25 May 1999

Proposed Amendments to the Financial Corporations (Transfer of Assets and Liabilities) Act 1993

The Government has decided to amend the Financial Corporations (Transfer of Assets and Liabilities) Act 1993 (the Act) to extend the deadline for foreign banks to obtain a banking authority until 30 June 2000 in order to be eligible for concessional tax treatment when transferring assets and liabilities. The existing deadline expired on 22 December 1998.

The legislation flowed from the decision to relax the policy prohibition on foreign banks establishing branch operations in Australia in 1992. Amendments were made to the Banking Act 1959 in 1992 to that effect.

The Act was designed to facilitate the establishment of branch operations in Australia by enabling Federal and State taxes, fees and charges to be waived for the transfer of assets and liabilities (including tax losses) from foreign bank subsidiaries, that existed prior to 18 June 1993, to foreign bank branches. It was designed to ensure that existing foreign bank subsidiaries that wished to convert to a branch structure would not be disadvantaged compared to new foreign bank branch entrants.

A temporary extension to the deadline contained in the Act will provide foreign banks with additional time to decide on the future structure of their operations given the Government’s tax reform package. The amendment is proposed to apply from 22 December 1998.

The Act is not applicable where there has been a change of ownership of the foreign bank subsidiary since 18 June 1993, as the extent of consolidation in the financial sector internationally and in Australia was not envisaged when the Act was originally drafted. Consequently, the Act will be amended to apply to foreign bank subsidiaries that existed prior to 18 June 1993 but have changed ownership since.

The proposed amendments are consistent with promoting Australia as a global financial centre.

The cost to revenue is likely to be minimal as most of these transfers would not occur without the tax concessions available in the Act.

Legislation to effect these proposed changes is expected to be introduced to Parliament in the 1999 Winter sitting. I have written today to the State and Territories seeking their support for these proposed amendments.