BHP Billiton – High Court of Australia finds that one company is influenced by the other under a stapled structure where both companies are contractually bound to act in concert
BHP Billiton Limited ("Ltd"), an Australian corporation, was part of a dual-listed company arrangement (the “DLC Arrangement") with BHP Billiton Plc ("Plc"). The question of whether Ltd. was required to recognize the approximate Australian equivalent of FAPI on the resale profits of a Swiss subsidiary (in which it indirectly held a 58% interest and Plc indirectly held a 42% interest) on commodities that the Swiss sub had purchased from Plc subsidiaries turned on whether those subsidiaries were “sufficiently influenced” by Ltd. The definition of this concept stated:
a company is sufficiently influenced by an entity or entities if the company, or its directors, are accustomed or under an obligation (whether formal or informal), or might reasonably be expected, to act in accordance with the directions, instructions or wishes of the entity or entities (whether those directions, instructions or wishes are, or might reasonably be expected to be, communicated directly or through interposed companies, partnerships or trusts).
This definition is perhaps somewhat broader that the reference in ITA s. 256(5.1) to “any direct or indirect influence that, if exercised, would result in control in fact.”
In finding that this test was satisfied, the Court noted inter alia that under the agreements governing the DLC Arrangement, Ltd and Plc were required to operate "as if they were a single unified economic entity", through common boards of directors, and were also required to operate through "a unified senior executive management.”
The Court stated:
[T]he fact that Ltd and Plc operated in this way pursuant to a contract does not preclude a finding that they "sufficiently influenced" each other – otherwise, any company would be able to place itself outside the reach of the statute (of being "sufficiently influenced" by another company) by forming a contract to govern their relationship.
The Court implicitly rejected a dissenting view in the Court below that “to act in concert with a common aim and mutuality of interest was not to act in accordance with the directions, instructions or wishes of another entity.”
Neal Armstrong. Summary of BHP Billiton Limited v Commissioner of Taxation  HCA 5 under s. 256(5.1).