Contact: Gavin Clancy
Deloitte
Communications Manager
+61 3 9208 7759

Contact: Joe Niven
Deloitte
International Tax Partner
+61-3-9208 7643

A new package of international tax measures passed by the Senate today will help to turn the tide against the complexity of Australia’s international tax rules, according to the Big Four professional services firm Deloitte.

Deloitte says the measures will help to attract more multinational investment.

Deloitte International Tax Partner Joe Niven said the new rules would largely repeal a maze of provisions dealing with the taxation of foreign dividends. Currently such dividends are either exempt, partially exempt or assessable. 

The changes mean that from 1 July 2004 most foreign dividends paid to Australian companies will now be tax-exempt, regardless of the country of origin. 

“We could expect significant amounts to be repatriated to Australia as a result of these changes.  The exemption of foreign branch income has been similarly expanded,” he said.

Mr Niven said the new rules would also provide a full or partial exemption from capital gains tax for Australian companies disposing of shares in foreign companies with an underlying “active business”.  This change applies from 1 April 2004.

He said these changes should mean:

• Australian multi-nationals will be able to repatriate profits that have been trapped in low-tax jurisdictions without an Australian tax cost.
• Australian companies with active businesses in foreign countries can dispose of those businesses without being subject to Australian tax.
• Australia will be more attractive as a base for multi-nationals. 

“The legislation also gives Australian-owned groups more flexibility in where they locate their intra-group service providers by amending the scope of the controlled foreign companies (CFC) rules,” Mr Niven said.
“New Regulations under the CFC rules have also made compliance for CFCs much easier.  The Foreign Investment Fund (FIF) measures have also been relaxed to the benefit of the funds management industry,” Mr Niven said.

“The business community welcomes the latest round of changes.  It shows that the Government is serious about delivering on its promise to reform Australia’s international tax rules.  These rules are acknowledged as some of the most complex in the world. In the past, that complexity has actually hurt Australia because it discouraged investment, both inbound and outbound.”

However Mr Niven said other jurisdictions still had the upper hand because most of them usually exempted non-residents from tax on the sale of domestic corporations. 

“Further reform is eagerly awaited,” he said.