I am announcing today that the general anti-avoidance provisions in Part IVA of the Income Tax Assessment Act 1936 will be amended with immediate effect in relation to schemes entered into after this time which are designed to acquire or generate foreign tax credits that can be used to shelter low-taxed foreign source income from Australian tax.
These transactions generally are structured to yield little or no economic profit relative to the expected Australian tax benefits. Typically they involve the acquisition of an asset that generates an income stream subject to foreign withholding tax. An illustrative example of one such arrangement is attached.
The Commissioner of Taxation does not accept the efficacy of these arrangements, and proposes to challenge them under the existing law in the courts.
The Government, recognising the potential erosion to the revenue base by the substantial amounts of tax at risk through these and similar avoidance arrangements, therefore considers it essential to extend Part IVA in the manner described above.
These types of arrangements have also been identified in the United States and the United Kingdom and remedial action has swiftly been taken in both those countries.