Blank v Commissioner of Taxation - [2015] FCAFC 154

FEDERAL COURT OF AUSTRALIA
Blank v Commissioner of Taxation [2015] FCAFC 154

Citation: Blank v Commissioner of Taxation [2015] FCAFC 154

Appeal from: Blank v Commissioner of Taxation [2014] FCA 87
Blank v Commissioner of Taxation (No 2) [2014] FCA 517

Parties: VAUGHAN RUDD BLANK v COMMISSIONER OF TAXATION

File number: NSD 590 of 2014

Judges: KENNY, ROBERTSON AND PAGONE JJ

Date of judgment: 29 October 2015

Catchwords: INCOME TAX – appellant participated in profit participation schemes as employee of company group in foreign countries and in Australia – employee allocated “profit participation units” (PPUs) and equal number of shares in holding company – amount payable to appellant on termination of employment – whether amount assessable as ordinary income or as a capital gain – whether amount deferred compensation – PPUs a mechanism for calculation of amount of profit share to be paid to appellant – conditional executory promise to appellant to pay amount on termination – amount was reward for service as deferred compensation – amount assessable as ordinary income – part of amount withheld for discharge of foreign tax liabilities – when income derived – that part of amount was derived when paid by agreement with appellant to foreign tax authorities – whether income exempt under section 23AG of Income Tax Assessment Act 1936 (Cth) as foreign earnings derived from foreign service – apportionment under section 23AG not possible – whether CGT event C2 happened – cost base of asset if CGT event C2 happened – valuation of appellant’s rights under profit participation scheme – whether prejudice caused to respondent if appellant allowed to re-open case – both appeal and cross-appeal dismissed

Legislation: Income Tax Assessment Act 1936 (Cth)
Income Tax Assessment Act 1997 (Cth)
Income Tax Act 1952 (UK)

Cases cited: Federal Commissioner of Taxation v Myer Emporium Ltd [1987] HCA 18; 163 CLR 199
Federal Commissioner of Taxation v McNeil [2007] HCA 5; 229 CLR 656
Le Grand v Federal Commissioner of Taxation [2002] FCA 1258; 124 FCR 53
Abbott v Philbin [1961] AC 352
McLaurin v Federal Commissioner of Taxation [1961] HCA 9; 104 CLR 381
Allsop v Federal Commissioner of Taxation [1965] HCA 48; 113 CLR 341
Federal Commissioner of Taxation v CSR Ltd [2000] FCA 1513; 104 FCR 44
Executor Trustee and Agency Company of South Australia Limited v Federal Commissioner of Taxation [1932] HCA 69; 48 CLR 26
Federal Commissioner of Taxation v Dixon [1952] HCA 65; 86 CLR 540
Reuter v Federal Commissioner of Taxation (1993) 111 ALR 716
Reseck v Federal Commissioner of Taxation [1975] HCA 38; 133 CLR 45
Bridges (Inspector of Taxes) v Hewitt [1957] 1 WLR 59 Donaldson v Federal Commissioner of Taxation [1974] 1 NSWLR 627
Federal Commissioner of Taxation v McArdle (1988) 89 ATC 4051
Scott v Federal Commissioner of Taxation [1966] HCA 48; 117 CLR 514
Henry v Foster (1931) 145 LT 225; 16 TC 605
Dewhurst v Hunter (1932) 146 LT 510; 16 TC 637
Tagget v Federal Commissioner of Taxation [2010] FCAFC 109; 188 FCR 128
Federal Commissioner of Taxation v Cooke (1980) 42 FLR 403
Brent v Federal Commissioner of Taxation [1971] HCA 48; 125 CLR 418
Gerlach v Clifton Bricks Pty Ltd [2002] HCA 22; 209 CLR 478
Lopez v Federal Commissioner of Taxation [2005] FCAFC 157; 143 FCR 574
Chaudri v Federal Commissioner of Taxation [2001] FCA 554; 109 FCR 416
Commissioner of Taxation (NSW) v Meeks [1915] HCA 34; 19 CLR 568
Mount Morgan Gold Mining Co Ltd v Commissioner of Income Tax (Qld) [1923] HCA 37; 33 CLR 76 Commissioner of Taxation v Cam & Sons Ltd (1936) 36 SR (NSW) 544
Australian Machinery and Investment Company v Deputy Commissioner of Taxation [1946] HCA 65; 180 CLR 9 Federal Commissioner of Taxation v French [1957] HCA 73; 98 CLR 389
Roadshow Distributors Pty Ltd v Commissioner of State Revenue [1998] 1 VR 535
Henderson v Federal Commissioner of Taxation (1970) 119 CLR 612
S P Investments Pty Ltd v Commissioner of Taxation (1993) 41 FCR 282; 290
Mordecai v Mordecai (1988) 12 NSWLR 58
Spencer v The Commonwealth (1907) 5 CLR 418
Boland v Yates Property Corporation Pty Ltd (2007) 167 ALR 575
Deputy Commissioner of Taxation v Gold Estates of Australia (1903) Ltd (1934) 51 CLR 509

Text cited: Parsons RW, Income Taxation in Australia: Principles of Income, Deductibility and Tax Accounting (The Law Book Company Ltd, Sydney, 1985)

Dates of hearing: 20 and 21 November 2014

Place: Sydney

Division: GENERAL DIVISION

Category: Catchwords

Number of paragraphs: 152

Counsel for the Appellant and Cross-Respondent: M Richmond SC with T Prince

Solicitor for the Appellant and Cross-Respondent: Clayton Utz

Counsel for the Respondent and Cross-Appellant: J Hmelnitsky SC with G O’Mahoney

Solicitor for the Respondent and Cross-Appellant: Minter Ellison

IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY

GENERAL DIVISION

NSD 590 of 2014

ON APPEAL FROM THE FEDERAL COURT OF AUSTRALIA

BETWEEN:
VAUGHAN RUDD BLANK
Appellant

AND:
AND BETWEEN:
AND:

COMMISSIONER OF TAXATION
Respondent

COMMISSIONER OF TAXATION
Cross-Appellant

VAUGHAN RUDD BLANK
Cross-Respondent

JUDGES:

KENNY, ROBERTSON AND PAGONE JJ

DATE OF ORDER:

29 OCTOBER 2015

WHERE MADE:

SYDNEY

THE COURT ORDERS THAT:
1.The appeal be dismissed.
2.The cross-appeal be dismissed.
3.The appellant pay the respondent’s costs of and incidental to the appeal.
4.The cross-appellant pay the cross-respondent’s costs of and incidental to the cross-appeal.

Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY

GENERAL DIVISION

NSD 590 of 2014

ON APPEAL FROM THE FEDERAL COURT OF AUSTRALIA

BETWEEN: VAUGHAN RUDD BLANK
Appellant

AND:
AND BETWEEN:
AND:

COMMISSIONER OF TAXATION
Respondent

COMMISSIONER OF TAXATION
Cross-Appellant

VAUGHAN RUDD BLANK
Cross-Respondent

JUDGES:

KENNY, ROBERTSON AND PAGONE JJ

DATE:

29 OCTOBER 2015

PLACE:

SYDNEY

REASONS FOR JUDGMENT
KENNY AND ROBERTSON JJ:
INTRODUCTION

This appeal and the cross-appeal are from a judgment of a single judge of the Court delivered on 26 May 2014.
The proceedings below resulted in two sets of reasons for judgment, delivered on 21 February 2014 and on 22 May 2014 respectively: see Blank v Commissioner of Taxation [2014] FCA 87 and Blank v Commissioner of Taxation (No 2) [2014] FCA 517. On 21 February 2014, the primary judge delivered reasons in which he held that payments amounting to USD160,033,328.25 (the Amount), which were made by Glencore International AG (GI) to, or at the direction of, the appellant, were assessable as ordinary income; and ordered that the parties provide short minutes of order to give effect to those reasons. On 27 February 2014, however, the appellant applied to re-open his case in order to argue that s 23AG of the Income Tax Assessment Act 1936 (Cth) (ITAA 1936) applied, with the result that some part of the payments was exempt from tax. The primary judge dismissed this application, with reasons, on 22 May 2014 and made final orders on 26 May 2014.
The proceedings principally concern the correct characterisation, for tax purposes, of payments made by GI to the appellant in the 2007 to 2010 income years, following the termination of the appellant’s employment by his resignation from Glencore Australia Pty Limited (Glencore Australia), a wholly owned subsidiary of GI, on 31 December 2006. The Amount was calculated by reference to the appellant’s entitlement under profit participation arrangements made during the course of his employment by companies in the Glencore group of companies (Glencore Group). The principal issue is whether the payments are assessable as ordinary income under s 6-5 of the Income Tax Assessment Act 1997 (Cth) (ITAA 1997) or, alternatively, s 26(e) of the ITAA 1936; or as a capital gain as a consequence of the ending of a CGT asset under s 104-25 of the ITAA 1997, on the execution of a Declaration of Assignment and General Release by the appellant on 15 March 2007 (the Declaration).
For the reasons stated below, we would dismiss the appeal and the cross-appeal, essentially because in our view the primary judge correctly held that the payments in question were assessable as ordinary income and we discern no error in his Honour’s determination of two other related issues, including his refusal of leave to re-open.
THE FACTS FOUND BY THE PRIMARY JUDGE
The primary facts are not in contest. The parties accepted the primary judge’s findings and analysis in Blank [2014] FCA 87 at [14]-[46]. The following is merely an abbreviated version of those findings, intended to do no more than assist the reader here.
The appellant was employed by GI or a subsidiary between November 1991 and 31 December 2006 in a number of countries, including Australia, from 2002 to the end of 2006. He became an Australian resident for fiscal purposes in 2002. As a consequence of his employment by companies in the Glencore Group, he acquired entitlements to participate in an employee profit participation plan and in replacement plans. On 15 March 2007, some months after he ceased his employment with the Glencore Group, the appellant executed a number of documents, including the Declaration, pursuant to an employee profit participation plan as it then existed, and became entitled to receive the Amount in relinquishment of “his claim to payments with respect to [profit entitlements] allocated in his name together with all preferential and ancillary rights”.
An understanding of the employee profit participation arrangements under which the appellant acquired his entitlements is central to the case. The primary judge gave a detailed account of them in Blank [2014] FCA 87 at [14]-[36]. The following is drawn from that account.
GI operated employee profit participation plans from about 1993 to 2010. Until 2006 there was only one type of profit participation plan, which became known as the ordinary profit participation plan. The original terms of the appellant’s participation in this type of plan were set out in two agreements executed around May 1994: (1) an agreement with GI (formerly called Marc Rich & Co AG) entitled “Profit Participation Agreement” (PPA 1993); and (2) an agreement with Glencore Holding AG (the ultimate holding company of the Glencore Group) entitled “Shareholders’ Agreement (NEWHO)” (SA 1994). These two agreements were “stapled” together, the validity of the PPA 1993 being conditional on the execution of the SA 1994 and the operation of the SA 1994 being conditional on execution of the PPA 1993.
Relevantly, under the SA 1994, the appellant was entitled to be issued shares in Glencore Holding AG (GH) (formerly Newgen AG) from time to time at a price of CHF50 per share (that is, par value) to be paid in cash, provided he had previously executed a Profit Participation Agreement with GI. The appellant could not sell, assign, transfer or otherwise deal with the shares without the prior written consent of GH or the occurrence of a “Triggering Event”. A “Triggering Event” gave rise to a call option for GH, and a put option for the appellant, over all shares in GH held by him at a price equal to their par value of CHF50 per share. The termination of employment by virtue of retirement was a “Triggering Event”.
Broadly speaking, under the PPA 1993, the appellant was granted the right to participate in GI’s future profits “in the form of (a) ‘Genussscheine’ ... and (b) a contractual claim”. A Genussschein (plural Genussscheine) is a profit sharing certificate issued by a company under its articles of association pursuant to Article 657 of the Swiss Code of Obligations. Genussscheine (GS) have no par value and must not be issued in exchange for capital contributions.
The basis for calculating the appellant’s profit participation was the net income as stated in the consolidated statement of income of the consolidated financial statements of the company expressed in US dollars as at December 31, with certain adjustments. The net income was to be “divided by the number of GS actually issued ... and then multiplied by the number of GS actually held by” participating employees during a particular period. The portions of consolidated profits allocated to participating employees would accumulate over the period an employee held GS. On the termination of employment by the Glencore Group, the employee was to return the GS that the employee held. An amount representing the employee’s profit participation was to become due 30 days after notice of termination and to be payable in 20 instalments over five years (with interest).
In 1994 or thereabouts, the appellant made an “Equity Participation Agreement” with GI, according to which the appellant became entitled to payment of the total amount of the Special Equity A and Special Equity B accounts created under that agreement at the same time and subject to the same conditions and limitations as his entitlement to profit participation under the PPA. Nothing was made of this in argument on the appeal.
In August 1996, the appellant executed an amendment to the PPA 1993 (PPA 1993 (as amended)). It is unnecessary to note the changes that the PPA 1993 (as amended) effected, most of which are reflected in the replacement plan made three years later.
In October 1999, the appellant executed a new Profit Participation Agreement (PPA 1999), which governed his entitlements when he came to Australia in 2002. The PPA 1999 provided that:
Any prior oral or written agreement related to the subject matter of this Agreement in particular any Exchange Profit Participation Agreement or Profit Participation Agreement shall be terminated herewith.
For present purposes, the operation of the PPA 1993, PPA 1993 (as amended) and the PPA 1999 was substantially the same.
Under the PPA 1999 (as under the PPA 1993), the appellant received the right to participate in the “results” of GI in the form of GS to be “issued” by GI to him from time to time (for nil consideration) and a contractual claim against GI. Broadly speaking, the calculation of a participating employee’s profit participation remained much the same, although the inclusion of a vesting clause in the PPA 1993 (as amended) was continued and was reflected in this calculation. The amount representing the employee’s profit participation continued to be due 30 days after notice of termination and was to be payable in 20 instalments over five years (with interest). Further, the PPA 1999 continued to be “stapled” to the shareholders’ agreement with GH, with the result that the issue of GS was tied to the appellant’s purchase of a corresponding number of shares in GH.
The primary judge specifically found (from [21(2)]) that under the PPA 1999:
To reflect an agreement between GI and the Swiss Federal Tax Administration (“FTA”) … 55% of the Profit Participation was to be “received” by the [appellant] as a profit distribution under his GS … and the remaining 45% as a contractual claim. The 55% of the Profit Participation “received” as profit distribution under the GS was subject to Swiss dividend withholding tax of 35%, and 35% of 55% of each instalment payable to the applicant would be withheld … .
The GS “issued” were to be held for the [appellant] in a special blocked safekeeping account with GI … .
Generally, the [appellant] could not transfer, alienate, grant a right over, assign, cede or encumber his GS or any of his rights and claims granted under the agreement. However, he could assign the rights and claims and GS granted under the agreement to a personal holding company, trust or foundation controlled by the [appellant] by capital and/or votes, or otherwise, with the prior written approval of GI … .
Upon termination of the [appellant’s] employment with the Glencore Group, the [appellant] was to return to GI all of his GS and execute a Declaration of Assignment and General Release in the form annexed to the agreement … .
Provided that the [appellant] executed a Declaration of Assignment and General Release substantially in the form annexed to the agreement, then 30 days after notification of termination of the [appellant’s] employment, the [appellant’s] Profit Participation would become due …, payable in USD in 20 quarterly instalments … and bearing interest on its unpaid balance at the six month LIBOR USD rate, compounding annually and paid with each instalment … .
The amount of the Profit Participation was determined in accordance with [the PPA 1999]. With effect from 31 December of each year the [appellant] was allocated a portion of the consolidated profits of GI for that year dependent on the number of GS held by the [appellant] at that time (“Periodical Profit Participation”) … and the amounts aggregated over the period in which the [appellant] held the GS to arrive at the total Profit Participation.
GI could offer at any time to repurchase from the [appellant] part or all of the [appellant’s] GS on terms not more favourable than the [appellant’s] Profit Participation, provided GI at the same time offered to repurchase the same number of GH shares at par value … .
In about June 2003, the appellant executed an “Incentive Profit Participation Agreement” (IPPA 2003) with GI and a wholly owned subsidiary of GI. Under the IPPA 2003, rather than being issued GS in GI directly as under the previous profit participation agreements, the appellant was to be allocated “Phantom Units” in GI, essentially as a mechanism for calculating his entitlement to the profit participation ultimately payable to him on the surrender of his rights. Under the IPPA 2003, a Phantom Unit was treated in much the same way as a GS issued under the PPA 1999 for the purposes of calculating the appellant’s profit participation. The other key provisions also remained essentially the same.
The grant of Phantom Units was again tied to the appellant’s purchase of a corresponding number of shares in GH. Only if the appellant elected to pay the purchase price of the shares could he receive the Phantom Units; and the ultimate realisation of his entitlement to profit participation required him to assign the shares back to GH for their par value. As the appellant’s senior counsel observed at the hearing of the appeal, notwithstanding the superficial differences between the IPPA 2003 and the PPA 1999, the profit participation arrangements remained much the same under the IPPA 2003, at least so far as participating employees were concerned.
The IPPA 2003 was subject to amendment around late 2004 but nothing turns on this.
Between May 1994 and 2 January 2002, GI “issued” GS to the appellant (although not in the form of physical certificates) and GH issued an equal number of shares in GH to him. Shortly after 7 July 2003, he was issued with a further 100 shares in GH and allocated 100 Phantom Units.
In 2005, when the appellant held 1,500 GS in GI on the terms of the PPA 1999 (as amended) and 100 Phantom Units on the terms of the IPPA 2003 (as amended) and 1,600 shares in GH, the appellant entered into a new Shareholders’ Agreement with GH (SA 2005) and another “Incentive Profit Participation Agreement” (IPPA 2005) with GI and a subsidiary company, Glencore AG. The IPPA 2005 provided that “[a]ny prior oral or written agreement related to the PPU which are the subject matter of this Agreement shall be terminated herewith”. The ‘PPU’ or profit participation units included the GS and Phantom Units formerly issued. The SA 2005 replaced the SA 1994 and the IPPA 2005 replaced the PPA 1999 and IPPA 2003. Once again, the IPPA 2005 was “stapled” to the SA 2005. The IPPA 2005 was only effective if the appellant executed the SA 2005 and fulfilled his obligations under it to purchase the same number of shares in GH as the number of PPU allocated to him under the IPPA 2005.

Pertinent parts of the IPPA 2005 are set out in Blank [2014] FCA 87 at [36]. Broadly speaking, under the IPPA 2005, the appellant was granted deferred compensation called Incentive Profit Participation (IPP). The IPPA 2005 defined “Profit Participation Units/PPU” as:
... the number of GS actually allocated and participating as of a respective date, whether issued by [Glencore AG] under the Plan and any Incentive Profit Participation Agreement (including this Agreement) and held by GI in accordance with the terms of the Plan and this Agreement or GS issued by GI and held directly by Employees of GI or any of its Subsidiaries pursuant to profit participation agreements.
The last lines recognise that all of the appellant’s GS had become PPUs for the purposes of the 2005 IPPA. The IPP was calculated “on the basis of the results of GI” and in essentially the same manner as profit participation under the PPA 1999. The only major difference in this respect is that the calculation was done with respect to Profit Participation Units (PPUs) rather than GS and Phantom Units. The 2005 IPPA also specified that:
The parties to this Agreement acknowledge that the GS issued by [Glencore] AG and owned and held by GI are being issued solely for the purpose of implementing the Plan and calculating the amount of deferred compensation in the form of PPU which shall be allocated to Employee in accordance with the Plan and this Agreement. Employee shall not have nor be deemed to have any interest whatsoever in the GS. Employee shall not acquire by reason of the Plan or this Agreement any right in or title to any assets, funds or property of GI, [Glencore] AG or any other Subsidiary whatsoever, including, without limiting the generality of the foregoing, any specific funds or assets (including the GS which [Glencore] AG has issued to GI ...).
For the purposes of the IPPA 2005, the appellant was allocated 1,600 PPU with the same Allocation Date as the 1,500 GS and 100 Phantom Units previously issued to him under the PPA 1999 and the IPPA 2003 respectively. As under the PPA 1999, the appellant could not, under the IPPA 2005, transfer, alienate, grant a right over, assign, cede or encumber his rights under the agreement, although he could assign the rights and claims under the agreement to a personal holding company, trust or foundation that he controlled provided GI gave its prior written consent.
The IPPA 2005 was on foot when the appellant’s employment with Glencore Australia ceased on 31 December 2006 and on 15 March 2007 when he became entitled to receive the Amount of USD160,033,328.25. Pursuant to the IPPA 2005 the IPP became “due as of the Due Date [as defined], provided that a declaration of assignment and general release substantially in the form as per Annex C hereof has been executed by the Employee and submitted to GI”. Annex C was a Declaration of Assignment and General Release which provided that in consideration of the payment of a sum (as would be stated), the Employee relinquished his claim to payments with respect to PPU and GS allocated in his name together with all preferential and ancillary rights to GI and assigned his shares in GH together with all preferential and ancillary rights to GH. As under the IPPA 2003, the effect of the definition of “Due Date” and other clauses in the 2005 IPPA was that the IPP became due 30 days after the termination of the appellant’s employment and was payable by 20 equal instalments, with interest. As the appellant’s senior counsel observed, “there was really no change so far as the taxpayer was concerned in his entitlements by virtue of this agreement being entered into. He was entitled to the very same amounts that he would have been entitled to had it not been [made]”.
As the primary judge recounts in Blank [2014] FCA 87 at [38]-[39], after his employment with Glencore Australia ended in December 2006, the appellant executed the Declaration on 15 March 2007. By the Declaration, in consideration for the Amount of USD160,033,328.25 and CHF80,000 the appellant: (1) relinquished “his claim to payments with respect to the PPU and GS allocated in his name together with all preferential and ancillary rights, to GI”; (2) assigned “all GS, registered and/or held in his name together with all preferential and ancillary rights, to GI, and irrevocably [authorised] GI to take over the respective certificates”; and (3) assigned “all his shares of GH, registered and/or held in his name together with all preferential and ancillary rights to GH, and irrevocably [authorised] GH to take over the respective certificates”. Notwithstanding the form of the Declaration, GH was to pay CHF80,000, being the par value of the appellant’s shares in GH, and GI was to pay USD160,033,328.25 in accordance with the “conditions and limitations” provided in the IPPA 2005. As already indicated, pursuant to the IPPA 2005, the Amount of USD160,033,328.25 was payable in 20 instalments over a five year period (together with interest at the six month LIBOR rate for USD on the outstanding balance of the debt), with the final instalment being payable on 31 December 2011.
In January 2008, the appellant (through his agent in Switzerland) executed an agreement with GI to alter his repayment schedule. The effect was that he agreed that GI would withhold the first four instalments in order to pay his dividend withholding tax liability to the Swiss Federal Tax Administration (FTA). The primary judge recorded that the parties had accepted that, for present purposes, it was immaterial that the payments were treated as, in part, subject to Swiss dividend withholding tax: Blank [2014] FCA 87 at [41].
The primary judge recorded that from 31 July 2007 until 1 July 2010, in accordance with its contractual obligations GI paid to the appellant, or dealt with at his direction, 14 instalment payments. The timing and amount of the payments, including the principal and interest component of each payment, is set out in a table in his Honour’s reasons: see Blank [2014] FCA 87 at [47].
DECISIONS OF THE PRIMARY JUDGE
As earlier indicated, in reasons delivered on 21 February 2014, the primary judge held that the payments made by GI to the appellant in the income years 2007 to 2010 were assessable as ordinary income; and on 27 February 2014, the appellant applied to re-open his case in order to argue that s 23AG of the ITAA 1936 applied to exempt part of the Amount from tax. The primary judge dismissed this application on 22 May 2014 and made final orders on 26 May 2014.
The beginning and end of the primary judge’s analysis of the nature of the payments were the agreements. His Honour stated (Blank [2014] FCA 87 at [95]):
There can be no doubt, if the recitals (called preamble) to the instruments under the last two manifestations of the PPPs – the IPPA 2003 and the IPPA 2005 – can be taken as a guide, that the plans were intended by the relevant parties – GI, [Glencore] AG and the applicant – to provide the applicant with deferred compensation in consideration of the services to be rendered by the applicant to his Glencore Group employer. Further support for this conclusion is to be drawn from the operative part of the instruments, in the case of the IPPA 2005 – the definition of Incentive Profit Participation/IPP and Plan in paras 10 and 16; Clause [A.1.1]; “GI grants Employee deferred compensation…”; and Clause A.1.2 refers to GS being “issued solely for the purpose of … calculating the amount of deferred compensation”.
The primary judge rejected the appellant’s submission that the GS were themselves provided as a reward for services and that, subsequent to the termination of his employment, he simply received the proceeds of the realisation of capital assets: Blank [2014] FCA 87 at [96]-[102], stating (at [102]) that:
It is the money constituting the Amount, not the contractual right to the Amount, which is the reward for his services and if that analysis be correct, it is the money constituting the Amount which is ordinary income not the monetary value of the contractual right.
Having found that the payments made by GI to the appellant were assessable as ordinary income, it was unnecessary for the primary judge to consider the respondent Commissioner’s contention that, if the GS were properly characterised as assets of the appellant, then they were revenue assets and the gain on their realisation was ordinary income according to the principles in Federal Commissioner of Taxation v Myer Emporium Ltd [1987] HCA 18; 163 CLR 199. Nor was it necessary for him to consider the Commissioner’s contention that the payments were income from property by analogy with the decision of the High Court in Federal Commissioner of Taxation v McNeil [2007] HCA 5; 229 CLR 656. His Honour nonetheless commented that these contentions had “no arguable merit”: Blank [2014] FCA 87 at [94].
The primary judge rejected the Commissioner’s alternative contention that the payments were non-share equity interests in GI under s 974-70(1) of the ITAA 1997, read with item 1 or item 2 in the table in s 974-75(1) and assessable under s 44(1) of the ITAA 1936 as dividends under s 159GZZZP of the ITAA 1936 or as non-share dividends under s 974-120 of the ITAA 1997. His Honour stated ([2014] FCA 87 at [65]) that:
Despite the particulars provided by the Commissioner … it was common ground that the applicant was not a “member or stockholder” of GI such as to attract Item 1 of the table in s 974-75(1). As noted … by virtue of s 974-75(2), the other items of the table in s 974-75(2) do not give rise to an equity interest in GI unless the scheme is a “financing arrangement” for GI.
His Honour held that there was no financing arrangement: Blank [2014] FCA 87 at [74]–[76], [84]-[87]. There was therefore no non-share equity interest in GI under s 974-70(1) and the payments to the appellant could not be dividends or non-share dividends: see Blank [2014] FCA 87 at [90].
The primary judge also rejected the Commissioner’s other contention that the payments to the appellant were assessable as employment termination payments (ETPs), stating that “the fact that the termination of his employment was an occasion by reference to which the Amount became payable, is not sufficient to enable it to be said that the payments were made in consequence of the termination of his employment: Le Grand v Commissioner of Taxation [[2002] FCA 1258,] 124 FCR 53 at [33]”: see Blank [2014] FCA 87 at [106].
Since the primary judge rejected the appellant’s submission that the payments were only assessable as a capital gain, it was unnecessary for him to determine the market value of the appellant’s contractual rights under the profit participation arrangements when he became an Australian resident on 2 January 2002, although his Honour did in fact outline his views on the issue. The primary judge stated that he preferred the valuation methodology of Mr Lonergan, an expert witness on whose evidence the appellant relied, to that of Mr Samuel, on whose expert evidence the Commissioner relied, on the basis that it “not only accords with reality, but is supported by the authorities”. Nonetheless, he preferred “the input of Mr Samuel’s figures into Mr Lonergan’s methodology”, noting that “Mr Samuel conceded … if that were done, his valuation would more likely approximate a maximum of AUD77 million as opposed to Mr Lonergan’s AUD103 million”: Blank [2014] FCA 87 at [111].
In his 22 May 2014 reasons, the primary judge explained his refusal of the appellant’s application for leave to re-open on the basis that the appellant’s argument with regard to s 23AG had insufficient merit to warrant the grant of leave: Blank v Commissioner of Taxation (No 2) [2014] FCA 517 at [41]. But for this, his Honour would apparently have granted the leave sought: Blank [2014] FCA 517 at [14], [23]. His Honour saw little merit in the appellant’s submission that some part of the payments qualified as “foreign earnings derived by [him] from … foreign service” and was thus exempt from tax under s 23AG(1) of the ITAA 1936. Whilst, in his Honour’s view, the payments qualified as “foreign earnings”, his Honour considered that they were not exempt under s 23AG(1) because the payments were not derived by the appellant from “foreign service”: Blank [2014] FCA 517 at [31]. This was because the payments were derived by the appellant from both foreign and Australian service and that was not enough to qualify for an exemption from tax. For the reasons his Honour stated, he did not consider that apportionment was either appropriate or possible.
Also in his 22 May 2014 reasons, the primary judge held that the appellant derived the first two payments when, with the appellant’s agreement, they were paid to the FTA by GI on his behalf and they were not derived at the earlier time when they were simply withheld by GI from payment to the appellant: Blank [2014] FCA 517 at [45].
The appellant appeals from the final orders of the primary judge made on 26 May 2014 that gave effect to his reasons of 21 February and 22 May 2014 and the respondent cross-appeals from those orders.
GROUNDS OF APPEAL AND CROSS-APPEAL AND NOTICE OF CONTENTION
On the appeal, the appellant’s main challenge was to the primary judge’s finding that the payments made by GI to him were ordinary income as a reward for services derived when received (appeal grounds 1-10). In the alternative, the appellant contested his Honour’s decision that s 23AG of the ITAA 1936 could not apply and contended that leave should have been granted to him to re-open his case, with the result that a substantial part of the payments (if otherwise assessable) should be held exempt from tax under s 23AG(1) (appeal grounds 11-14). The appellant further contended that the primary judge erred in failing to determine the value of the cost base of the appellant’s CGT asset (appeal ground 15) and that his Honour ought to have determined the cost base at AUD77 million.
The Commissioner cross-appealed, challenging the primary judge’s conclusion in his 22 May 2014 reasons that the appellant only derived as income the amounts represented by the first two payments when, with the appellant’s agreement, they were paid to the FTA by GI on his behalf.
By a Notice of Contention, the Commissioner further contended that the primary judge should have refused the application to re-open on the ground of prejudice. The Commissioner also contended that the primary judge erred in concluding that the payments were not ordinary income in accordance with FCT v Myer Emporium 163 CLR 199 and that the payments were not ETPs within the meaning of s 82-130(1) of the ITAA 1997. Lastly, in the event that the Court held that the appellant was assessable merely on a capital gain, then the Commissioner contended that the primary judge ought to have assessed the cost base without including any value attributable to any future period of the appellant’s employment. This resulted, in the Commissioner’s submission, in an assessed cost base of around AUD22 million.
PARTIES’ SUBMISSIONS
The appellant’s submissions
The appellant emphasised that the purpose of the profit participation arrangements was, as a 2007 Glencore Group prospectus indicated, to align “the interests of management and key employees with those of Glencore”. In this context, the appellant’s primary submission was that his reward for services was not the Amount of USD160,033,328.25; rather it was the receipt of shares and the PPUs (that is, the 1,500 GS and 100 Phantom Units) and associated contractual rights that GI had granted to him over time. Referring to Abbott v Philbin [1961] AC 352, the appellant characterised a PPU as a “chose in action capable of being turned to pecuniary account” or “an equity-like instrument to enable the calculation of the appellant’s share of the consolidated annual profit of [GI] accrued while he was a shareholder of … GH”. The appellant contended that the PPUs had a significant value to him at the time they were granted even though the amount ultimately payable was uncertain.
In written submissions developed at the hearing, the appellant submitted these rights were assessable at the time of grant as ordinary income under either s 25(1) of the ITAA 1936 or s 6-5 of the ITAA 1997, alternatively, under s 26(e) of the ITAA 1936. The appellant submitted that the shares and the 1,200 GS (and associated rights) granted to him before 2002 were exempt or non-assessable at grant because he was a non-resident: see s 25(1) of the ITAA 1936 and ss 6-5(3) and 6-10(5) of the ITAA 1997. The appellant added that the PPUs (the 300 GS and 100 Phantom Units) granted after that time may have been exempt or non-assessable under s 23L of the ITAA 1936 but that issue did not need to be determined. The appellant submitted that he exploited the rights conferred on him in previous years by executing and delivering the Declaration in March 2007, upon which the Amount became due (as a debt). This exploitation of rights involved the disposal of a CGT asset under s 104-25 of the ITAA 1997 giving rise to a capital gain in the 2007 year alone. The appellant further submitted that, on being paid the Amount (by instalments), he received a benefit but that benefit was not a reward for services. Rather, the benefit was the proceeds of the realisation of rights previously granted to him.
The appellant contended that the primary judge had erroneously focussed on the IPPA 2005 to the exclusion of the prior grant of rights and shares in GH. He submitted that the IPPA 2005 should not be considered in isolation and that it was important to bear in mind that, before executing the IPPA 2005, he had been a GH shareholder and received, as fully vested, the 1,500 GS and 100 Phantom Units. The appellant submitted that his Honour overly emphasised the IPPA 2005’s description of the PPUs as “deferred compensation” and that Abbott v Philbin [1961] AC 352 was a reliable guide in this case.
One would arrive at the same result, so the appellant contended, if some of the Amount were income as reward for services, because it would be impossible to ascertain by calculation the extent to which the Amount related to income or to capital. In this circumstance, so the appellant submitted, the entire Amount would be capital in nature, citing McLaurin v Federal Commissioner of Taxation [1961] HCA 9; 104 CLR 381, Allsop v Federal Commissioner of Taxation [1965] HCA 48; 113 CLR 341 and Federal Commissioner of Taxation v CSR Ltd [2000] FCA 1513; 104 FCR 44.
The appellant contended that, given that taxing legislation is to be construed to avoid double taxation (cf. Executor Trustee and Agency Company of South Australia Limited v Federal Commissioner of Taxation [1932] HCA 69; 48 CLR 26 at 44 (Dixon J)), then it would be wrong for the Court to identify two rewards for services – one on grant, which was taxable either as ordinary income or under s 26(e), and another on the exercise of the rights conferred on him.
Alternatively, if the reward for services was the Amount, then the appellant accepted that the Amount was income under s 6-5 of the ITAA 1997 derived by him in the 2007 year, because that was when the profit from the relinquishment of the contractual rights giving rise to the Amount was realised; or under s 15-2 of the ITAA 1997 derived in the 2007 year because that is when the relevant benefit was provided by GI to him.
If, however, the Court were to hold that the Amount was ordinary income, then, the Court should, so the appellant submitted, exercise its discretion to allow him to re-open his case on the grounds that, first, his Honour had erroneously concluded s 23AG of the ITAA 1936 did not apply and, secondly, there would be no prejudice to the Commissioner if leave were given. The appellant argued that the primary judge had erred in construing s 23AG because he had read the provision as if it applied only to exempt from tax “any foreign earnings derived ... exclusively from that foreign service” (emphasis in original). The appellant submitted that the authorities indicated that the appropriate method of apportionment in this case was to have regard to the number of days spent in foreign service compared to the number of days not spent in foreign service. In the alternative, the appellant submitted that, having regard to the rights issued to the appellant in respect of his foreign service, it was possible to identify USD123,944,037 of the Amount as exclusively for the appellant’s foreign service, being the amount flowing from the appellant’s relinquishment of 1,200 PPUs issued because of his prior service in South Africa, Switzerland and Hong Kong.

The appellant argued that the Commissioner’s contention that the payments made to him were ETPs received in consequence of the termination of his employment was wrong because the payments were either deferred compensation as a reward for services rendered (as the primary judge held) or the proceeds of the realisation of benefits granted as a reward for services in earlier years (as the appellant maintained).
Lastly, the appellant contended that, if he were to succeed, then the Court should conclude that the market value and hence the cost base of his CGT asset was AUD77 million, noting that the primary judge considered the likely range to be between AUD77 million and AUD103 million and that on the appeal the appellant did not contend for a valuation in excess of AUD77 million.
The Commissioner’s submissions
The Commissioner maintained that the primary judge had correctly held that the payments of the Amount received by the appellant were ordinary income in the nature of deferred compensation for services rendered during his employment with companies in the Glencore Group. In this connection, the Commissioner referred to Federal Commissioner of Taxation v Dixon [1952] HCA 65; 86 CLR 540 at 556, where Dixon CJ and Williams J had observed that “if payments are really incidental to an employment, it is unimportant whether they come from the employer or from somebody else and are obtained as of right or merely as a recognized incident of the employment or work”. The Commissioner also referred to the remarks of Hill J in Reuter v Federal Commissioner of Taxation (1993) 111 ALR 716 at 730, to the effect that for income tax purposes it would be immaterial “whether an amount which is a reward for services is paid to the taxpayer in advance of the services being performed ... or after the services have been performed …”.
The Commissioner contended that the appellant’s argument about the GS, Phantom Units and PPUs was flawed for a number of reasons. First, the Commissioner submitted that the appellant’s characterisation of the Amount as the exploitation of the “valuable rights” conferred earlier deflected attention from the real issue as to the character of the payments received by him. To quote the Commissioner, “[w]hat matter[ed] [was] not the classification of the rights discharged by the payment but the character of the payment itself”. Citing Jacobs J in Reseck v Federal Commissioner of Taxation [1975] HCA 38; 133 CLR 45 at 56, the Commissioner submitted that, if a payment under an agreement has the character of deferred compensation, then it is income according to ordinary concepts. Secondly, the Commissioner submitted that particular aspects of the profit participation arrangements could not be reconciled with the appellant’s contention that the GS were issued as “a reward in and of themselves”. The GS, Phantom Units and PPUs were not, so the Commissioner said, capable of being turned into pecuniary account, in the sense of being sold or pledged or held to produce a stream of income. Thirdly, the Commissioner submitted that the appellant’s reliance on Abbott v Philbin [1961] AC 352 was misplaced. Referring to Bridges (Inspector of Taxes) v Hewitt [1957] 1 WLR 59, the Commissioner submitted that, in the appellant’s case, the rights were only ever to be discharged by payment in cash in the future if he worked and if profits were derived, noting that the right to be paid only arose once his employment was terminated, and only on the terms already provided for in the profit participation agreement.
As already noted, in the cross-appeal the Commissioner contended that the primary judge erred in determining that two payments, which were due and payable to the appellant during the 2007 income year but withheld in that year by GI in order to discharge his Swiss tax obligations, were not derived by the appellant in that year.
The Commissioner supported the primary judge’s construction of s 23AG, on the basis that, for an amount to come within the exemption, the whole of the amount within the exemption must meet the statutory requirement of being “from … foreign service”. Further, as regards the appellant’s application for leave to re-open, the Commissioner submitted that the primary judge had failed to take into account the prejudice that the Commissioner would suffer if leave were granted. The Commissioner pointed to matters that he would have explored with the appellant in cross-examination and other evidence that might have been led had the s 23AG issue been raised at an earlier time.
In addition, the Commissioner submitted that the payments to the appellant could be characterised as ETPs within the meaning of ss 27A(1) of the ITAA 1936 and 82-130(1) of the ITAA 1997, because there was sufficient causal nexus between the termination of the appellant’s employment and the payment of the disputed amounts for it to be said that the one was in consequence of the other. The Commissioner also relied on FCT v Myer Emporium 163 CLR 199 to support an alternative proposition that, if the Court were of the view that the appellant’s gain was the proceeds of the realisation of assets, then those assets were held on revenue account, not capital account as the appellant’s argument assumed. Finally, the Commissioner argued that, if the Court were to hold that the appellant was assessable merely on a capital gain, then the primary judge erred in his assessment of the cost base, having regard to the evidence of Mr Samuel at trial as to the appropriate method of valuation.
CONSIDERATION
Whether the payments were ordinary income
Competing approaches
Income is not a technical concept and the word “income” is to be construed in accordance with ordinary usages. In Australia, people commonly use the word “income” to refer to a reward for services: cf. Reuter v FCT 111 ALR at 730. This appeal largely turns on whether the primary judge was correct to characterise the payments of the Amount made to the appellant in the 2007 to 2010 income years as income within ordinary concepts, being the reward for services rendered by him.
One may accept that, as the appellant submitted, from the perspective of the Glencore Group, the purpose of the profit participation arrangements was, as a 2007 prospectus said, “to promote management stability and to preserve Glencore’s capital” and that the arrangements led to “an alignment of the interests of management and key employees with those of Glencore”. This does not, however, identify, for tax purposes, the character of the payments made to the appellant, as the appellant at one point may have suggested.
As we have seen, the primary judge held that the payments were the reward for services derived by the appellant when he received them. On the one hand, the Commissioner’s case was that his Honour was correct and that the payments were in the nature of deferred compensation. The Commissioner’s argument was, in essence, that the profit participation agreements (PPA 1993, PPA 1999, IPPA 2003 and IPPA 2005) provided contractual rights to receive cash instalments on termination. Senior counsel for the Commissioner submitted that the profit participation agreements provided an executory promise to pay money, “being a share of profit on termination”, in instalments and subject to withholding for Swiss tax. On the other hand, the appellant argued that the primary judge was in error and it was the shares, the PPUs and associated contractual rights conferred on him under the profit participation arrangements that were the reward for services rendered by him. He sought to substantiate his position by reference to various authorities, particularly Abbott v Philbin [1961] AC 352.
In order to assess the appellant’s argument, we consider first Abbott v Philbin and the Australian cases in line with it on which the appellant particularly relied. We indicate the way in which the appellant relied on these cases, but defer discussion of the Commissioner’s position until later.
Abbott v Philbin
The issue in Abbott v Philbin [1961] AC 352 was whether the taxpayer was rightly assessed as to income tax as “perquisites or profits” of employment in Schedule E of the Income Tax Act 1952 (UK), on the difference between the market price of the shares taken up when he exercised a share purchase option in 1956 and the option price of the shares in 1954 when the option was granted. The taxpayer, who was the company secretary, had been granted an option to purchase shares in the company at the then market price and exercised the option when the market price of the shares increased. The options were non-transferable and to expire on the earlier of 10 years, retirement or death.
The House of Lords held that the taxpayer was wrongly assessed on the difference between the market price in 1956 and the option price less the cost of the option in 1954. The relevant “perquisite” (or, in terms familiar in Australian law, “reward for service”) was the original grant of the option, which had not been brought to tax. This was because, as soon as it was granted, the option to take up shares was capable of being turned to pecuniary account: see [1961] AC at 367 (Viscount Simonds), 371 (Lord Reid) and 378 (Lord Radcliffe). Viscount Simonds said (at 366) that the test was whether the option was something “by its nature capable of being turned into money”. Lord Reid said (at 371) that “the test must be the nature of the right and not whether this particular option could readily have been turned to pecuniary account in ... 1954”. This latter observation bears particularly on the analysis in the present case.
Plainly enough, the option to take up shares was, as Viscount Simonds said, “something which the employee thinks it worth his while to pay for ... And it is something which can assuredly be turned to pecuniary account”: [1961] AC at 365-366. Viscount Simonds continued:
There was no bar, express or implied, to a sale of the shares as soon as the option was exercised, and there could be no difficulty in the grantee arranging with a third party that he would exercise the option and transfer the shares to him.
Viscount Simonds added (at 367):
There could not be one perquisite at the date of the grant and a second perquisite when the shares were taken up. ... I do not find it easy to say that the increased difference between the option price and the market price in 1956 ... arises from the office [of employment]. It will be due to numerous factors which have no relation to the office of the employee, or to his employment in it.
Lord Reid, who approached the matter a little differently, said (at 372):
If in fact this type of option is a kind of right which can be turned to pecuniary account, what more is necessary to make it a perquisite? I have not been able to find any clear answer … in this case. It appears to me that if a right can be turned to pecuniary account that in itself is enough to make it a perquisite.
Lord Radcliffe adopted a similar course of reasoning to Lord Reid, stating (at 377) “the appellant is right in saying that what taxable receipt there is lies in the acquisition of the option, and that if it had a monetary value when received it is that value that represents the profit or perquisite of the office”. His Lordship expanded on this simple statement (at 378-379), saying:
I think that the Revenue are right in saying that a line has to be drawn somewhere between convertible and non-convertible benefits ... . What I do not think, however, is that a non-assignable option to take up freely assignable shares lies on that side of the line which contains the untaxable benefits in kind. The option, when paid for, was thereafter a contractual right enforceable against the company at any time during the next 10 years so long as the holder paid the stipulated price and remained in its service. That right is, in my opinion, analogous for this purpose to any other benefit in the form of land, objects of value or legal rights. It was not incapable of being turned into money or of being turned to pecuniary account within the meaning of these phrases in Tennant v Smith [[1892] AC 150] merely because the option itself was not assignable. What the option did was to enable the holder at any time, at his choice, to obtain shares from the company which would themselves be pieces of property or property rights of value, freely convertible into money. ... I think that the conferring of a right of this kind as an incident of service is a profit or prerequisite which is taxable as such in the year of receipt, so long as the right itself can fairly be given a monetary value ...
The advantage which arose by the exercise of the option ... was not a perquisite or profit from the office during the year of assessment: it was an advantage which accrued to the appellant as the holder of a legal right which he had obtained in an earlier year ... . The quantum of the benefit, which is the alleged taxable receipt, is not in such circumstances the profit of the service: it is the profit of his exploitation of a valuable right.
Lord Reid also considered that there was another difficulty, which might point to grant of the option itself as the reward for services, remarking (at 372-373):
Rule 1 taxes a person exercising an office or employment of profit “in respect of all salaries, fees, wages, perquisites or profits whatsoever therefrom for the year of “assessment”. It does not say salaries or perquisites received during the year of assessment. It may be difficult to relate a perquisite strictly to a particular year. But if a reward is given in the form of an option and the option is itself the perquisite, it would generally be sufficiently related to the year in which it is given to be properly regarded as a perquisite for that year. If, on the other hand, the option is not the perquisite—if there is no perquisite until the option is exercised and shares are issued, it may be many years later—in what sense would the shares be a perquisite for the year when they were issued. There would be no relation whatever between the service during that year and the giving of the option many years earlier or the exercise of the option during the later year. I do not wish to express any concluded opinion on this point but it does seem to lend support to the conclusion which I have reached on other grounds.
(Original emphasis.)
We note here that the primary judge drew attention to this second aspect: namely, that, in the case of a grant of an option to take up shares, there may be no relevant relationship between the profit and service in that year or in the year of grant to bring the profit within the charge to tax. We return to this below.
The parties differed about the significance of Abbott v Philbin [1961] AC 352. At the hearing of the appeal, senior counsel for the appellant submitted that the appellant’s case was analogous to Abbott v Philbin and that the “benefit that the appellant obtained by the exercise of the ... rights in ... 2007 ... had to do with the ... stellar performance of Glencore in the period after he acquired the rights”. The appellant’s point was that he had been given benefits (in the form of issued shares and PPUs) between 1993 and 2003 for services rendered, which could be turned to pecuniary account and were assessable as ordinary income, alternatively, had a value to him that could be brought to tax under s 26(e). As the appellant’s senior counsel put it, these benefits were either of a contractual nature or equity-like interests in the Glencore Group that would “accrue value to him regardless of the extent to which he performs services”. The appellant, so his senior counsel said, acquired “a combination of contractual rights and shares which confer an entitlement irrespective of whether any services are actually performed or the quality of those services”. There was, so he said, no other voluntary act to be done by any Glencore Group company, which was bound to make payment to the appellant, who was to be taxed at the time the benefit was granted, not when it was exploited.
The Commissioner took a contrary view and submitted that the appellant’s reliance on Abbott v Philbin [1961] AC 352, as well as Donaldson v Federal Commissioner of Taxation [1974] 1 NSWLR 627 and Federal Commissioner of Taxation v McArdle (1988) 89 ATC 4051, was misplaced.
Donaldson v Federal Commissioner of Taxation
Mr Donaldson was a manager of a company. The employer company issued options to acquire shares to him under a “Supplemental Key Personnel Option Scheme”. The Scheme included a provision that “the optionee [was] to continue to serve” the company for a certain period, depending on age and position, and it restricted the assignment of rights. The Supreme Court of New South Wales held in Donaldson v FCT [1974] 1 NSWLR 627 that a benefit of an income nature was “allowed, given or granted” to Mr Donaldson under the Scheme, within the meaning of s 26(e) of the ITAA 1936. In reaching this conclusion, reference was made to Windeyer J’s remarks in Scott v Federal Commissioner of Taxation [1966] HCA 48; 117 CLR 514 at 525-526, where Windeyer J said:
As I read s. 26(e) its meaning and purpose is to ensure that certain receipts and advantages which are in truth rewards of a taxpayer’s employment or calling are recognized as part of his income. In other words the enactment makes it clear that the income of a taxpayer who is engaged in any employment or in the rendering of any services for remuneration includes the value to him of everything he in fact gets, whether in money or in kind and however it be described, which is a product or incident of his employment or a reward for his services. If instead of being paid fully in money, he is remunerated, in whole or in part, by allowances or advantages having a money value for him they must be taken into account. The enactment does not bring within the tax-gatherer’s net moneys or moneys’ worth that are not income according to general concepts. Rather it prevents receipts of money or moneys’ worth that are in reality part of a taxpayer’s income from escaping the net.
Citing Abbott v Philbin [1961] AC 352, Bowen CJ in Eq concluded (at 642) that such benefits as Mr Donaldson received were to be “regarded as being in the nature of a bonus or an addition to salary and are of an income nature, where they are conferred in relation to the employment or to services rendered” and were a relevant benefit within s 26(e). His Honour concluded that the benefit could be valued and its value expressed in money; and the benefit had a value to Mr Donaldson in the year of grant. His Honour said (at 643), “[t]o say the option rights could not be exercised in the year of income is no answer to the application of s. 26(e). Indeed, it is to confuse the enjoyment of the fruit of the rights with the enjoyment of the rights, a mistake made in argument on behalf of the Crown in Abbott v. Philbin”. His Honour added that s 26(e) made assessable as income “the value to the taxpayer of the benefit allowed, given or granted to him, that is to say, the rights conferred on him which others lack”.
The appellant submitted that the circumstances of the present case were “closely analogous to the rights which the taxpayer had in Donaldson”. The appellant’s senior counsel submitted that “[i]t’s as if he received shares without the PPUs attached to them. It’s as if he had received shares from the time of each allotment of shares and PPUs, had become an equity holder with certain rights to redeem those shares at future times, death or disability or termination and so on. That’s really what this structure has done.”
Federal Commissioner of Taxation v McArdle
The issue in FCT v McArdle 89 ATC 4051 was a little different, although also involving options. Between late 1975 and early 1980 Mr McArdle was granted options to purchase stock in the company that employed him. He also entered into agreements with the company under which, on exercising the rights under the agreements, he would receive a cash payment equal to the excess of the value of the stock over the exercise price of the options. In late 1981 Mr McArdle surrendered his stock options and stock appreciation rights in return for a lump sum payment of $1,100,000. A Full Court of this Court (Davies, Gummow and Lee JJ) upheld the judgment of the trial judge that the agreement to pay the lump sum was not made in consequence of his employment but as consideration for the surrender of his options and appreciation rights. In relation to s 26(e) their Honours said (at 4,052):
The provision brings into a taxpayer’s assessable income the value to him of all allowances etc. given or granted to him in respect of or in relation to any employment of or services rendered by him. One effect of the provision is to overcome the principle enunciated in the United Kingdom in Tennant v Smith (1892) 3 T.C. 158 that a perquisite of office is not taxable unless it can be turned to pecuniary account. See also Abbott v Philbin [1961] AC 352.
Under sec. 26(e), it is not the benefit itself which is assessable income but only the value thereof to the taxpayer.

Having discussed both Donaldson v FCT and Abbott v Philbin, their Honours considered whether the amount of $1.1 million was assessable to tax, holding that (1) this benefit was the benefit conferred by the agreement he made with the company in 1981, which had a value equal to or less than the surrender by Mr McArdle of the options and rights held by him; and (2) the benefit was not a grant assessable to Mr McArdle under s 26(e) “but rather the exploitation by him of rights received in previous years, the value whereof would have been assessable under sec. 26(e) in those years but for the operation of sec. 26AAC(10)”: FCT v McArdle 89 ATC at 4058. Their Honours agreed with the primary judge that s 25(1) of the ITAA 1936 had no application because the amount of $1.1 million was a capital receipt “being received as consideration for the surrender of valuable rights”: FCT v McArdle 89 ATC at 4059.
At the hearing, senior counsel for the appellant acknowledged that there were differences between the appellant’s case and FCT vMcArdle but submitted that, as in FCT v McArdle, the appellant “should be seen in the later year as exploiting the valuable contractual rights acquired at the earlier time which were the reward for service when granted”.
Federal Commissioner of Taxation v McNeil
At the hearing, senior counsel for the appellant further submitted that, in addition to the authorities discussed above, the appellant’s case was supported by FCT v McNeil 229 CLR 656, where the principal issue was whether the taxpayer had derived income on the grant of what were termed “sell-back rights”. In 1992, the taxpayer’s shareholding in St George Building Society Limited was converted into ordinary shares in St George Bank Ltd. Some years later, the Bank announced an off-market buy-back of ordinary shares under a capital reduction scheme. Under the scheme, the taxpayer was issued put options on 19 February 2001, which meant that she could require the Bank to purchase her shares for a fixed amount of $16.50 per share, which was above the share market price. The put options or “sell-back rights” were issued and listed on that date at a market value of $1.89. On 2 April 2001 the taxpayer received the proceeds of the sale of her sell-back rights ($576.64). The taxpayer conceded that an amount of $62.64 representing the increase in the realisable value of the sell-back rights since their issue date was assessable as a capital gain. The question was: what was the correct characterisation of the balance ($514) representing the market price of the put options as at the date of issue? The majority of the High Court held that the grant of the sell-back rights to the taxpayer was a derivation of income and assessable to tax on this basis. The majority reached this conclusion after a careful examination of the documents by which the share buy-back procedures were implemented. Citing Abbott v Philbin [1961] AC 352, the majority found that under these documents the taxpayer’s rights were “accrued, not merely executory, and were vested in her”: 229 CLR 656 at [27] (Gummow A-CJ, Hayne, Heydon and Crennan JJ). The majority concluded (at [51]) that “when the taxpayer’s sell-back rights were granted … ‘for the absolute benefit’ of the taxpayer, as stated in the Sell Back Right Deed Poll, there was a derivation of income by her represented by the market value of her rights of $514”.
Senior counsel for the appellant submitted that what the appellant acquired under the profit participation agreements was “very similar” to the sell-back rights at issue in FCT v McNeil. That is, so he submitted, the appellant had “a right to sell back the shares on the PPUs in return for a sum of money”. Senior counsel further submitted:
But, more importantly, what the [High] Court is accepting here as being income is the sell-back right itself, which is a chose in action to receive a sum of money, so we say there is no principle of tax law that says the taxpayer who receives a chose in action which is a right to receive a sum of money does not derive income being the market value of that right at the time of grant, but only derives it when it’s paid … .
… Importantly, the High Court saw no distinction needed to be drawn between Abbott v Philbin, which was the right to receive property, compared to the rights in St George, which were right[s] to receive money.
The profit participation agreements and the relevant rights
Relevantly for this case, Abbott v Philbin, Donaldson v FCT, FCT v McArdle and FCT v McNeil show that, in determining what is the reward for services, the focus is on the agreement that is said to confer the reward for services. Not everything that can be turned to pecuniary account falls within the ordinary concept of income or s 26(e) of the ITAA 1936. Whether a right or bundle of rights can be turned to pecuniary account in the way those authorities contemplate depends on the agreement that creates them and what that agreement shows about the right or bundle of rights and any subsequent payment. Both parties’ arguments assumed as much. We have already outlined the appellant’s argument about the profit participation arrangement, the allocation of shares and PPUs (including GS and Phantom Units) and the associated contractual rights. The Commissioner’s argument about deferred compensation also depended on the characterisation of the rights conferred on the appellant by the profit participation agreements. The parties differed about the nature of what the appellant received during his employment under these arrangements; and it was this difference that resulted in competing characterisations of the payments made to him after his employment ended.
An analysis of the four profit participation agreements entered into by the appellant in the course of his employment by the Glencore Group shows that, notwithstanding differences in drafting and terminology, as a matter of substance, for present purposes, there was little or no material difference in their operation. For present purposes, the key provisions were as follows:

1.    PPA 1993

a.

GI (formerly MRAG) “is willing to grant EMPLOYEE a participation in future profits” (preamble);

b.

GI (formerly MRAG) “grants EMPLOYEE a participation in future profits of [GI] in the form of [GS] … and a contractual claim … collectively referred to as Profit Participation 1993” (cl A.1);

c.

“The basis for the calculation of the … Profit Participation 1993 [is] the net income … of [GI]… and [s]uch Net Income for Profit Participation [is] divided by the number of GS actually issued … and then multiplied by the number of GS actually held by EMPLOYEE as of such [date]. [This Yearly Profit Participation 1993 is] allocated as profit participation under GS and under the contractual claim in the proportion indicated … and accumulated over the period the EMPLOYEE holds GS …” (cl A.2);

d.

“As long as the approval by the [FTA] is maintained, the EMPLOYEE shall receive 55[%] of his Cumulative Profit Participation 1993 as profit distribution under his GS” (cl A3.5); and “45[%] of his Cumulative Profit Participation 1993 as contractual claim hereunder” (cl A.4);

e.

“The Cumulative Profit Participation 1993 will become due 30 days after notice of termination of the employment of EMPLOYEE” (cl A.5);

f.

“Cumulative Profit Participation 1993 shall be paid to EMPLOYEE in twenty equal quarterly instalments over a period of [5] years …” (cl A.6);

g.

“Deductions will have to be made in connection with payments of Profit Participation 1993 for Swiss withholding tax and for Swiss social security … to the extent applicable” (cl. A.9).

2.    PPA 1999

a.

GI grants the appellant a participation in the results of GI in the form of GS and a contractual claim, collectively referred to as Profit Participation (cl A.1);

b.

A form of Declaration of Assignment and General Release which confirms the termination of employment and the assignment of GS to GI and assignment of shares in GH to GH is added;

c.

In other material respects the PPA 1999 is substantially the same as the PPA 1993.

3.    IPPA 2003

a.

“GI has adopted a plan of deferred compensation known … as the ‘Incentive Profit Participation Plan for Selected Employees of [GI] and its Subsidiaries’ (the PLAN)” (preamble);

b.

“in consideration of the services to be rendered by EMPLOYEE to the SERVICE PROVIDER in connection with the SERVICE AGREEMENT, [Glencore] AG and GI have agreed that EMPLOYEE should participate in the PLAN and EMPLOYEE desires to participate in the PLAN” (preamble);

c.

“GI grants EMPLOYEE deferred compensation which will be calculated on the basis of the results of GI (Profit Participation). Solely for the purpose of calculating the amount of Profit Participation, [Glencore] AG has issued to GI [GS] … which shall serve as phantom units … for the purpose of calculating … Profit Participation …” (cl A.1.1);

d.

“The parties … acknowledge that the GS issued by [Glencore] AG and owned and held by GI are being issued solely for the purpose of implementing the PLAN and calculating the amount of deferred compensation in the form of PHANTOM UNITS” (cl A.1.2);

e.

“Such Net Income for Profit Participation shall be divided by the number of GS actually allocated and participating … whether issued by [Glencore] AG under the PLAN and this Agreement … or issued by GI and held directly by employees of GI or … its SUBSIDIARIES pursuant to … Profit Participation Agreements and then multiplied by the number of PHANTOM UNITS allocated to EMPLOYEE” (cl A.2.3);

f.

“GI, [Glencore] AG and EMPLOYEE … agree … that for U.S. federal income tax purposes the payments made directly by GI to EMPLOYEE … represent compensation being paid in consideration of the services to be rendered by the EMPLOYEE … including services performed for [Glencore] AG under the Service Agreement” … (cl A.9.2);

g.

In other material respects the PPA 1999 is substantially the same as the PPA 1993 and the PPA 1999.

4.    IPPA 2005

a.

“GI has adopted a plan of deferred compensation known as the ‘Incentive Profit Participation Plan for Selected Employees of [GI] and its Subsidiaries’” (preamble);

b.

“in consideration of the services to be rendered by Employee to the Service Provider in connection with the Service Agreement, [Glencore] AG and GI have agreed that Employee should participate in such plan and Employee desires to participate in such plan” (preamble);

c.

“the majority of the voting stock in GI is held by [GH]… of which Employee shall become a shareholder under a separate shareholders’ agreement” (preamble);

d.

“Incentive Profit Participation/IPP means the deferred compensation calculated on the basis of the results of GI granted to Employee hereunder” (Definitions, paragraph 10);

e.

“Profit Participation Units/PPU means the number of GS actually allocated and participating as of a respective date, whether issued by [Glencore] AG under the Plan and any Incentive Profit Participation Agreement … and held by GI … or GS issued by GI and held directly by Employees of GI or any of its Subsidiaries pursuant to profit participation agreements” (Definitions, paragraph 17);

f.

“GI grants Employee deferred compensation … calculated on the basis of the results of GI (IPP). Solely for purposes of calculating the amount of IPP, [Glencore] AG has issued to GI GS ….which shall serve as PPU for the purpose of calculating Employee’s IPP” (cl A.1.1);

g.

“The parties … acknowledge that the GS issued by [Glencore] AG and owned and held by GI are being issued solely for the purpose of implementing the Plan and calculating the amount of deferred compensation in the form of PPU which shall be allocated to Employee in accordance with the Plan and this Agreement. Employee shall not have nor be deemed to have any interest whatsoever in the GS. Employee shall not acquire by reason of the Plan or this Agreement any right in or title to any assets, funds or property of GI, [Glencore] AG or any other Subsidiary ….” (cl A.1.2);

h.

“Any prior oral or written agreement related to the PPU which are the subject matter of this Agreement shall be terminated herewith” (cl C.7);

i.

In other material respects the IPPA 2005 is substantially the same as the PPA 1993, the PPA 1999 and the IPPA 2003.

As already noted, each of these profit participation agreements was “stapled” to a share agreement, under which the appellant acquired issued shares in GH at par, provided he had executed a profit participation agreement. During his employment the appellant was unable to deal with the shares without GH’s consent; and the termination of employment gave rise to a call option for GH, and a put option for the appellant, over all shares in GH held by him at a price equal to their par value.
Bearing in mind that the four profit participation agreements and the share agreements attached to them remained essentially the same so far as the appellant was concerned, the analysis of the agreements made by the primary judge is not fairly open to the criticism levelled at it by the appellant on appeal. His Honour set out the IPPA 2005 in greater detail than the other agreements and made particular mention of its provisions because the IPPA 2005 was the agreement on foot when the appellant’s employment terminated in December 2006 and when he became entitled to receive the Amount of USD160,033,328.25 on 15 March 2007. Further, by December 2006, the IPPA 2005 governed the whole of his entitlements under the profit participation arrangements: cf. IPPA 2005, cll A.2.3 and C 7. This understanding of the relationship of the IPPA 2005 to earlier agreements is consistent with a statement made by Mr Andreas Hubmann, one of GI’s senior executives, who deposed that “[i]n 2005, a general revision of both the Profit Participation Agreement and the Shareholders’ Agreement occurred with a view to streamlining, simplifying, and modernizing the agreements without compromising or changing the concepts and principles”. The history of these agreements confirms that there was little, if any, material change in the relevant profit participation arrangements over the relevant period.
In our opinion, an examination of the profit participation agreements bears out the analysis made of them by the primary judge and supported on appeal by the Commissioner.
At the time his employment terminated and when he became entitled to receive the payments in dispute, the governing profit participation agreement (IPPA 2005) stated expressly that the benefit conferred on the appellant under that agreement was “in consideration of the services to be rendered” by him: preamble, paragraph 5 (emphasis added). The IPPA 2003 contained a statement to the same effect: preamble, paragraph 5. While there is no such direct statement in the two earlier iterations of the profit participation arrangements (the PPA 1993 and the PPA 1999), it can be inferred from their structure and operation (which was essentially the same as the IPPA 2003 and the IPPA 2005) that they conferred a benefit on the appellant in the same way. The enquiry naturally turns to identifying the benefit that was being conferred on the appellant under these agreements.
The four profit participation agreements show that the GS in the PPA 1993 and PPA 1999, the GS/Phantom Units in the IPPA 2003 and the PPUs in the IPPA 2005 were, in each case, an essential part of the mechanism for calculating the payment to be made, relevantly, on termination of the appellant’s employment. That is, the PPUs, Phantom Units and GS gave rise to contractual rights that, so far as the appellant was concerned, served only as mechanisms for calculating the amount to be paid on termination, being an amount that was to represent his share of profits at that time.
As the primary judge held, at the time his employment terminated, the appellant did not hold any property right or interest in the GS, Phantom Units or PPUs, their sole purpose being to act as a calculation mechanism. This is made clear by cll A.1.1 and A.2 of the IPPA 2005 and cll A.1.1 and A.1.2 of the IPPA 2003 and is consistent with cl A.2 of the PPA 1993 and cl A.2 of the PPA 1999.
That the GS, Phantom Units and PPUs were not the benefit (or even part of the benefit) conferred on the appellant under the relevant profit sharing arrangements but only mechanisms for calculating his profit share to be paid on termination exposes the fact that it was the payment of this profit share that was the actual benefit conferred on the appellant under the IPPA 2005 and, since they operated in the same way, the earlier profit participation agreements. In this circumstance, the fact that the IPPA 2005, like the IPPA 2003, described this payment as “deferred compensation” was not merely a label, as the appellant proposed, but was an apt description of the character of the payment. As Jacobs J affirmed in Reseck v Federal Commissioner of Taxation 133 CLR at 56, citing Henry v Foster (1931) 145 LT 225; 16 TC 605 and Dewhurst v Hunter (1932) 146 LT 510; 16 TC 637, “[it] is well established that an amount paid in a lump sum in consequence of retirement from or termination of an office or employment is income of that office or employment if it is deferred remuneration”: see also Reseck v FCT 133 CLR at 51 (Gibbs J).
In this circumstance – the payment being deferred compensation for services rendered by the appellant – the payment was income according to ordinary concepts. The analogy with the options at issue in Abbott v Philbin [1961] AC 352 breaks down, since the appellant’s contractual rights under the IPPA 2005 and earlier agreements do not in fact resemble the options in that case. As the Commissioner submitted, Abbott v Philbin, Donaldson v FCT, FCT v McArdle and FCT v McNeil are not analogous cases because they were essentially concerned with non-pecuniary gain; and, in this context, whether that gain had “come home” in the sense that it could be turned to pecuniary account. The non-pecuniary gain in Abbott v Philbin was always the options; and the only relevant change was in the market for the shares, with the result that Mr Abbott’s shares were worth more in 1956 (when he exercised the options) than in 1954 when he acquired the options but did not exercise them. A similar analysis applies to Donaldson v FCT (options under the Supplemental Key Personnel Option Scheme), FCT v McArdle (stock options) and FCT v McNeil (sell-back rights). In the present case, the appellant’s entitlement was to a payment representing his profit share in relation to GI, which only arose when his employment terminated. His entitlement depended on him continuing in the employment of the Glencore Group for a time (cf. PPA 1993 (as amended), cl A.2.4; PPA 1999, cl A.2.3; IPPA, cl A.2.3; IPPA 2005, cl A.2.1) and the exigencies and contingencies that affected company profit over the years he remained in employment after his allocation of PPUs (including GS and Phantom Units).
The circumstances of this case were closer to Tagget v Federal Commissioner of Taxation [2010] FCAFC 109; 188 FCR 128, a case which the appellant sought to distinguish, than to Abbott v Philbin, Donaldson v FCT, FCT v McArdle and FCT v McNeil. Mr Tagget entered into an agreement with a company to provide certain services to it on the basis that the company agreed to transfer a parcel of land, valued at the time at $450,000, to him for a nominal consideration. The land was transferred to Mr Tagget in 2005, when it was valued at $1.2 million. It was common ground that the benefit that he received was remuneration for the services he provided. The Full Court (Dowsett, Jessup and Gordon JJ) held that the taxpayer derived ordinary income within the meaning of s 6-5(2) of the ITAA 1997 in 2005, because that was when he received the land, the monetary value of which was to be determined at that time.

The Commissioner’s alternative submissions to support the assessments as ordinary income are to be rejected for the reasons given by his Honour at first instance. The Commissioner contended that his Honour ought to have concluded that the amounts payable to Mr Blank were ordinary income in accordance with the principles in Federal Commissioner of Taxation v Myer Emporium Ltd (1987) 163 CLR 199 or as income from property in reliance on Federal Commissioner of Taxation v McNeil (2007) 229 CLR 656. His Honour rejected these grounds for upholding the assessment by saying at [94]:
I do not propose to consider the second and third grounds because, in my view, they have no arguable merit. It is sufficient to dispose of the second ground to say that the applicant was not carrying on any business to which the first, as distinct from the second, strand of reasoning in Myer Emporium might attach (see S P Investments Pty Ltd v Commissioner of Taxation (1993) 41 FCR 282 at 297 per Hill J, with whom Burchett and O’Loughlin JJ agreed). It is sufficient to dispose of the third ground to say that the GH analogy is not only irrelevant, but wrong. The relevant company is GI and the applicant held no interest in that company, if it ever held such an interest, upon execution of the Declaration on 15 March 2007.
The principle to emerge from Myer Emporium may be seen to have two strands. The first is that a receipt from a transaction involving the acquisition of property may be business income from a transaction with a profit making purpose notwithstanding that the transaction is outside of the ordinary business activity of the taxpayer and that the transaction is not an incident of the business. That may be so where a profit making purpose is stamped upon the receipt by the transaction giving rise to the receipt. The receipt in Mr Blank’s case, however, was from the disposal of the rights which had accrued through participation in plans from 1994 and not from the carrying out by him of any profit making scheme of the kind within the principles considered in Myer Emporium. The application of the first strand of the reasoning in Myer Emporium is also defeated in this case by the fact that Mr Blank, unlike the taxpayer in Myer Emporium, was not conducting a business. The second strand in Myer Emporium may produce an assessable receipt where there has been an assignment of a right to receive interest without the assignment of the loan debt giving rise to the interest: see S P Investments Pty Ltd v Commissioner of Taxation (1993) 41 FCR 282, 290. That strand has no application to the circumstances of Mr Blank because any receipt by him of income was in consideration for the disposal of the whole of those entitlements through which the right to income arose. His Honour was also correct to reject the application of McNeil for the reason given at [94].
The decision of the High Court in McNeil that Mrs McNeil had derived income according to ordinary concepts upon the grant of the sell-back rights (including the entitlement to receive an amount of money) made it unnecessary for the Court to consider the operation of the capital gains tax provisions: see at [17]. A conclusion in this appeal that the payments to Mr Blank were not assessable as ordinary income would, in contrast, call for a consideration of the application of the capital gains tax provisions upon his disposal of the bundle of rights which had accrued to him.
Mr Blank held assets which he disposed by the declaration. The parties were in agreement that Mr Blank was assessable upon the disposal of his rights if he were not otherwise assessable upon the receipt of money as deferred payment of income. Section 104-25(1) provides that CGT Event C2 happens if, among other things, a taxpayer’s ownership of an intangible CGT asset ends by the asset:
(a)being redeemed or cancelled; or
(b)being released, discharged or satisfied; or
(c)expiring; or
(d)being abandoned, surrendered or forfeited.
The declaration made by Mr Blank in 2007 resulted in his ownership of the choses in action ending and thereby the happening of CGT Event C2. That, in turn, calls for the determination of the cost base.
Section 104-25(3) provides that a taxpayer makes a capital gain from the happening of a CGT Event C2 if the capital proceeds from the ending of the asset are more than the asset’s cost base. The parties agreed, as noted by his Honour at first instance at [49], that the cost base is the market value of Mr Blank’s rights at the time he became an Australian resident on 2 January 2002: 1997 Act, s 855-45(2). The parties, however, adduced conflicting evidence about that value. Mr Blank’s expert, Mr Lonergan, assessed the value at AUD$103 million, whilst the Commissioner’s expert, Mr Samuel, assessed the value at approximately AUD$20 million. His Honour did not finally determine the market value of Mr Blank’s rights at the time he became an Australian resident saying at [107]-[112]:
107On the view I have reached as to the second head of assessability, the outstanding issue under this fourth head, namely, the market value of the applicant’s contractual rights under the PPPs at the time he became a resident of Australia on 2 January 2002, does not arise.
108 However, a considerable part of the hearing was devoted to this issue. The only evidence from either side that was tested by the other side was valuation evidence given by the respective expert valuers. Considerable argument was mounted from both sides on the back of that testing, and in deference to that evidence and argument, in the event that this issue is enlivened on appeal because my view on the second head of assessability is held to be wrong, I think I should express my views as to the merit of the methodologies and conclusions reached by each valuer.
109 I have considerable reservations about the premises of Mr Samuel’s methodology which, while it professed to adopt the hypothesis of a knowledgeable, willing but not anxious buyer and a knowledgeable, willing but not anxious seller acting at arm’s length (elaborated by the judgment of Isaacs J in Spencer v The Commonwealth (1907) 5 CLR 418 at 441) departed from that hypothesis by denying, implicitly if not expressly, the ability of such parties to do so on reasonable terms and conditions: see Mordecai v Mordecai (1988) 12 NSWLR 58 at 69 per Hope JA, with whom Samuels and Priestley JJA agreed, including, inter alia, those “which a hypothetical prudent purchaser would entertain, if he desired to purchase it for the most advantageous purpose for which it was adapted” per Isaacs J in Spencer at 440–441. This has more recently been referred to as the “highest and best use” of the asset to be valued: Boland v Yates Property Corporation Pty Ltd (2007) 167 ALR 575 at [271]–[274] per Callinan J.
110 The denial has manifested itself in Mr Samuel’s opinion as to the market value of the applicant’s contractual entitlements under the PPPs as at 2 January 2002 by valuing the forward looking component of the entitlements at nil, as if the applicant terminated his employment as at that date. Mr Lonergan’s valuation predicates that the hypothetical parties would be free to negotiate a price as at 2 January 2002 which would allow for inclusion of a going forward component, and in a series of questions I put to Mr Samuel, he agreed that this could be done on a deferred or rebate basis by reference to the date of termination of employment without creating another asset which might require the hypothetical price to be split between two discrete assets.
111 I prefer Mr Lonergan’s methodology for obvious reasons; it not only accords with reality, but is supported by the authorities. However, I prefer the input of Mr Samuel’s figures into Mr Lonergan’s methodology. Mr Samuel conceded in cross-examination if that were done, his valuation would more likely approximate a maximum of AUD77 million as opposed to Mr Lonergan’s AUD103 million.
112 While I have only dealt with this issue on a summary basis in the circumstances of the conclusion I have reached in relation to the second head of assessability, had it been necessary for me to determine the issue, the likelihood is that I would have arrived at a figure closer to Mr Samuel’s figure of AUD77 million than Mr Lonergan’s figure of AUD103 million.
Mr Blank, on appeal, did not press the higher end of the valuation which Mr Lonergan had made but submitted that the Full Court should conclude that the market value was AUD$77 million being the lower end of the range within which his Honour had expressed a tentative view at [112].
The issue which divided the parties at trial, and the main point of difference between the valuers in this respect, was the extent to which a valuation of Mr Blank’s contractual rights should assume that the hypothetical purchaser of the rights at 2 January 2002 would secure reasonable terms and conditions to ensure that Mr Blank would continue in employment for some agreed period. Mr Samuel’s valuation was based upon the view that such terms could not be implied into the hypothetical transaction whilst Mr Lonergan valued the right upon the hypothesis that such terms would be struck between the hypothetical buyer and the hypothetical seller.
In Mordecai v Mordecai (1988) 12 NSWLR 58 Hope JA (with whom Samuels and Priestley JJA agreed) said at 69 in application to the facts in that case of the well-established principle in Spencer v The Commonwealth (1907) 5 CLR 418 that it “would be reasonable and probably necessary for the [hypothetical] vendor of the goodwill of the business to offer appropriate restrictive covenants”. In Spencer Isaacs J had said at 441 that the hypothetical prudent purchaser should be assumed to seek to purchase “for the most advantageous purpose for which [the land in that case] was adapted”: see also Boland v Yates Property Corporation Pty Ltd (2007) 167 ALR 575, [271]-[274]. In Deputy Commissioner of Taxation v Gold Estates of Australia (1903) Ltd (1934) 51 CLR 509 the High Court accepted the observation which had previously been made by Isaac J saying (at 515) in respect of the valuation of land:
The principle expressed in the definition of “unimproved value,” as interpreted by the decisions of this Court, requires the hypothesis that the land is available for sale by a seller who is really willing to sell it, and to do so upon reasonable terms and conditions. The question then to be asked is not whether at a given moment he could actually find some definite buyer at a particular price. The existence of a person desirous of buying the land at a fair price must be assumed. “The all important fact … is the opinion regarding the fair price of the land, which a hypothetical prudent purchaser would entertain” (per Isaacs J., as he then was, Spencer v. The Commonwealth). The supposition must be made that a sale is not forced, and that the owner is willing to sell on reasonable terms, and negotiates with a person willing to buy, that the one is not so anxious to sell and the other to buy, as to disregard the effect of any business consideration, and that each is equipped with knowledge of the existing relevant circumstances. But knowledge does not include any uncommon gift of foresight. The question then is what would such a reasonably prudent buyer be prepared to offer to induce such a bona fide seller to part with the land (cf. Commissioner of Land Tax v. Nathan). It is evident that in times of changing and uncertain conditions the correct use of the criterion may produce an estimate materially different from the application of a method of valuation which looks rather to the availability of buyers than the price which a reasonable seller would demand and the hypothetical buyer would give. In the settled conditions of June 1929, the adoption of the correct method or standard of valuing may have had much less importance.
It follows that the valuation to be undertaken of the contractual rights at 2 January 2002 should assume a sale and purchase on reasonable terms. In this context it was correct to assume that the hypothetical purchaser would secure from the hypothetical vendor, and that the hypothetical vendor would readily grant to the hypothetical purchaser, a term that Mr Blank would continue in employment for some agreed period: a bargain to sell rights dependent upon continued employment could not otherwise be made. His Honour was correct, therefore, to reject Mr Samuel’s approach and to accept Mr Lonergan’s approach as according “with reality, [and] supported by the authorities”. His Honour, however, may fairly be understood to have rejected the opinion of Mr Lonergan of the value of the rights hypothetically purchased in preference to Mr Samuel’s valuation based upon that methodology as expressed by Mr Samuel during cross-examination. In those circumstances the evidence of Mr Samuel should be accepted and the figure of AUD$77 million can be taken as the cost base on the evidence before the Court.
It becomes unnecessary in my view to consider the Commissioner’s challenge to the conclusions of the primary judge concerning the timing of the derivation of two amounts which were payable to Mr Blank in 2007 but which were not paid until 2008. His Honour’s conclusions flowed from his findings that Mr Blank was a receipts taxpayer who had derived amounts when paid as deferred income and that he was not taxable upon a capital gain from the receipt of an amount upon the disposal of an asset. An issue which arose on that basis was whether the amount to be taxed included payments which fell due in the 2007 year but which had been withheld from payment by Glencore International to be applied in discharge of Mr Blank’s obligations to the Swiss tax authorities. His Honour held that Mr Blank had not derived the amounts which had become payable but which had not been received because, for the unpaid amounts to be assessable, there “must be an agreement, direction or other conduct by the creditor” for there to be a constructive receipt and his Honour found that there was no such agreement, direction or other conduct by Mr Blank in the 2007 year: Blank v Commissioner of Taxation (No 2) [2014] FCA 517, [44]. His Honour was correct in making that finding: see Brent v Federal Commissioner of Taxation (1971) 125 CLR 418, 430-1. Furthermore, the Commissioner accepted that Glencore International did not pay the amounts to the Swiss tax authorities on Mr Blank’s behalf until the 2008 income tax year. During the 2007 income tax year there was, therefore, simply the non-payment of an amount due to a taxpayer who for the purposes of this argument is assumed to be a receipts taxpayer. On that basis there would not have been derivation of the amount by Mr Blank as an assessable receipt of income in the 2007 year.
It is also unnecessary to consider the issues concerning the application of s 23AG of the 1936 Act.Mr Blank had applied to his Honour for leave to reopen his case to rely upon s 23AG but his Honour refused leave on the sole basis that Mr Blank’s reliance upon s 23AG could not succeed: Blank v Commissioner of Taxation(No 2) [2014] FCA 517, [41]. The Commissioner contended on appeal that his Honour was correct in his conclusion in light of his Honour’s reasoning on the construction of s 23AG but, significantly, the Commissioner also contended that leave should not have been granted in any event on the grounds (rejected by his Honour) that the Commissioner would have been prejudiced in the conduct of the case if leave had been granted.
Much of the debate about the application of s 23AG was about whether it permitted an apportionment or attribution of the income derived by Mr Blank (assuming the amounts to be income rather than a capital gain) as between foreign and non‑foreign service. Section 23AG(1) relevantly provided:
Where a resident, being a natural person, has been engaged in foreign service for a continuous period of not less than 91 days, any foreign earnings derived by the person from that foreign service is exempt from tax.
It was contended before his Honour that the section relevantly required the excision from Mr Blank’s assessable income of so much of the amounts received by him upon his termination of employment and the making of the declaration as had been derived by him from foreign service. Mr Blank submitted that his Honour found that between 1991 and 2007 Mr Blank had been engaged in service as an employee of companies within the Glencore Group for a total period of 5,511 successive days of which 3,686 successive days involved service in foreign countries and 1,825 days involved service in Australia. Accordingly, it was submitted by Mr Blank, that approximately 66.88 percent of the amounts payable to him upon termination and the making of the declaration and assignment was attributable to, and derived from, foreign service that was effectively exempt under s 23AG(1).
His Honour rejected Mr Blank’s submission on the basis that the apportionment sought by Mr Blank was “neither appropriate nor possible” on the facts. The question of the correctness of his Honour’s view arises upon the assumption that the amount was assessable when received as deferred income by Mr Blank as a taxpayer assessable on a cash receipts basis. In that context, his Honour said at [30]‑[40]:
30Notwithstanding the Commissioner’s arguments to the contrary, I am of the view that the Amount qualifies as “foreign earnings”, if only on the basis that it represents deferred compensation of the applicant as a reward for his services as an employee (see R [102]) and therefore constitutes “earnings”, being one of the classes of income qualifying as “foreign earnings”.
31However, the Amount is not exempt from tax under s 23AG(1) because the Amount is not derived by the applicant from foreign service; the applicant, by his own submissions, seems to accept as much; indeed, it seems to be common ground that the Amount is derived by the applicant from both foreign service and service (in Australia) that is not foreign service, and that is not sufficient to qualify the Amount for exemption from tax under s 23AG(1).
32The applicant’s answer to that is that the Amount can be apportioned as between foreign service and service that is not foreign service and the only issue is the basis upon which that apportionment should be carried out. In the applicant’s words:
Apportionment based on the period of foreign service is the natural method of apportionment in a case such as the present where there is an undissected lump sum derived from a combination of an employee’s service both in and out of Australia.
33The applicant further observed that apportionment based on the number of days in foreign service compared to the number of days not in foreign service was previously accepted by the Commissioner in Lopez v Commissioner of Taxation (2005) 143 FCR 574 at [75]. The Full Court did not express any view on the Commissioner’s acceptance of an apportionment principle where the earnings in question were for foreign service and for service that is not foreign service. The conclusion it reached that no error of law had infected the reasoning of the primary judge made it unnecessary for the court to do so. At [90] the court said:
The conclusion we have reached makes it unnecessary to consider the arguments addressed to apportionment of the Consultancy and Management Fee in the event that it were held to have been received by the appellant in the capacity of an employee of [the Japanese corporation].
34 In my view, there are a number of difficulties with the applicant’s answer.
35First, as noted above, the operative exemption from tax is created by s 23AG(1); it requires the foreign earnings to be derived from foreign service; this means, in my view, exclusively from foreign service and not from service which is in part foreign service and in part service which is not foreign service.
36Secondly, the only way in which some portion of the Amount can qualify for exemption is if that portion can be said to be derived exclusively from foreign service. It is not possible to identify any portion of the Amount as being derived exclusively from foreign service because the Amount was not calculated by reference to days of service. The Amount was “calculated on the basis of the results of GI (IPP). Solely for the purpose of calculating the amount of IPP, AG has issued to GI GS pursuant to Section [sic] 657CO which shall serve as PPU for the purpose of calculating the Employee’s IPP as provided in A.2. below: Clause A.1.1. of the instrument pursuant to which the IPPA 2005 was constituted — see R [36]. The Amount is a “single, undissected amount” to use the words of the High Court in McLaurin v Federal Commissioner of Taxation (1960-1961) 104 CLR 381 at 391, and its apportionment is not appropriate: “In such a case the amount must be considered as a whole: Du Cros v Ryall (1935) 19 TC 444 at 453”.
37Thirdly, s 23AG(1) does not contain the words “to the extent to which” the foreign earnings are derived from foreign service, such as to accommodate a dissection or apportionment of the kind contemplated by s 51(1) of the 1936 Act, according to some reasonable method: see Ronpibon Tin No Liability v Federal Commissioner of Taxation (1949) 78 CLR 47 at 55.
38In Federal Commissioner of Taxation v Slater Holdings Ltd (1984) 156 CLR 447, Gibbs CJ obviously thought the absence of these words was significant, in relation to the operation of s 44(1)(a) of the 1936 Act, when his Honour observed at 458–459:
There were two possible grounds for holding that the distributions in Federal Commissioner of Taxation v Blakely (1951) 82 CLR 388 and Federal Commissioner of Taxation v Uther (1965) 112 CLR 630 were not assessable income. The first, which appears to have been accepted by Fullagar J. in the earlier case, is that the receipt in the hands of the shareholder was capital in nature, representing as it did, the value of the shareholder’s interest in the company. … The second possible ground was that the distribution was not made out of profits … [W]hat appears to be implicit in the judgment of Taylor J. in Federal Commissioner of Taxation v Uther is the suggestion that to come within s 44(l)(a) the distribution must have been made wholly out of profits; it is not enough that there is a distribution of a mass of assets which contains profits. This view may be supported by the fact that the section does not refer to “dividends to the extent to which they were paid to him by the company out of profits”, since, in the light of the construction given to s 51 of the Act, the inclusion of the phrase “to the extent to which” would no doubt have allowed a dissection or apportionment to be made of the distribution: cf. Ronpibon Tin NL and Tongkah Compound NL v Federal Commissionerof Taxation (1949) 78 CLR 47 at 55.
39In Slater Holdings, the relevant question was whether the distribution was made “out of profits”; in the present case, it is whether the foreign earnings are derived “from foreign service”. Very different conclusions might be reached if the relevant words were “could reasonably be taken to be attributable to profits derived by the company” or “foreign earnings derived by a person that are reasonably attributable to that foreign service”: cf., Federal Commissioner of Taxation v Sun Alliance Investments Pty Ltd (in liq) (2005) 225 CLR 488 at [79]–[83].
40Fourthly, the fact that the Parliament provided for a partial exemption in s 23AG(2) when s 23AG was first inserted into the 1936 Act where the continuous period of foreign service was less than 365 but not less than 91 days, calculated by reference to the proportion of the number of days service as a fraction of 365 multiplied by the foreign earnings, may suggest that if an apportionment of the kind now pressed by the applicant was intended, it would have been provided for in the statute. Tellingly, it was not.
It is plain that to apply s 23AG(1) as if it permitted apportionment is, at best, problematic. The reason his Honour decided against the grant of leave, however, was that his Honour considered the facts of the case to make apportionment “neither appropriate nor possible”. At [41] his Honour said:
Unfair as it may seem, I am of the view that apportionment of the Amount into two portions, one being exclusively for foreign service and the other being exclusively for service in Australia, so as to enable the former to trigger the exemption from tax afforded by s 23AG(1), is neither appropriate nor possible
His Honour explained at [36] that the amount received by Mr Blank was a single undissected amount which was not capable of apportionment and there is, with respect, no error in finding that no apportionment was possible where the amount was seen as assessable upon receipt as his Honour held.

The Commissioner had also submitted to his Honour, and maintained on appeal, that he would suffer prejudice if Mr Blank were allowed to reopen the case. His Honour had rejected the Commissioner’s submission saying at Blank v Commissioner of Taxation (No 2) [2014] FCA 517, [21]:
Seventhly, no relevant prejudice will be occasioned to the Commissioner if the court permits further argument other than costs, which can be assuaged by appropriate costs orders: see De L v Director-General at 217; although the Commissioner disputes this. The Commissioner, unlike other litigants, has no personal interest in the outcome of the litigation. He serves the public interest by seeking to properly administer the tax law (cf., s 8 of the 1936 Act). He suffers no prejudice from the mere fact that the grant of leave may result in the taxpayer being able to claim a benefit to which he is entitled (cf., Brown v Federal Commissioner of Taxation (1999) 99 ATC 4516 at [51] per Hill J (no prejudice to Commissioner from extension of time to object unless the effluxion of time adversely affects the Commissioner’s ability to defend the assessment) (affirmed on appeal in Federal Commissioner of Taxation v Brown (1999) 99 ATC 4852); Trustees of Post Office Staff Superannuation Scheme v Commissioner of Taxation (1999) 94 FCR 268 at [28] per Hill J (quantum of deduction irrelevant to extension of time application)). In contrast to ordinary inter partes litigation, the interests of justice are best served by allowing, in an appropriate case, a taxpayer to re-open his case to correct an inadvertent omission which, if refused, would result in the incorrect application of the tax law to the facts of the case. Indeed, similar considerations apply where it is the Commissioner rather than the taxpayer who wishes to amend his case due to inadvertent error. See, for example, Federal Commissioner of Taxation v American Express Wholesale Currency Services Pty Ltd (2010) 187 FCR 398 at [128], [186]–[197].
The Commissioner submitted on appeal that the prejudice that would be occasioned by Mr Blank being given leave was of a different kind from that considered, and rejected, by his Honour. The Commissioner’s submission to his Honour was not that he would suffer prejudice of the kind that a private litigant might suffer in like circumstances but that the conduct of the case, and therefore its correct outcome, would be compromised by allowing Mr Blank to re‑open his case to rely upon s 23AG and the facts upon which that section depended.
The Commissioner maintained the submission on appeal that the case would have been conducted differently before his Honour had the issues concerning s 23AG been raised at trial and pointed to matters about which Mr Blank would have been cross-examined and other evidence that may have been led if the issue had been raised at trial. The way the case had been conducted at trial did not call for any factual investigation going to the apportionment or attribution of any part of the amount received by Mr Blank to his foreign service either before or after 2 January 2002, and that there was, similarly, no exploration about the facts necessary to enliven the exemption in s 23AG(2) had s 23AG(1) been relied upon by Mr Blank from the outset. Sub-section 23AG(2) also raised for consideration the extent to which payments to Mr Blank were exempt from tax in Switzerland and that was not a topic explored either by cross-examination or by direct evidence. The submission by Senior Counsel for the Commissioner about prejudice to the Commissioner’s case if Mr Blank had been granted leave, therefore, has substance and, therefore, I would refuse leave on that basis had it been necessary.
Accordingly, I would allow the appeal to remit the objection decision for Mr Blank to be assessed upon a capital gain.

I certify that the preceding forty (40) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Pagone.
Associate:
Dated: 29 October 2015

Citation:	Blank v Commissioner of Taxation [2015] FCAFC 154
Appeal from:	Blank v Commissioner of Taxation [2014] FCA 87 Blank v Commissioner of Taxation (No 2) [2014] FCA 517
Parties:	VAUGHAN RUDD BLANK v COMMISSIONER OF TAXATION
File number:	NSD 590 of 2014
Judges:	KENNY, ROBERTSON AND PAGONE JJ
Date of judgment:	29 October 2015
Catchwords:	INCOME TAX – appellant participated in profit participation schemes as employee of company group in foreign countries and in Australia – employee allocated “profit participation units” (PPUs) and equal number of shares in holding company – amount payable to appellant on termination of employment – whether amount assessable as ordinary income or as a capital gain – whether amount deferred compensation – PPUs a mechanism for calculation of amount of profit share to be paid to appellant – conditional executory promise to appellant to pay amount on termination – amount was reward for service as deferred compensation – amount assessable as ordinary income – part of amount withheld for discharge of foreign tax liabilities – when income derived – that part of amount was derived when paid by agreement with appellant to foreign tax authorities – whether income exempt under section 23AG of Income Tax Assessment Act 1936 (Cth) as foreign earnings derived from foreign service – apportionment under section 23AG not possible – whether CGT event C2 happened – cost base of asset if CGT event C2 happened – valuation of appellant’s rights under profit participation scheme – whether prejudice caused to respondent if appellant allowed to re-open case – both appeal and cross-appeal dismissed
Legislation:	Income Tax Assessment Act 1936 (Cth) Income Tax Assessment Act 1997 (Cth) Income Tax Act 1952 (UK)
Cases cited:	Federal Commissioner of Taxation v Myer Emporium Ltd [1987] HCA 18; 163 CLR 199 Federal Commissioner of Taxation v McNeil [2007] HCA 5; 229 CLR 656 Le Grand v Federal Commissioner of Taxation [2002] FCA 1258; 124 FCR 53 Abbott v Philbin [1961] AC 352 McLaurin v Federal Commissioner of Taxation [1961] HCA 9; 104 CLR 381 Allsop v Federal Commissioner of Taxation [1965] HCA 48; 113 CLR 341 Federal Commissioner of Taxation v CSR Ltd [2000] FCA 1513; 104 FCR 44 Executor Trustee and Agency Company of South Australia Limited v Federal Commissioner of Taxation [1932] HCA 69; 48 CLR 26 Federal Commissioner of Taxation v Dixon [1952] HCA 65; 86 CLR 540 Reuter v Federal Commissioner of Taxation (1993) 111 ALR 716 Reseck v Federal Commissioner of Taxation [1975] HCA 38; 133 CLR 45 Bridges (Inspector of Taxes) v Hewitt [1957] 1 WLR 59 Donaldson v Federal Commissioner of Taxation [1974] 1 NSWLR 627 Federal Commissioner of Taxation v McArdle (1988) 89 ATC 4051 Scott v Federal Commissioner of Taxation [1966] HCA 48; 117 CLR 514 Henry v Foster (1931) 145 LT 225; 16 TC 605 Dewhurst v Hunter (1932) 146 LT 510; 16 TC 637 Tagget v Federal Commissioner of Taxation [2010] FCAFC 109; 188 FCR 128 Federal Commissioner of Taxation v Cooke (1980) 42 FLR 403 Brent v Federal Commissioner of Taxation [1971] HCA 48; 125 CLR 418 Gerlach v Clifton Bricks Pty Ltd [2002] HCA 22; 209 CLR 478 Lopez v Federal Commissioner of Taxation [2005] FCAFC 157; 143 FCR 574 Chaudri v Federal Commissioner of Taxation [2001] FCA 554; 109 FCR 416 Commissioner of Taxation (NSW) v Meeks [1915] HCA 34; 19 CLR 568 Mount Morgan Gold Mining Co Ltd v Commissioner of Income Tax (Qld) [1923] HCA 37; 33 CLR 76 Commissioner of Taxation v Cam & Sons Ltd (1936) 36 SR (NSW) 544 Australian Machinery and Investment Company v Deputy Commissioner of Taxation [1946] HCA 65; 180 CLR 9 Federal Commissioner of Taxation v French [1957] HCA 73; 98 CLR 389 Roadshow Distributors Pty Ltd v Commissioner of State Revenue [1998] 1 VR 535 Henderson v Federal Commissioner of Taxation (1970) 119 CLR 612 S P Investments Pty Ltd v Commissioner of Taxation (1993) 41 FCR 282; 290 Mordecai v Mordecai (1988) 12 NSWLR 58 Spencer v The Commonwealth (1907) 5 CLR 418 Boland v Yates Property Corporation Pty Ltd (2007) 167 ALR 575 Deputy Commissioner of Taxation v Gold Estates of Australia (1903) Ltd (1934) 51 CLR 509
Text cited:	Parsons RW, Income Taxation in Australia: Principles of Income, Deductibility and Tax Accounting (The Law Book Company Ltd, Sydney, 1985)
Dates of hearing:	20 and 21 November 2014
Place:	Sydney
Division:	GENERAL DIVISION
Category:	Catchwords
Number of paragraphs:	152
Counsel for the Appellant and Cross-Respondent:	M Richmond SC with T Prince
Solicitor for the Appellant and Cross-Respondent:	Clayton Utz
Counsel for the Respondent and Cross-Appellant:	J Hmelnitsky SC with G O’Mahoney
Solicitor for the Respondent and Cross-Appellant:	Minter Ellison

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION	NSD 590 of 2014

JUDGES:	KENNY, ROBERTSON AND PAGONE JJ
DATE OF ORDER:	29 OCTOBER 2015
WHERE MADE:	SYDNEY

JUDGES:	KENNY, ROBERTSON AND PAGONE JJ
DATE:	29 OCTOBER 2015
PLACE:	SYDNEY

1. PPA 1993	a.	GI (formerly MRAG) “is willing to grant EMPLOYEE a participation in future profits” (preamble);
b.	GI (formerly MRAG) “grants EMPLOYEE a participation in future profits of [GI] in the form of [GS] … and a contractual claim … collectively referred to as Profit Participation 1993” (cl A.1);
c.	“The basis for the calculation of the … Profit Participation 1993 [is] the net income … of [GI]… and [s]uch Net Income for Profit Participation [is] divided by the number of GS actually issued … and then multiplied by the number of GS actually held by EMPLOYEE as of such [date]. [This Yearly Profit Participation 1993 is] allocated as profit participation under GS and under the contractual claim in the proportion indicated … and accumulated over the period the EMPLOYEE holds GS …” (cl A.2);
d.	“As long as the approval by the [FTA] is maintained, the EMPLOYEE shall receive 55[%] of his Cumulative Profit Participation 1993 as profit distribution under his GS” (cl A3.5); and “45[%] of his Cumulative Profit Participation 1993 as contractual claim hereunder” (cl A.4);
e.	“The Cumulative Profit Participation 1993 will become due 30 days after notice of termination of the employment of EMPLOYEE” (cl A.5);
f.	“Cumulative Profit Participation 1993 shall be paid to EMPLOYEE in twenty equal quarterly instalments over a period of [5] years …” (cl A.6);
g.	“Deductions will have to be made in connection with payments of Profit Participation 1993 for Swiss withholding tax and for Swiss social security … to the extent applicable” (cl. A.9).
2. PPA 1999	a.	GI grants the appellant a participation in the results of GI in the form of GS and a contractual claim, collectively referred to as Profit Participation (cl A.1);
b.	A form of Declaration of Assignment and General Release which confirms the termination of employment and the assignment of GS to GI and assignment of shares in GH to GH is added;
c.	In other material respects the PPA 1999 is substantially the same as the PPA 1993.
3. IPPA 2003	a.	“GI has adopted a plan of deferred compensation known … as the ‘Incentive Profit Participation Plan for Selected Employees of [GI] and its Subsidiaries’ (the PLAN)” (preamble);
b.	“in consideration of the services to be rendered by EMPLOYEE to the SERVICE PROVIDER in connection with the SERVICE AGREEMENT, [Glencore] AG and GI have agreed that EMPLOYEE should participate in the PLAN and EMPLOYEE desires to participate in the PLAN” (preamble);
c.	“GI grants EMPLOYEE deferred compensation which will be calculated on the basis of the results of GI (Profit Participation). Solely for the purpose of calculating the amount of Profit Participation, [Glencore] AG has issued to GI [GS] … which shall serve as phantom units … for the purpose of calculating … Profit Participation …” (cl A.1.1);
d.	“The parties … acknowledge that the GS issued by [Glencore] AG and owned and held by GI are being issued solely for the purpose of implementing the PLAN and calculating the amount of deferred compensation in the form of PHANTOM UNITS” (cl A.1.2);
e.	“Such Net Income for Profit Participation shall be divided by the number of GS actually allocated and participating … whether issued by [Glencore] AG under the PLAN and this Agreement … or issued by GI and held directly by employees of GI or … its SUBSIDIARIES pursuant to … Profit Participation Agreements and then multiplied by the number of PHANTOM UNITS allocated to EMPLOYEE” (cl A.2.3);
f.	“GI, [Glencore] AG and EMPLOYEE … agree … that for U.S. federal income tax purposes the payments made directly by GI to EMPLOYEE … represent compensation being paid in consideration of the services to be rendered by the EMPLOYEE … including services performed for [Glencore] AG under the Service Agreement” … (cl A.9.2);
g.	In other material respects the PPA 1999 is substantially the same as the PPA 1993 and the PPA 1999.
4. IPPA 2005	a.	“GI has adopted a plan of deferred compensation known as the ‘Incentive Profit Participation Plan for Selected Employees of [GI] and its Subsidiaries’” (preamble);
b.	“in consideration of the services to be rendered by Employee to the Service Provider in connection with the Service Agreement, [Glencore] AG and GI have agreed that Employee should participate in such plan and Employee desires to participate in such plan” (preamble);
c.	“the majority of the voting stock in GI is held by [GH]… of which Employee shall become a shareholder under a separate shareholders’ agreement” (preamble);
d.	“Incentive Profit Participation/IPP means the deferred compensation calculated on the basis of the results of GI granted to Employee hereunder” (Definitions, paragraph 10);
e.	“Profit Participation Units/PPU means the number of GS actually allocated and participating as of a respective date, whether issued by [Glencore] AG under the Plan and any Incentive Profit Participation Agreement … and held by GI … or GS issued by GI and held directly by Employees of GI or any of its Subsidiaries pursuant to profit participation agreements” (Definitions, paragraph 17);
f.	“GI grants Employee deferred compensation … calculated on the basis of the results of GI (IPP). Solely for purposes of calculating the amount of IPP, [Glencore] AG has issued to GI GS ….which shall serve as PPU for the purpose of calculating Employee’s IPP” (cl A.1.1);
g.	“The parties … acknowledge that the GS issued by [Glencore] AG and owned and held by GI are being issued solely for the purpose of implementing the Plan and calculating the amount of deferred compensation in the form of PPU which shall be allocated to Employee in accordance with the Plan and this Agreement. Employee shall not have nor be deemed to have any interest whatsoever in the GS. Employee shall not acquire by reason of the Plan or this Agreement any right in or title to any assets, funds or property of GI, [Glencore] AG or any other Subsidiary ….” (cl A.1.2);
h.	“Any prior oral or written agreement related to the PPU which are the subject matter of this Agreement shall be terminated herewith” (cl C.7);
i.	In other material respects the IPPA 2005 is substantially the same as the PPA 1993, the PPA 1999 and the IPPA 2003.