It was reported yesterday that James Hardie Industries, the Australian building materials group, is to shift its base to the Netherlands in order to improve minimise tax charges. The widely diversified group has substantial international income flows.
"Higher rates of foreign tax are imposed on our foreign income when it is repatriated to Australia to pay dividends to shareholders. Under the current structure, this problem will increase as international demand for our products grows," said Peter Macdonald, chief executive.
The announcement, coming less than a week after the EU targeted a number of member states, including the Netherlands, for their attractive corporate tax regimes, shows that international business doesn't think the Commission stands much chance of impeding the race by European countries to offer beneficial tax breaks to highly mobile multinationals.
The group said on Tuesday that adopting the new structure - which will also involve a secondary listing on the New York Stock Exchange - would nearly halve its average tax rate to about 30 per cent. Net profits before exceptionals were A$92m (US$46.7m) in the year to March.
The global market potential for Hardie's products, using its Australian-developed fibre cement technology, was about 10-15 times larger than at present, he added.
About 85 per cent of the group's income comes from the US - where it has had its operational headquarters since 1998 - but its shareholder base is 90 per cent Australian.
Moving to a Dutch base will also cut dividend withholding tax from a minimum of 15 per cent under Australian regulations to a maximum of 5 per cent.
To date, most organisations have opted for dual listings in London and Australia. This is the structure chosen by BHP Billiton, the newly merged mining group, and the industrial services business being formed by Brambles and GKN.
James Hardie said it expected its stock would remain mainly traded in Australia. It had planned a full listing in the US two years ago but abandoned the plan because of poor sentiment towards its sector.
The move comes amid concern in Australia that the country is in danger of becoming a "branch-office economy" both because of a spate of foreign takeovers of local companies and because several large local groups are considering listing or moving operations off-shore.
The Canberra government - which has already made a series of radical fiscal reforms - has repeatedly been urged to improve the tax regime for companies operating globally to encourage them to remain in Australia. Some reforms were recommended by the wide-ranging Ralph report, which has been partially implemented, but the difficulty of seeing through major controversial tax changes will likely prevent further reforms before upcoming elections.
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