Australian Government Provides Investment Certainty By Addressing ‘Fin 48’ Issue

Mary Swire, Tax-News.com, Hong Kong

21 December 2010

p>The Australian Government on December 17 addressed a key area of investment uncertainty for US-based fund managers investing in Australia, by announcing a clear plan to deal with the “FIN 48” issue. Assistant Treasurer Bill Shorten said: “The Government's timely and decisive action will improve Australia's standing as a financial services centre.”

US-based fund managers investing in Australia may be adversely affected by the recent application of certain US accounting rules to managed funds, widely referred to as 'FIN 48'. Under these rules, funds are required to make disclosures in their financial accounts in relation to uncertain tax positions, including for prior income years.

While those rules do not directly affect Australian tax outcomes, dealing with the requirements has underlined to foreign investors the uncertainty of Australia's tax rules, as identified in the Australian Financial Centre Forum Report, Australia as a Financial Centre: Building on our Strength (the 'Johnson Report'). The Government's actions today will act to improve investor certainty in relation to past transactions, where the impact of the accounting rules is greatest.

The Government will introduce amendments to the income tax laws to provide certainty of tax treatment for funds that have invested in Australia. Where a foreign managed fund has not lodged a tax return for the 2009-10 or prior income years in respect of certain investment income of the fund, the Australian Taxation Office will not be permitted to raise an assessment in respect of that income, except where the fund lodges a tax return disclosing such income. The amendments will take effect from December 17.

The Johnson Report found that the lack of certainty and consistency of the tax treatment of cross-border financial transactions meant that potential financial transactions, investment flows and new business opportunities are driven away from Australia.

“I will consult closely with the Financial Centre Taskforce (formerly the Australian Financial Centre Forum) and industry representatives in designing legislation to implement these changes, including appropriate integrity rules,” Mr Shorten said.

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