The Commonwealth Bank of Australia (CBA) has published a statement saying that investors holding their PERLS V hybrid issue will be unaffected by any change to its tax treatment.
Perpetual Exchangeable Resaleable Listed Securities (PERLS V) are securities issued by Commonwealth Bank of Australia. Their distributions are payable quarterly.
Distributions are expected to be fully franked, and holders can therefore expect to receive a combination of the cash distributions and franking credits. If a distribution is unfranked or not fully franked, the cash distribution will generally be increased to compensate holders for the unfranked portion of the distribution. As perpetual bonds, PERLS V have no stated maturity date, but there are certain conversion rights into CBA ordinary shares from October 31, 2014.
CBA stated: “PERLS V is structured on a similar basis to other prior bank hybrid issues including PERLS IV and hybrid raisings by other major banks. The Australian Taxation Office (ATO) has indicated that it may form a different view of the tax treatment of this issue. However, we have agreed a process with the ATO that if they do form a different view, the issue can be resolved independent of individual investors.”
“CBA has agreed with the ATO arrangements such that no matter what outcome, in practice the benefits of the franking credits will be able to be claimed by investors in the normal way and therefore the return to investors will remain unaffected,” it continued.
In fact, in the PERLS V prospectus, it is said that ATO may form the view that the benefits of the franking credits should be denied to holders of the securities, even if CBA has franked the relevant distribution. In that case, CBA would intend to have that view contested in court. It is said that “CBA and ATO have agreed certain arrangements that will ensure the efficient settlement of litigation and management of the tax laws.”
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