Bills Digest no. 107 2005–06
New International Tax Arrangements (Foreign-owned
Branches and Other Measures) Bill
2005
WARNING:
This Digest was prepared for debate. It reflects the legislation as
introduced and does not canvass subsequent amendments. This Digest
does not have any official legal status. Other sources should be
consulted to determine the subsequent official status of the
Bill.
CONTENTS
Glossary
Passage History
Purpose
Background
Main Provisions
Concluding Comments
Endnotes
Contact Officer & Copyright Details
Glossary
|
CFC
|
Controlled foreign
companies
|
|
CGT
|
Capital Gains Tax
|
|
ESS
|
Employee share scheme
|
|
ITAA 1936
|
Income Tax Assessment
Act 1936
|
|
ITAA 1997
|
Income Tax Assessment
Act 1997
|
|
NITA Act 2004
|
New International Tax
Arrangements (Participation Exemption and Other Measures) Act
2004
|
|
RIS
|
Regulatory Impact Statement
|
|
RITA
|
Review of International Tax Arrangements
|
Passage History
New
International Tax Arrangements (Foreign-owned Branches and Other
Measures) Bill 2005
Date
Introduced: 17
March 2005
House: House of Representatives
Portfolio: Treasury
Commencement:
Schedule 1 to 4 of the
Bill will commence on Royal Assent. Schedule 5 will commence
immediately after item 140 of Schedule 2 of the New
International Tax Arrangements (Participation Exemption and Other
Measures) Act 2004 commences.
The New International Tax
Arrangements (Foreign-owned Branches and Other Measures) Bill 2005
(Bill) will implement a further reform package with respect to
Australia s international tax arrangements. In particular, the Bill
will make changes to the law relating to:
-
dividends received by foreign-owned branches
-
controlled foreign companies rules
-
Australian branches of foreign entities, and
-
cross-border employee shares or rights.
In addition, the Bill will make several technical amendments to
the application rule.
On 13 May 2003, the Australian Government announced that it will
reform Australia s international tax arrangements. This
announcement was the result of an election promise made during the
2001 election campaign and a subsequent extensive review of
Australia s international tax law through the Board of
Taxation.(1) The Treasurer pointed out that the reforms
aim at maintaining:
Australia's status as an attractive place for
business and investment, [requiring] the tax system [ ] continually
to adapt to the increasingly integrated global business
environment.(2)
The reform process is comprised of two stages the review of the
international tax arrangements and the implementation stage. The
details of both stages have been set out in previous digests, but
for the convenience of the reader, a summary prepared for Bills
Digest No. 43, New International Tax Arrangements (Managed
Funds and Other Measures) Bill 2004 follows.(3) At pp.
2-4, this Digest stated:
Review of International Tax
Arrangements
In Bills
Digest No. 133 of 2003-2004, the review of international
tax arrangements ( RITA ) has been summarised as follows:
-
On 2 May 2002, the Treasurer announced
details of a RITA, concentrating on at least four principal
areas:
-
the dividend imputation
system s treatment of foreign source income
-
the foreign source income rules
-
the overall treatment of conduit
income and
-
high level aspects of Double Tax Agreement
(DTA) policy and processes.
-
A consultation paper titled
Review of
International Tax Arrangements Consultation Paper was
released by Treasury on 19 September 2002. This paper explored a
range of international tax issues that may affect the
attractiveness of Australia as a place for business and investment
and identified options for consultation to be conducted by the
Board of Taxation.
-
After extensive public consultation, the Board of
Taxation reported to the Treasurer on 28 February 2003. This report
was titled Review
of International Tax Arrangements: A Report to the
Treasurer.
-
On 13 May 2003, the Treasurer released the
report of the Board of Taxation and announced the
Government s response. To enable public consultation to be
undertaken on the design of legislation, including addressing
integrity issues, the Treasurer announced that the majority of
reforms would not commence until 1 July 2004 or later. It was also
announced that the reform package would be introduced in
tranches.
Implementation of changes to the
international tax arrangements in stages
For further details of individual measures
included in the New International Tax Arrangements Bill 2003,
readers are referred to the Bills
Digest No. 79 of 2003-04.
For further details of individual measures included in the New
International Tax Arrangements (Participation Exemption and Other
Measures) Bill 2004, readers are referred to the Bills
Digest No. 133 of 2003-04. (Footnotes omitted, hyperlinks
active)
The Australian business community reacted positively to the
reform of the international tax arrangements. For example, the
Australian Chamber of Commerce and Industry noted that:
The present focus on international taxation
arrangements is important because of the inefficient international
tax system Australia now maintains. Ways need to be identified
through which changes to Australia s treatment of international
income flows can mature the Australian economy and increase real
incomes. It is also about making Australian industry competitive
with the rest of the world in attracting foreign capital and
skilled migrants.(4)
Similarly, the Chief Executive of the Business Council of
Australia, Katie Lahey, was quoted stating that:
To compete effectively and secure future growth,
Australia needs tax arrangements that facilitate the flow of global
investment to Australia and assists Australian business to expand
into international markets.(5)
Schedule 1 Dividends
received by foreign-owned branches
Schedule 1 of the Bill proposes to make various amendments to
the Income Tax Assessment Act 1936 (ITAA 1936) and the
Income Tax Assessment Act 1997 (ITAA 1997) with a view to
harmonise Australia s international tax law with its tax treaty
obligations and to improve tax neutrality between Australian
branches and subsidiaries of non-resident
entities.(6)
Under section 128 of the ITAA 1936, unfranked dividends paid by
an Australian entity to a non-resident recipient are subject to
dividend withholding tax and the expenses the recipient incurred in
deriving the dividends are not deductible. This applies regardless
of whether or not the dividend is attributable to a permanent
establishment or branch in Australia. Franked dividends are
excluded from such dividend withholding taxes under
paragraph 128B(3)(ga) of the ITAA 1936, but are considered
non-assessable non-exempt income of the non-resident.
Under the proposed law, franked and unfranked dividends will
become assessable income of the non-resident if the dividends can
be attributed to the non-resident s permanent establishment in
Australia.
Item 1 will insert proposed new
paragraph 44(1)(c) into the ITAA 1936. This new paragraph
will have the effect that dividends which are paid to Australian
permanent establishments of non-resident entities, which are exempt
from withholding tax, are included in the assessable income of the
permanent establishment.
Items 5 and 6 of the Bill will make the
necessary changes to section 128B of the ITAA 1936 so that
dividends will cease to attract dividend withholding tax. As a
result of this amendment, they will also cease to be regarded as
non-assessable non-exempt income.
Proposed new subsection 128B(3E) will introduce
three prerequisites which stipulate that the dividend in
question:
-
must be paid to a non-resident person who carries on business in
Australia at or through a permanent establishment of the person in
Australia (proposed new paragraph 128B(3E)(a))
-
must be attributable to the permanent establishment
(proposed new paragraph 128B(3E)(b)), and
-
is not paid to the person in the person s capacity as trustee
(proposed new paragraph 128B(3E)(c)).
Under the second requirement, the payment of the dividend must
be attributable to a permanent establishment which must be located
in Australia.
Whether a payment is attributable to a permanent establishment
located in Australia will be a question of fact to be ascertained
on a case-by-case basis. The
Explanatory Memorandum notes that [i]t is intended that the
term attributable to will adopt its ordinary meaning.
(7)
The proposed amendments will also introduce a new definition for
the term permanent establishment , stipulating that:
-
if the term is defined in a double tax treaty agreed upon
between the country in which the foreign company resides and
Australia the term permanent establishment has the same meaning as
defined in the treaty, or
-
should there be no relevant tax treaty in place the
Australian domestic law definition as set out in section 6(1) of
the ITAA 1936 will apply.
To fully implement this definition, further necessary amendments
will be made by items 2 and 6 of Schedule 1
(amending the ITAA 1936 proposed new subsections
44(7) and 128B(3E)), and, virtue of
items 8 and 10 of Schedule 1 (amending the ITAA
1997 proposed new paragraphs 115-280(1)(b) and
(ba) and 207-75(2)(c)).
The payment of franked dividends will have two consequences:
-
the assessable income of the dividend paying entity s member
contains an amount equal to the franking credit on the
distribution, and
-
the dividend paying entity s member is entitled to an offset
equal to the amount of franking credit on the
distribution.(8)
However, apart from fulfilling other conditions and
requirements, to claim this offset, the member must be a resident
at the time of the distribution.
The proposed changes to the ITAA 1997 will have two results:
First, under item 10, proposed new
subsection 207-75(2) of the ITAA 1997, a non-resident
entity will be treated as a resident for the purposes of franked
dividends if the paid dividends are attributable to the entity s
permanent establishment in Australia. As the result of this change,
franking tax offsets are available to these non-resident
entities.
Second, under item 9, proposed new
subsection 67-25(1DA) of the ITAA 1997, the rules allowing
so called excess franking tax offsets to be converted into tax
losses will not be applicable to non-resident entities which, after
the introduction of proposed new subsection 207-75(2), would be
eligible to claim franking tax offsets as explained above.
Excess franking tax offsets may occur, according to subsection
36-55(1) of the ITAA 1997, where corporate tax entities sustain
current year losses. As indicated above, under certain
circumstances specified in subsection 36-55(2) of the ITAA 1997,
these excess franking tax offsets can be converted into an
equivalent amount of tax losses. Once made, these tax losses can be
carried forward for deduction in a later year of
income.(9) This conversion will not be available to
non-resident entities.
The changes proposed in the Bill will make changes to:
-
the commencing day with respect to certain capital gains
tax events
-
the provisions effecting the calculation of attributable
income, and
-
the definition of adjusted distributable profits
.
For controlled foreign companies (CFC), the ITAA 1936
considers as commencing day with respect to certain capital gains
tax events the latter of the following days:
The ITAA 1936 contains several modifications to the Capital
Gains Tax (CGT) Rules. Those relating to CFC s are to exclude
certain capital gains events which have occurred prior to the
commencement date. Under the current regime, CFC s are deemed to
have acquired assets owned on the commencement date at the market
value on that day. Further, capital losses are not able to be
carried forward.
However, the current regime can lead to two problems which may
occur where an Australian resident obtains interests in a CFC after
the commencement day:
-
first, where the CFC makes a capital gain or loss, the
cost base for the assessment of the gain or loss is the point in
time in which the foreign entity became a CFC, and
-
second, where an Australian resident acquires an interest
in a foreign company which has been, but ceased to be, a CFC,
(note: with the acquisition, the foreign entity becomes a CFC
again), taxation of capital gains which accrued during the period
in which the entity was not a CFC may occur. The
Explanatory Memorandum notes that this may lead to an onerous
due diligence process for the Australian resident acquiring the
interests.(11)
The proposed amendment, contained in item 5 of
Schedule 2, will substitute the current subsection
against proposed new subsection 406(1) of the ITAA
1936 to overcome these problems by changing the meaning of
commencement day with respect to these circumstances. After the
changes become effective, the above problems will be rectified
because:
-
the cost base for the assessment of capital gains or losses will
be the time at which the Australian resident obtained the interest
in the foreign entity and not the commencing day, and
-
any period of foreign control prior to this most
recent acquisition of interest will be disregarded. In other words,
the effect of the amendment will be that the commencement day is
always the most recent acquisition of a controlling interest in the
foreign company by an Australian resident.
The amendments will also make changes to the rules of
attribution of income derived from CFCs to resident attributable
taxpayers.
Under the current regime, section 457 of the ITAA 1936 provides
that attribution of income to a resident attributable taxpayer will
occur where a CFC changes its residency from an unlisted to a
listed country.(12) However, where an unlisted country
becomes a listed country, then, under subsection 457(3), no amount
will be included in the attributable taxpayer s assessable income
if the CFC was a resident of that unlisted country for three years
or more. If the CFC was a resident in the unlisted country for less
than three years, s 457 ITAA 1936 will apply, but only to tax
gains on the disposal of assets held at the time the CFC s
residence changed.(13)
The attributable income for tax-purposes consists of certain
forms of income, including, for example, dividends, interest or
royalties.(14) However, it was intended that unrealised
gains on tainted assets were to be excluded from the operation of
section 457 ITAA 1936. Rather, according to the
Explanatory Memorandum, this kind of income was to be taxed
under sections 384 and 385 of the ITAA 1936.(15) The
changes to the listed country regime were implemented as part of
the New International Tax Arrangements (Participation Exemption
and Other Measures) Act 2004 (NITA Act 2004). They reduced the
number of categories of countries from three to two countries and
had a profound effect on the applicability and operation of
paragraphs 384(2)(e) and 385(2)(e) ITAA 1936 respectively. After
the NITA Act 2004 changes were implemented:
-
the applicability of paragraph 384(2)(e) of the
ITAA 1936 was significantly limited and the remaining application
is now considered to be unjustified, and
-
the outcome of the operation of paragraph 385(2)(e) of
the ITAA 1936 is that attribution will occur even in situations in
sis now considered to be
Items 1 to 4 and
9 of the Bill will provide that the exemption
available under section 457 of the ITAA 1936 will become available
to a CFC resident in a country which became a listed country
irrespective of the three year residency requirement. Specifically,
items 2 and 4 of the Bill will
repeal paragraphs 384(2)(e) and 385(2)(e) respectively to exclude
attribution of this income.
Currently, Australian taxpayers are required under section 456
of the ITAA 1936 to include into their assessable income, on an
accruals basis in the current year, a share of the attributable
income earned by the CFC.(16) The CFC s attributable
income is calculated pursuant to the rules set out in sections 382
to 385 of the ITAA 1936 and depends upon, amongst other factors,
whether the country in which the CFC is located is a listed or
unlisted country. In addition to section 456 of the ITAA 1936,
section 457 of the ITAA 1936 ensures attribution of income to the
Australian taxpayer where a CFC changes from an unlisted to a
listed country or where a country became listed. It has been noted
that section 457 of the ITAA 1936 is to protect the integrity of
the accruals regime , as a second tier provision to preclude the
switching of profits from unlisted to listed countries.
(17)
Pursuant to subsection 457(2) of the ITAA 1936, the amount to
included into the taxpayer s assessable income for the income is
calculated on the basis of adjusted distributable profits. This
provision contains also a definition of this term which was
modified as a result of the NITA Act 2004 coming into force.
However, according to the
Explanatory Memorandum, the current definition has the
potential to provide that certain income, which has been attributed
to the taxpayer by operation of section 456 of the ITAA 1936, is
again attributable under section 457 of the ITAA 1936. This issue
arose because the definition introduced by the NITA Act 2004 did
not contemplate previous statutory accounting periods.
Items 6 to 8 and
10 of the Bill aim to address this issue by
amending the relevant provisions in the ITAA 1936, especially
section 457, and the ITAA 1997 respectively.
The Australian Government proposes to introduce specific tax
concessions to render Australia attractive to multinational
operations. Under the current law, tax concessions are available to
foreign banks: pursuant to Part IIIB of the ITAA 1936, the
Australian tax regime treats Australian branches of foreign banks
as separate legal entities.(18) As a result, loans and
derivative and foreign exchange transactions are treated as if made
between separate companies, that is, as if they were real
transactions for tax purposes. (19) However, branches of
foreign financial institutions other than foreign banks and their
parent companies are still considered to be one legal person with
the effect that the transactions between the companies are not tax
effective.(20)
The amendments proposed in Chapter 3 of the Bill will extend the
availability of limited separate entity treatment to the branches
of foreign financial entities. Changes will be made to three
areas:
- Applicability of Part IIIB of the ITAA 1936 to foreign
financial entities
Items 1 and 2 of
Schedule 3 of the Bill will make the required
modification to Part IIIB of the ITAA 1936. The changes will expand
the scope of this Part to encompass foreign financial entities,
bringing these entities onto the same level as foreign banks and
their branches.
- Applicability of the transfer of loss provisions
Unlike Australian branches of foreign banks, foreign financial
entities are unable to transfer losses incurred by unprofitable
group members to profitable group members. Items 7
to 10 of Schedule 3 of the Bill
propose amendments to Division 170 of the ITAA 1997 which will
permit the tax and net capital loss transfer between the Australian
branches of foreign financial entities.
- Modifications to the thin capitalisation rules
Thin capitalisation rules limit the interest deductions
available to an Australian entity which is foreign controlled and
which has an overseas debt to equity ratio in excess of that
allowed. As pointed out in Bills
Digest No. 16 of 2001-2002, a major function of the thin
capitalisation rules is to prevent multi-national corporations from
organising their debt to equity ratios for the purpose of claiming
the maximum interest deduction in Australia, where interest on
borrowings is generally fully deductible. The key issue is that
without the thin capitalisation rules, multi-national companies
would be able to use thin capitalisation to minimise their income
taxes in Australia by deducting their interest
expenses.(21) Accordingly, where the thin capitalisation
rules are triggered, that is, where the Australian entity has a
high level of debt funding, debt deductions are
limited.(22)
Under the current law, Australian branches of foreign banks can
elect to be either part of the parent company or may decide to
remain part of a single resident company for the purpose of
determining whether the thin capitalisation rules are triggered.
This choice is currently not available to the Australian branches
of foreign financial institutions (which are not classified as
banks).(23)
The amendments in this Bill will extend the thin capitalisation
rules applicable to Australian branches of banks within wholly
owned groups to the Australian branches of financial institutions.
According to the
Explanatory Memorandum, this will:
allow Australian branches of foreign banks, and
foreign financial entities, to be grouped with wholly-owned
Australian subsidiaries of the foreign parent in determining the
thin capitalisation positions of both the branches and the
subsidiaries.(24)
The
Explanatory Memorandum contains an explained diagram with
further information.(25)
Item 17 of Schedule 3 will
provide the necessary changes to sections 820-597
and 820-599 ITAA 1997. Section 820-597 will allow
head companies of consolidated and Multiple Entry Consolidated
groups to choose treating its Australian branches as itself for the
purpose of the thin capitalisation rules. Under section 820-599,
single entities (that is subsidiaries which cannot consolidate) may
make, under certain circumstances, a similar choice. For further
details on the choices which can be made by the single entity, the
reader may refer to Example 3.1 in the
Explanatory Memorandum.(26)
Items 18 to 26 contain
modifications to section 820-601 to
820-617 ITAA 1997 which are necessary as a result
of the changes to choice provisions section 820-597 and 820-599
ITAA 1997.
Item 27 proposes to repeal current section
820-609 and to substitute it with proposed new section
820-609. New section 820-609 will specify the situations
and circumstances in which head or single companies are classified
as inward or outward investing entity for the purposes of the thin
capitalisation rules.
Item 30 proposes changes to the means with
which head or single companies will calculate its adjusted average
equity capital. Proposed new subsection 820-613(3)
will provide a new method with which to calculate the amount used
to increase the average value used to adjust the average equity
capital. Proposed new subsection 820-613(4) makes
modifications to the way assets are risk-weighted.
Employee Share Schemes (ESS) are based on the idea that
employees receive discounted shares or rights in return for their
services. The benefit to the employee arises from receiving
discounted shares is, under certain circumstances, taxable (with
the benefit being the discount which is considered to be part of
the employee s assessable income).(27)
Inequitable tax treatment, such as double or nil taxation, can
arise where income from ESS is derived by employees in Australia
and offshore. The Board of Taxation noted in its Report to the
Treasurer that:
The international treatment of such [ESS] is
currently uncoordinated. As a result, the plans may become
virtually unworkable internationally because of double taxation and
compliance problems; or they may become the vehicles of tax
planning to reduce tax beyond what is possible purely in the
domestic environment.(28)
In addition, the Report of the Board of Taxation noted that
these problems have a detrimental impact on Australian business in
recruiting skilled workers from overseas. (29)
According to the
Explanatory Memorandum, the proposed amendments aim to address
the concerns raised by the Board of Taxation. In particular, they
aim to:
-
reduce the potential for double or nil taxation
-
create a more internationally consistent tax treatment of shares
acquired under ESSs, and
-
assist Australian business to attract more skilled
workers.(30)
To avoid double taxation of offshore income derived from ESS,
Schedule 4, items 2 to 4 propose
to exempt such income under the currently existing exemptions for
offshore employment (sections 23AF and AG of the ITAA 1936). The
proposed amendments will expand the relevant definitions specifying
which offshore income is exempt to include offshore income derived
from ESS. The exemption will be available where all conditions
specified in sections 23 AF or AG ITAA 1936 are fulfilled.
Where these conditions cannot be fulfilled, the taxpayer may
still be able to avoid double taxation: item 24 of
Schedule 4 will modify paragraph
160AEA(1)(q) ITAA 1936 to ensure that offshore income from
ESS is not considered as passive income (attracting tax liability)
but qualifies as income which allows the taxpayer to claim foreign
income tax credits.
Where offshore employees earn offshore income under ESS, but
subsequently become Australian employees providing services in
Australia, parts of their offshore income relates to services
provided in Australia. Still, even though the income was earned in
relation to services provided in Australia, under the current rules
the income may escape taxation altogether (nil taxation).
The proposed new law will provide that the ESS provisions to
employees at the point in which they become Australian employees
(items 5 to 7,
14 to 16). As a result, the
offshore income which is attributable to service provided in
Australia will become taxable. Further, where the shares received
under the ESS qualify as so-called qualifying shares , changes to
sections 139B and E
(items 7 and 8, 18 and 19) will
allow the Australian taxpayer to elect the possibly more beneficial
tax treatment which such shares attract.
Because it may be difficult to ascertain prospectively how much
income is earned as Australian taxpayer, the proposed amendments
will provide that the taxpayer may make, under certain
circumstance, changes to tax assessments for a period of four years
beginning at the end of income year in which the relevant period of
employment ended (item 17). For an example to
which this proposed amendment is applied, the reader may refer to
Example 4.2 in the
Explanatory Memorandum.(31)
Item 20 proposes the relevant changes to the
definitions of employee and employer within the meaning of section
139GA ITAA 1936.
Item 22 will provides a new definition for the
phrase foreign service , which will a service in a foreign country
as the holder of an office or in the capacity of an employee
(proposed new section 139GBA).
Items 28 and 29 propose
amendments to section 104-160 of the ITAA 1997 with the aim to
prevent double taxation of outbound residents which could occur as
the result of the interaction between the CGT rules and the ESS.
The amendment proposes to disregard CGT event I1 under certain
circumstances.
Items 30, 31 and 33, 34 and
36 propose to clarify which CGT cost base rules
apply where ESS shares or rights lack the necessary connection to
Australia.(32)
The amendments proposed in Schedule 5 of the Bill aim at
ensuring that Parts 2 and 3 of Schedule 2 of the NITA Act 2004
operate as intended. The reader is referred to the Bills
Digest prepared in relation to this Act.(33)
According to the
Explanatory Memorandum, the corrections will rectify a drafting
problem in the NITA Act 2004. It states that the original
application rule resulted in an ambiguity and did not clearly
express the Government s policy .(34)
Item 1 of Schedule 5 proposes
to amend sub item 140(2) of Schedule 2 of the NITA Act 2004,
substituting the current application rules with the new provision
according to which the amendments made by:
-
Parts 2 and 3 of Schedule 2 of the NITA Act 2004 will apply to
things that happened after 30 June 2004, and
-
Items 7, 58 and 59 of Schedule 2 of the NITA Act 2004 will apply
to statutory accounting periods starting after 1 July 2004.
The Bill is the next instalment of the Government s reform
package responding to the recommendation made by the Board of
Taxation in relation to Australia s international taxation
arrangements.(35)
The Regulatory Impact Statement (RIS), which is attached to the
Explanatory Memorandum to the Bill, notes that at the current
stage, the Government is unable to provide data specifying the
costs (in form of lost revenue and compliance costs for taxpayers)
the tax measures in this Bill may generate.(36)
-
The Board of Taxation, Review
of International Taxation Arrangements, A Report to the
Treasurer, Volumes 1 and 2,
Canberra, 23 February
2003.
-
P Costello, Treasurer, Review of International Taxation
Arrangements,
media release, 13 May 2003.
-
B Pulle and T John, New International Tax Arrangements (Managed
Funds and Other Measures) Bill 2004 , Bills
Digest, no. 43, Department of Parliamentary Services, Canberra,
2004-5, pp. 2 4.
-
Australian Chamber of Commerce and Industry, Fixing
International Taxation is just the start , ACCI
Review No. 94, Canberra, December 2002.
-
K Lahey, cited in Business Council of Australia, Progress on
Tax Competitiveness, media release,
Melbourne, 16 June 2004.
-
Explanatory Memorandum to the Bill, pp. 9 10.
-
ibid., p. 13.
-
Explanatory Memorandum, p. 15. For a general discussion of
franked dividends and examples see R. L. Deutsch, M. L. Friezer, I.
G. Fullerton, M. M. Gibson, P. J. Hanley, T. J. Snape,
Australian Tax Handbook, Thomson ATP, Sydney, 2005, p.
972-3.
-
Deutsch, ibid., p. 1028. See also
Explanatory Memorandum, ibid., p. 16.
-
Under section 340 of the ITAA 1936, a company is considered to a
CFC if it fulfils three sequential tests: first, five or less
Australian residents (each with less than 1 percent control
interest) have at least 50 percent inclusive control interest (or
are entitled to acquire that much); second a single Australian
entity has at least 40 percent control interest in the foreign
company; third, five or less Australian residents have actual
control of the company. See for more detail CCH Australia (eds.),
Australian Master Tax Guide 2005 , CCH Australia, Sydney, 2005,
p. 1128-9.
-
Explanatory Memorandum, p. 24.
-
Listed countries are those countries which are considered to
have a tax system which is similar or closely comparable when
compared to the Australian system. Listed countries are specified
under section 320 ITAA 1936 and the relevant regulations. They
include: Canada, France, Germany, Japan, New Zealand, United
Kingdom and the US.
-
CCH Australia (eds.), Australian Master Tax Guide
2005, CCH Australia, Sydney, 2005, p. 1135.
-
For more detailed information see Deutsch, op. cit., p. 1411
12.
-
Explanatory Memorandum, p. 25.
-
Deutsch, op. cit., p. 1405.
-
ibid., p. 1411. See generally also CCH, Tax Master Guide, op.
cit., p. 1132.
-
This is a modification of the single entity rule.
-
Deutsch, op. cit., p. 1423.
-
This is the effect of the single entity rule.
-
G. S. Cooper, R. E. Krever, R. J. Vann, C. Rider, Income
Taxation Commentary and Materials, Thompson ATP, Pyrmont,
2005, p. 821-2.
-
Deutsch, op. cit., p. 1505.
-
See generally CCH Australia, op. cit., p. 1242.
-
Explanatory Memorandum, p. 35
-
ibid.
-
ibid.
-
CCH Australia, op. cit., p. 404. Under some circumstances, the
taxpayer can invoke certain concessions in relation to so-called
qualifying shares or rights.
-
The Board of Taxation, op. cit., Vol. 1, p. 138.
-
The Board of Taxation, op. cit., Vol. 1, p. 48.
-
Explanatory Memorandum, p. 41.
-
ibid., p. 52.
-
ibid., pp. 52-3.
-
B Pulle, New International Tax Arrangements (Participation
Exemption and Other Measures) Bill 2004, Bills
Digest, No. 133, Department of Parliamentary Services,
Canberra, 2004.
-
ibid., p. 57.
-
Previous instalments included the New International Tax
Arrangements Act 2004, New International Tax Arrangements
(Participation Exemption and Other Measures) Act 2004 and the
New International Tax Arrangements (Managed Funds and Other
Measures) Bill 2004.
-
Explanatory Memorandum, pp. 65 6.
Thomas John
21 March 2006
Bills Digest Service
Parliamentary Library
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