Changes will be made to the tax law to ensure that Australian companies operating ships or aircraft in international traffic would not receive an income tax exemption for foreign branch amounts derived from those operations.
A number of reforms to improve the international tax competitiveness of Australian companies generally took effect from 1 July 2004. These reforms included an expanded foreign branch income tax exemption for Australian companies.
"While the Government's international tax reforms have been well-received, an unintended result is that certain foreign branch amounts will not be taxed in either the foreign country or in Australia", said Minister for Revenue and Assistant Treasurer Mal Brough today.
Foreign branch amounts refer to income and gains derived by Australian companies operating branches in foreign countries.
"Generally, under its tax treaties with other countries, Australia has exclusive taxing rights over Australian companies in respect of their profits from the operation of ships or aircraft in international traffic. If such profits are not taxed in Australia, neither treaty partner country would tax this income.
"A change will be made to the tax law to ensure that the expanded exemption for foreign branch income does not apply to companies operating ships or aircraft in international traffic," Mr Brough said. "This will ensure those amounts continue to be taxed in Australia, consistently with Australia's policy in negotiating its tax treaties."
The commencement of the change will be aligned with that of the expanded foreign branch income tax exemption.