The Australian Taxation Office (ATO) released for comment Draft Taxation Determination ATO TD 2008/D15, which considers the Australian (and UK) taxation consequences of paying and receiving a return under an enhanced bond investment by an Australian taxpayer from a UK bank. The Draft Determination was released on 24 October 2008 and comments are invited by 21 November 2008.

Briefly, the arrangement involves an Australian taxpayer purchasing bonds (or similar securities) from a UK bank or financial institution. The bonds are acquired through a limited liability company (LLC), wholly-owned by the taxpayer and established in a jurisdiction other than Australia or the UK.

The jurisdiction of the LLC is chosen so that the payment of interest to the LLC attracts UK interest withholding tax under the treaty between LLC country of incorpor…