International tax review under fire

HEAVILY reliant on international trade, WA will be directly affected by the implementation of tax changes resulting from the Federal Treasury’s Review of International Taxation Arrangements.

Last week, as the public submission period was closed on the consultation paper, the review was criticised in some quarters for not going far enough to address problems with the current tax system.

The Australian Institute of Company Directors (AICD) called for the removal of double taxation paid by Australian shareholders investing in Australian multi-nationals, while the Association of Chartered Certified Accountants urged the Government to extend the proposals to properly address the discriminatory treatment of foreign source income.

ACCA head of taxation Chas Roy Chowdhury said a close inspection of the proposals showed little appetite for change from Government.

“To retain the present international tax bias is not an option,” he said. “Continuing to use a tax-tariff system does not bode well for the competitiveness of Australian companies in the global marketplace.”

AICD spokesman Rob Elliott said the current treatment of company taxation was anti competitive.

“Where foreign income has been earned by an Australian multinational, no credit is received for the foreign tax paid, so the Australian shareholder will pay both foreign and Australian tax on their dividend,” he said.

“This could result in total tax rates of 65 per cent or more on this income.

“If this taxation treatment dissuades Australian investors from investing in Australian companies expanding offshore, these companies will attract more offshore investors. We are then left with the potential of the most innovative Australian-based companies moving offshore.”

The reforms have sought to deliver an internationally competitive environment by ensuring that Australia’s dividend imputation system does not limit the ability of Australian companies to attract equity for offshore expansion.

The review also examined the treatment of income repatriated from offshore subsidies, conduit income arrangements and corporate residency tests.

Another point considered by the review was the methods to raise Australia’s profile as a global financial services centre, especially with regard to foreign investment provisions and the capital gains treatment of non-residents investing in Australian managed funds.

The tax treatment of foreign expatriates to make Australia a more attractive place to work is also on the agenda of the Board of Taxation, which has the mandate to report its findings from the review to the Government by year’s end.

PricewaterhouseCoopers international tax and transaction services national partner Ian Farmer said there was keen interest to Australian-based corporations concerning the attraction of equity capital.

“The options that suggest allowing ‘dividend streaming’ will be particularly welcomed,” Mr Farmer said.

He said the controlled foreign company regime that gave rise to tax payments to Australian companies for certain passive investments owned by offshore subsidiaries also would affect domestic businesses.

“Our controlled foreign company system is among the most complex in the world and whilst the areas that have been highlighted for consultation will fix problems with the existing system, none of these cuts to the issue of share complexity, which is a common complaint in the business community,” he said.

Mr Elliott said that, besides the double taxation regime, excessive taxation of expatriates working temporarily in Australia was a real concern.

“The excessive taxation of expatriates affects Australia’s ability to attract overseas expertise,” he said.

“It significantly adds to the cost of compliance of Australian companies employing international talent in the scientific and commercial fields.”

The Western Australian Trade Enquiry Service is operated by the Chamber of Commerce and Industry of Western Australian (CCI) with the support of the WA Government’s Department of Industry and Technology.

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