I am releasing today the consultation paper Review of International Taxation Arrangements prepared by the Department of the Treasury. The paper is the first stage of meeting the Government's election commitment (in Securing Australia's Prosperity) to review aspects of Australia's international tax arrangements.
The review will build on the Government's achievements to date to give Australia an internationally competitive tax system, including:
- delivering an internationally competitive 30 per cent company tax rate (down from 36 per cent);
- introducing the GST in place of wholesale sales tax and inefficient transaction taxes;
- reforming capital gains tax, including rollover provisions that facilitate greater commercial flexibility; and
- negotiating in late 2001 changes to the Australia-United States tax treaty which will significantly reduce US withholding taxes on dividends paid to Australian companies by their US subsidiaries.
Many Australian companies now earn revenue from operations overseas, a fact reflected in the increase in total capital invested offshore by Australians from just 9 per cent of GDP in 1980-81 to 62 per cent in 2000-01. This returns earnings to Australian Shareholders and brings revenue through the Australian tax system.
It is important that our international tax arrangements do not detract from the capacity of Australian companies to grow into new markets, while protecting revenue and integrity needs. The consultation paper therefore examines concerns raised about aspects of current arrangements and outlines a number of options for consultation with a view to:
- ensuring that Australia's dividend imputation system does not limit the ability of Australian companies to attract equity capital for offshore expansion;
- improving Australia's attractiveness as a location for internationally focussed companies to operate global and regional businesses (examining the controlled foreign company rules, Australia's international tax treaty network, the treatment of income repatriated from offshore subsidiaries, conduit income arrangements, and corporate residency tests);
- enhancing Australia as a global financial services centre (examining in particular the foreign investment fund provisions and the capital gains tax treatment of non-residents investing in Australian managed funds); and
- improving Australia's tax treatment of foreign expatriates to enhance Australia's attractiveness to overseas talent.
These areas address the particular matters and others, which I identified for consideration in my press release of 2 May 2002, which set out the arrangements for the review.
As a Treasury document, the consultation paper sets out options to provide a basis for public consultation to be undertaken by the Board of Taxation. I have asked the Board to report to the Government on the outcome of its consultation process by the end of the year. The Government will consider its position on what reforms might be needed once the Board has reported.
It will be important for business and the Board to demonstrate the benefits from implementing particular options. The Board is seeking written submissions by 31 October 2002. The Board will make a separate announcement regarding the details of the consultation process and will also release a separate detailed consultation plan. Further details, and the Review of International Taxation Arrangements consultation paper, will be available on the Board of Taxation website at www.taxboard.gov.au.
I would encourage all interested parties to provide submissions to the Board of Taxation on the options outlined for consultation in the paper.