Shorten Defends Australia's Tax, Merger Polices

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

02 June 2011

Australian Assistant Treasurer Bill Shorten has said that the failure in April of the merger between the Australian and Singapore Stock Exchanges and tax rulings on private equity deals would not stop Australia becoming a financial services hub.

Exchanges across the world have been recognizing the need to consolidate to be able to attract global capital, however the Australian government rejected the ASX/SGX bid on April 8. David Gonski, chairman of ASX, has said previously that the 15% cap on foreign ownership of the ASX was a reason behind the failure of the AUD8.3bn (USD8.9bn) deal. However, Shorten dismissed this claim and suggested that rules on foreign ownership of the ASX didn’t need revising.

“I don’t think the 15% foreign ownership issue is the reason why the ASX-SGX merger fell over. We have no objection in principle to mergers, but the deal has got to be a good deal,” he said.

He pointed out that the government is keen to encourage competition, citing the granting of a licence to Chi-X Australia Pty Ltd (Chi-X) as an alternative securities exchange to boost competition in Australia's financial markets. This was part of the government’s broad agenda to build the country’s reputation as a financial services hub within Asia.

Referring to tax rulings on equity deals, the Assistant Treasurer said he didn’t believe that the tax bill of AUD678m on the profit made from floating the department store Myer by a private equity company would put off future private equity business.

The private equity buyout industry had been hopeful of the government overturning some of the decisions made by the Australian Taxation Office, and has expressed its disappointment at the government’s stance.

The ATO ruled that, if an entity does not have the intention of becoming a long-term investor to derive dividend income from its shares, and if it is carrying on a business of restructuring and floating companies, the profit from the disposal of shares in an Australian company would constitute ordinary income, not capital gains, and be taxed at income tax rates.

The determination raised doubts in the minds of investors about the suitability of undertaking business in Australian markets. There have since been calls, particularly by AVCAL, Australia's main private equity body, for the urgent clarification of the ATO’s claim, arguing that the continued uncertainty would deter investors.

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