Share
An entity is connected with another entity if either entity controls (as prescribed) the other entity, or if both entities are controlled (as prescribed) by the same third entity.
But where an entity (the first entity) directly controls another entity (the second entity), and the second entity either directly or indirectly controls a third entity, then the first entity is also taken to control the third entity. This is known as the indirect control test.
There is an exception to the indirect control test for public entities (listed companies, publicly traded unit trusts, mutual insurance companies, mutual affiliate companies and 100% subsidiaries of those entities).
However, the indirect control test does not apply if the second entity is a public entity (i.e. a listed company, a publicly traded unit trust, a mutual insurance company, a mutual affiliate company or a 100% subsidiary of those entities). This is known as the public entity exception.
In this regard, the Commissioner of Taxation has issued Taxation Determination TD 2022/6 (previously issued as Draft Taxation Determination TD 2021/D4). That Taxation Determination sets out the Commissioner’s view of the application of the public entity exception to the indirect control test for the purpose of determining an entity’s aggregated turnover.
In particular, the Commissioner of Taxation states that “the mere presence of an interposed public entity does not result in a control chain being broken. If a public entity is interposed in an ownership structure, the first entity may still control the third entity through direct control” as opposed to through indirect control via the indirect control test.
The Taxation Determination provides some examples of the interaction between the indirect control test and the public entity exception.