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What is the Government's response to the Review of International Taxation
Arrangements?
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- The Government's response is a package of reforms that will improve
the competitiveness of Australian companies with offshore operations,
by reducing the costs of complying with the controlled foreign company
(CFC) rules, reducing tax on foreign `active' business income, and effectively
reducing foreign taxes by modernising Australia's tax treaties.
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Why is the Government making these changes?
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- The reforms will encourage the establishment in Australia of regional
headquarters for foreign groups, and improve Australia's attractiveness
as a continuing base for our multinational companies. The reforms will
also enhance the competitiveness and reduce the compliance costs of
Australian based managed funds.
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What are the main components of the Government's package?
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- The main components of the Government's package include:
- simplifying the application of the CFC rules for Australian companies
operating in countries where tax arrangements are comparable to
those in Australia and easing these rules for certain services provided
in international markets;
- exempting Australian companies (and their CFCs) from capital
gains tax (CGT) on the sale of certain non-portfolio interests in
foreign companies and extending the existing tax exemption for foreign
non-portfolio dividends (and certain branch profits). This will
assist Australian companies operating offshore, as well as regional
headquarter operations based in Australia;
- further consultation with the business community to determine
whether another aspect of conduit income tax relief - a targeted
CGT exemption for the disposal by non-residents of interests in
Australian companies, to the extent a gain or loss has an underlying
foreign source - can be practically developed;
- better targeting the foreign investment fund (FIF) rules to reduce
compliance costs for Australian managed funds and superannuation
entities investing offshore by increasing the `balanced portfolio
exemption' from five to ten per cent for all taxpayers
and exempting complying superannuation funds from the FIF rules;
- revising certain aspects of the cross-border taxation of trusts
to improve the international competitiveness of Australian managed
funds;
- moving towards a more residence-based treaty policy, consistent
with the direction set in the US Protocol. This is expected
to enable early finalisation of a revised tax treaty with the United
Kingdom; and
- addressing the double taxation of employee share options. A previously
announced measure requiring security from departing residents for
deferred CGT liabilities will not proceed.
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Who will benefit from this measure?
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- This measure will benefit:
- Australian companies with offshore operations and their shareholders;
- regionally-focussed subsidiaries of foreign multinationals;
- Australian managed funds and superannuation funds; and
- individuals changing residence between countries.
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When will these measures commence?
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- The majority of these reforms will not commence until 1 July 2004
or later to enable adequate public consultation to be undertaken on
the design of the legislation, including addressing integrity issues.
- Priority will be given to implementing key reforms to the CFC and
FIF rules to achieve early commencement where possible. Remaining reforms
will be implemented in successive tranches.
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How can I find out more about this measure?
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- Further details may be found in the Treasurer's Press Release of
13 May 2003.
- See also the revenue measure titled International Taxation - Review
of International Taxation Arrangements in the Treasury portfolio in
Budget Paper No. 2.
- See also the Board's Report: Review of International Taxation
Arrangements at www.taxboard.gov.au.
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