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Australian Gov't Announces Start Date For Offshore Banking Reforms

by Mary Swire,, Hong Kong

04 February 2014

Reforms to Australia's Offshore Banking Unit (OBU) regime will enter into force from July 1, 2015.

The changes have already been postponed twice. Labor Treasurer Wayne Swan included the plans in his 2013-14 Budget, and earmarked a July 1 start date. This was pushed back to October, after concerns were raised during an initial consultation period.

Shortly after the Coalition's victory in September's general election, it announced that it would not proceed with the proposals immediately, and would delay their implementation.

Assistant Treasurer Arthur Sinodinos has now revealed a new, 2015, start date.

He explained: "This step will provide business[es] with certainty by allowing targeted integrity rules, together with Offshore Banking Unit reforms, including recommendations by the Johnson Report, such as reviewing the activities eligible for the OBU concession, to be fully considered and implemented in one complete package."

The OBU regime provides a concessional 10 percent tax rate, with the aim of encouraging genuine offshore banking activity in Australia. Set up in 1987 and originally applicable to banks and foreign exchange dealers, it has since been expanded to include insurance companies, fund managers, and other companies deemed to be OBUs.

The former Labor Government alleged that the system was being used to transfer domestic banking activities and non-banking profits into OBUs. Its overhaul would have seen dealings with related parties, including the transfer of transactions between the OBU and the domestic bank, declared ineligible for OBU treatment. Transactions between OBUs, including those between unrelated OBUs, would have fallen into the same category.

The Coalition will not proceed with the part of this measure that excludes all related party transactions, and will instead pursue a "targeted integrity measure", to provide certainty for the industry. This will help Australian banks compete on a level playing field overseas, it claims, by providing access to a competitive tax rate.

Sinodinos said that although the Government "is committed to ensuring that the integrity of our business tax system is maintained, reforms that modernize the Offshore Banking Unit regime will contribute to Australia's development as a financial services center."

TAGS: compliance | tax | business | tax compliance | tax incentives | banking | financial services | insurance | Australia | offshore | offshore banking | transfer pricing | tax breaks | services

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