OECD Tells Australia To Crack Down On Tax Avoidance Schemes

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

10 August 2001

An OECD report on Australia released this week says the country must tighten up on avoidance in its tax system and narrow the gap between personal and corporate tax rates. The Australian Tax Office might reply that it has been trying, but seemingly can do nothing right.

With large parts of promised business tax reforms still unfinished, the OECD report presses the Government to be firm on anti-avoidance measures. But the Government, already beginning to become anxious about electoral damage after the GST fiasco, dumped its legislation to clamp down on trusts earlier this year in the face of angry opposition from various interested sectors of society.

The OECD however says the legislation needs to be reintroduced "with some urgency, given the risk of tax abuse that exists in the area of non-fixed or discretionary trusts".

There probably isn't much chance of that this side of the election, given the bloody nose administered to the ATO over forestry schemes, and now the problems with film finance.

The ATO has disallowed millions of dollars in deductions, ruling that a number of film finance projects, including the Moulin Rouge production, were tax minimisation schemes, and that investor funds were used for the purchase of security bonds to ensure a return on investment, and not for film production costs as such.

Hundreds of Australian investors in theatre, film, and entertainment projects have taken the promoters who sold them the schemes to court as a result, alleging that prospectus documents were misleading. More than 100 investors in a film scheme called the Australian Beach Tales Project filed applications in the Federal Court against the Commissioner of Taxation appealing the decision not to allow deductions under Division 10B, covering film financing. In a hearing before Justice Goldberg last week, a class action was agreed under which five of the applicants would be the test cases.

Despite the Government's discomfiture, Tax Commissioner Mr Michael Carmody has in the past week underlined the ATO's intention to "ensure that artificial arrangements which distort intended tax concessions were not permitted".

Yet Division 10B of the Tax Act covering film financing has given a successful stimulus to movie production in Australia by overseas studios. Schemes under the Act typically involve a 100 per cent tax write-off of investment over two years, while some deals have been structured using loan funds to achieve a larger write-off.

Looking for an escape from the hole it has dug for itself, the Government is said to be considering giving direct rebates to overseas film investors rather than allowing tax deductions for local investors which just lead to dissension between the investment community and the ATO.

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