Australian Government Moves In Wake Of Hardie Departure

by Mary Swire, Tax-News.com, Hong Kong

26 July 2001

In the wake of the departure of James Hardie Industries to Dutch shores, reported here earlier this week, the Australian Federal Government has announced that it is at present negotiating with the American authorities regarding tax arrangements between the two countries.

Hardie's problems arose because it earned 85% of its money in the US (where the company's operational headquarters are based), for a primarily Australian shareholder base, meaning that profits repatriated to Australia were subject to a withholding tax in the States, and then to local taxes in Australia, which adds up to an overall taxation rate of around 50%. It is estimated that the establishment of a Dutch parent company will reduce James Hardie's tax bill by around 30%, and lift its profits by AU$30 million (US$15.3 million).

The fact that the government has actually been stung into action may surprise industry leaders, who have long been asking it to look into the tax treatment of foreign sourced income. However, the future for the talks does not look bright, as the two rounds of negotiations which have already taken place have achieved next to nothing. Peter Costello, the Australian Treasurer told reporters earlier this week that: 'The Americans don't want to reduce their tax rates on American income earned by Australian companies. We're asking for a significant drop.' However, he failed to mention the fact that Canberra has been similarly stubborn over the issue of capital gains relief for non-resident investors, which may also have played a part in the seeming failure of the negotiations.

Despite the fact that the rest of the Australian government has clearly been rattled by recent events, and are assessing the possible implications for the country, Prime Minister John Howard seems to have adopted his usual (head in the sand) approach, and is downplaying the possibility of a wide scale corporate exit from Australia. 'I would doubt...that what James Hardie has done would become a template or a model for other companies because I wouldn't imagine there would be a large number of other companies that are in a similar position,' he said.

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