Australian Government Releases International Tax Consultation Paper

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

26 August 2002

Proposals designed to enhance Australia's attractiveness as a location for international businesses and foreign investment were unveiled late last week by Treasurer, Peter Costello.

The country's business community has long demanded improvements to the Australian international tax system, and a number of home-grown companies have, over the past year or so, threatened to relocate offshore if significant action is not taken. Launching the international taxation arrangements consultation paper on Thursday, Mr Costello observed that:

'I do not want to see Australian companies leave Australia. I want Australian companies to grow and remain headquartered in Australia.' He continued: 'The net benefit will be if we can encourage regional headquarters and promote Australia as a financial centre.'

Among the suggestions contained within the consultation document are: the reduction of capital gains tax for foreign executives working in the Commonwealth, and the elimination of double taxation on foreign share options. ABC News reported on Friday that the system of dividend imputation - whereby tax paid on dividends at the company rate is credited to shareholders - would be altered under the proposals to reduce the tax bias against Australian companies with large foreign operations.

The Treasury Department is also said to be considering offering tax breaks to foreign multinationals in order to encourage them to establish regional headquarters in Australia.

The planned changes were warmly welcomed by business groups last week, according to ABC. Speaking to the news service last week, Chief Executive of the Business Council of Australia (BCA), Katie Lahey commented:

'Australia must grasp this chance to recalibrate its cross-border tax laws to be internationally competitive, to attract and retain people, skills and investment, and at the same time jettison the dead weight holding back the international growth of Australian companies.'

Executive Director of the Corporate Tax Association, Frank Drenth echoed this sentiment, announcing last week that: 'This will make the system more workable.'

He told the national news service that the newly released proposals represent a step in the right direction, explaining that:

'In themselves, these measures are not going to make a Singapore funds manager pack up their bags and move to Sydney. But they represent recognition that we don't need to tax every last cent of foreign-sourced income.'

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