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ESICs and the problem with company group structures

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In an article in the latest Thomson Reuters Weekly Tax Bulletin, Arnold Bloch Leibler Senior Associate, Jonathan Ortner, and Lawyer, Peter Scott, highlight a seemingly unintended deficiency in the early stage investment company (ESIC) rules, which results in holding companies being effectively excluded from qualifying as ESICs.

It is now two years since the tax incentives for ESICs in Division 360 of the ITAA 1997 were introduced (click here to read more). In that time, 97 private rulings have been issued by the Commissioner, with at least eight companies receiving unfavourable rulings and failing to qualify as ESICs. However, many more applications have been withdrawn for various reasons including the Commissioner's refusal to rule.

This article by Jonathan and Peter seeks to provide readers with a practical insight into a nuanced issue that is fast becoming a significant roadblock for companies aiming to qualify as ESICs. In particular, significant doubt remains as to how the rules apply to group company structures - an issue that has been recognised by the Commissioner of Taxation in his discussion paper entitled 'Do the early stage innovation tests need to be satisfied by the company that issues shares to investors' (click here to read the discussion paper).

Read the full Weekly Tax Bulletin article here.

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