The taxpayer was employed by Glencore International AG (“GI”), an international commodity trading business incorporated in Switzerland, or a subsidiary from November 1991 to December 2006, with his employment in Australia commencing in 2002 when he also became an Australian resident. In 1994, GI granted him rights (Genusscheine, or “GS”) pursuant to an agreement with him and evidenced by profit sharing certificates issued pursuant to its articles of association, to share in future consolidated net income. At the same time, Glencore Holding AG (“GH”), the ultimate parent, issued shares to him for cash at their SF par value, with the shares being subject to a put in his favour, and a call in GH’s favour, exercisable, at a price equal to the par value, upon his termination of employment or certain other triggering events. The two agreements were “stapled,” i.e., the validity of each agreement was conditional on the execution of the other.
The original agreement for GSs was replaced at various junctures, including in 2005 by the “IPPA 2005” (described at para. 35 as a "novation," being "'simply a new contract standing in the place of the old'"), at which time the taxpayer was granted phantom units (Profit Participation Units, or “PPUs”) in GI for calculating his entitlement to the profit participation ultimately payable to him as deferred compensation (styled as “Incentive Profit Participation” or “IPP”) on the surrender of his rights. The PPUs were linked to GSs (in which the taxpayer had no interest) issued by GH to GI, which were to be repurchased by GH when his employment terminated. Under the IPPA 2005, his IPP became due 30 days after his termination of employment on December 31, 2006 and was payable in 20 instalments over five years (with interest). A proportion of each instalment was to be withheld and paid to the Swiss Federal Tax Administration ("the Swiss FTA") on account of Swiss withholding tax. Pursuant to a Declaration dated March 31, 2007, the taxpayer, in consideration for the “Amount” of US$160,033,328 and CHF 80,000, relinquished to GI his claims to the PPU and GS, and assigned all his GH shares to GH.
In finding that the Amount was income to the taxpayer under s. 6-5(1) of the Income Tax Assessment Act 1997, which provided that a person's "assessable income includes income according to ordinary concepts, which is called ordinary income," the Court stated (at paras 59, 61, and 63):
The terms of the IPPA 2005 expressly stated that the Amount was deferred compensation from Mr Blank's employment with Glencore Australia. … The Amount was paid as a lump sum as an additional reward to Mr Blank for the services he had performed for the Glencore Group. …
The IPPA 2005 also recorded that Mr Blank had no interest whatsoever in the GS and did not acquire any right in or title to any assets, funds or property of GI, Glencore AG or any other subsidiary. … [A] GS granted no more than a claim to a cumulative portion of the balance sheet profit, and that the claim was granted not upon the issue or allocation of the GS to the employee but upon restitution of the GS at the time the employment ceased. …
The fact that the Amount was paid after the termination of the contract of service, by a person other than the employer (here, GI) and separately to ordinary wages, salary or bonuses, does not detract from its characterisation as income if the payment is, as here, a recognised incident of the employment.