International Taxation Arrangements

Background

On 2 May 2002 the Treasurer announced details of a review of international tax arrangements 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’
• high level aspects of Double Tax Agreement (DTA) policy and processes

The Treasurer announced that the Board of Taxation would be undertaking public consultation on these issues following the public release of a paper prepared by the Treasury.

Consultation Paper

On 22 August 2002 the Treasurer released the consultation paper Review of International Taxation Arrangements, prepared by the Commonwealth Department of the Treasury.

The Chairman of the Board of Taxation welcomed the release of the consultation paper. The Board also announced details of the consultations that it planned to undertake on the paper.

The Board held a consultative seminar in Sydney on the 30 September 2002.

The Board requested written submissions on the Review of International Taxation Arrangements by 31 October 2002. All submissions received were acknowledged.

Board Report and Government Response

On 28 February 2003 the Board provided the report into the Review of International Taxation Arrangements to the Treasurer. The Treasurer released Volume 1 and Volume 2 of the Boards Report on 13 May 2003 (Volume 3 of the report involved confidential submissions which was not released by the Treasurer).

The Treaurer stated in his press release, ‘I would like to thank the Board for this crucial work in reviewing the complex area of international taxation law.

‘The package of reforms announced by the Government will improve the competitiveness of Australian companies with offshore operations. These reforms will reduce the costs of complying with the controlled foreign company (CFC) rules, reduce tax on foreign ‘active’ business income, and effectively reduce foreign taxes by modernising Australia’s tax treaties.

‘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.’

Of the Board’s recommendations most were endorsed by Government, with some amendments not adopted or considered unnecessary or deferred (2.1(1), 2.1(1), 3.1(1), 3.1(2), 3.6 and 4.3 and 3.12) and some to be considered as part of the review of the foreign source income anti-deferral rules. Details of this later review can be found here.

For further information on this review please contact the Board of Taxation Secretariat on (02) 6263 4366 or at Taxboard@treasury.gov.au.

Submissions received