulations.
Subparagraphs 3(a)(i) and (ii) provide an exemption for a change in the beneficial ownership of a Telstra share that occurs as a result of a change in ownership of an IR (the dutiable change) which would, but for the regulations, be subject to stamp duty in addition to stamp duty on the dutiable change.
The Existing Regulations were intended to ensure that a transfer of an IR occurring as part of Telstra 1 was not effectively subject to "double duty" as a result of the application of section 49F of the Stamp Duties and Taxes Act 1987 of the Australian Capital Territory (ACT), consistent with the treatment of other Australian marketable securities.
The Stamp Duties and Taxes Act 1987 has been repealed and replaced by the Duties Act 1999. However, the risk of a liability for double duty arising on the transfer of an IR still arises under the new legislation. The risk arises because the transfer of an IR results in a change in the beneficial ownership of the underlying Telstra share, which may be subject to stamp duty in addition to that imposed on the transfer of the IR itself.
Item 3 amends the wording of subparagraphs 3(a)(i) and (ii) to clarify the scope of the exemption and to address concerns that the current wording could be interpreted more broadly than intended. The amendments in Item 3 have effect in conjunction with those in Item 7.
The amendments make it clear that the exemption from stamp duty in section 8AK(2) does not apply to marketable securities duty payable on the transfer of an IR (the "primary duty") but only applies to any additional duty payable in respect of the resulting change in beneficial ownership of the underlying Telstra share.
Item 4
Item 4 amends subparagraph 3(d)(iii) of the Existing Regulations.
Subparagraph 3(d)(iii) effectively provides an exemption for stamp duty for a transaction which results (directly or indirectly) in a person becoming registered before 31 December 1997 as the holder of an IR or an Interim ADS on registration of a transfer from the Telstra sale scheme underwriters or their nominees.
The Regulations amend subparagraph 3(d)(iii) to ensure that the exemption will apply to transactions of the kind described which occur after 16 October 1999 and before 31 December 1999. This will ensure that the exemption applies to transactions occurring as part of Telstra 2.
Item 5
Item 5 makes a consequential amendment to paragraph 3(f), as a result of the insertion of new paragraph 3 (g).
Item 6
Item 6 inserts new paragraph 3 (g) to prescribe as a "designated matter" a transaction the only purpose of which is to correct a clerical error or an obvious mistake, in relation to:
(a) the pre-registration of a person for application for an IR; or
(b) the processing of an application for an IR; or
(c) the registration or issue of an IR.
Item 7
Item 7 inserts new subregulation 3(2).
The Telstra (Further Dilution of Public Ownership) Act 1999 amended the Act by inserting subsection 8AK(3).
Section 8AK(3) contains a proviso that section 8AK(2) does not apply to or in relation to stamp duty, or other tax, of a kind specified in the regulations or in such circumstances as are specified in the regulations.
Subregulation 3(2) provides that, for the purpose of paragraph 8AK(3)(b), the rule in subsection 8AK(2) does not apply in relation to the primary duty payable on transfer of an IR mentioned in subparagraph 3(1)(a)(ii) of the regulations.
Subregulation 3(2) makes it clear that the exemption from stamp duty does not apply to marketable securities duty payable on the transfer of an IR (the "primary duty") but only applies to any additional duty payable in respect of the resulting change in beneficial ownership of the underlying Telstra share.