It was proposed that the applicant (“LMGI”), which was a Netherlands private limited company that was wholly-owned by a Luxembourg public limited company, be merged into its sister company (“LMA”), which was a Luxembourg private limited liability company. The merger was to occur in accordance with the Dutch and Luxembourg cross-border merger laws and the EU Consolidated Company Law Directive. Accordingly, there would be a transfer of the assets and liabilities of LMGI by universal succession of title to LMA as the surviving company and LMGI, as the disappearing company, would cease to exist. LMGI had been assessed for $90 million in Australian capital gains tax and interest on its sale of shares of an Australian company (it had filed objections on the basis that there was no such liability) and had sold the balance of the shares in years for which it had not yet filed returns.
The merger agreement stipulated a condition precedent that the Federal Court confirm that LMA as legal successor would be able to exercise all objection or appeal rights in the current or future proceedings. Before providing such declaration, Davies J stated, based on the expert testimony (at para. 17):
Under European law, Luxembourg law and Dutch law, pursuant to the principle of universal succession … all liabilities of LMGI to tax, including under foreign law (that is, the relevant Australian tax acts), will transfer to LMA by operation of law pursuant to the principle of universal succession upon completion of the merger, as will the rights and obligations of LMGI in respect of such tax liabilities … .
In particular, she noted (at para. 14) the “emphatic” testimony of the Luxembourg law expert that the transfer by universal succession of liabilities “necessarily also entails the transfer of all rights attaching to such liabilities.”
Regarding her acceptance in this regard of “Luxembourg law and Dutch law [which] apply the same principle of universal succession to cross-border mergers” (para. 22), she stated (at paras. 21- 22):
Where a question arises under Australian law as to the status of foreign entity, Australian common law choice of law rules look to the law of incorporation of the entity to determine questions of the entity’s status … Metliss [1958] AC 509 … .
…[T[he determination of the “status” of LMA will include the question as to the legal consequences of the merger with respect to the tax debts of LMGI and any future tax liabilities pursuant to the principles of universal succession.
She concluded (at para. 24):
In consequence, the tax liabilities of LMGI will be assumed by LMA as a result of the merger. Moreover, LMA, as the “taxpayer” under s 175A of the Income Tax Assessment Act 1936 (Cth) … will be entitled to object against assessments which have been issued to LMGI, or which are issued to LMA in its place, and will be “the person” entitled to appeal … in relation to objections from those assessments … . Although those liabilities and obligations (on the one hand) and rights and capacities (on the other) arise under Australian law and are governed by Australian law, Australian law will recognise the operation of Dutch and/or Luxembourg law following the merger as having clothed LMA with the necessary attributes or identity to subject it to those obligations and liabilities and to enable it to exercise those rights and capacities for the purposes of Australia’s tax acts.
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