Australian Tax Board Reviews Islamic Finance

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

19 May 2010

Australian Assistant Treasurer, Senator Nick Sherry, has announced the terms of reference for the Board of Taxation's review of the tax treatment of Islamic finance in Australia.

The review, which was announced on  April 26, 2010 by the Assistant Treasurer and the Minister for Financial Services, Corporate Law and Superannuation, Chris Bowen, will be a comprehensive analysis of Australia's tax laws to ensure that, wherever possible, they do not inhibit the provision of Islamic finance, banking and insurance products.

"Islamic finance is a rapidly growing part of the global financial system," said the Assistant Treasurer. "The Islamic finance, banking and insurance market is worth almost AUD1 trillion (USD850bn) and could reach as much as AUD5 trillion."

"Attracting more of these funds and investment will develop business and boost jobs in Australia," Sherry continued. "This review is not about creating special treatment, but about creating a fair and level playing field for the provision of Islamic financial products into the Australian market."

"My recent trip to the Middle East illustrated the vibrancy and dynamism of this sector and there is no reason why we shouldn't address national tax laws that may be inhibiting local growth," Sherry noted. "Our funds management sector also has much to offer the wholesale Islamic finance sector - so the review will address any issue on that front also."

The Board of Tax has been asked to make recommendations on Commonwealth laws and findings on State and Territory laws that might be impediments and to review the progress made by other key jurisdictions in Europe and Asia in similar efforts.

"Ultimately, a guiding principle here is that the tax treatment of Islamic financial products should be based on their economic substance rather than their form wherever possible," said the Assistant Treasurer.

"Several other Western jurisdictions have made progress in achieving this - as have we - but now we need to move to the next level. The Board of Taxation review will enable us to do just that," he concluded.

The Board is being asked to provide a final report to the Assistant Treasurer by June 2011.

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