Australian Tax Forum

Australian Tax Forum Vol 28 (3) 2014
Outside of Australia
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Australian Tax Forum is a prestigious quarterly journal with the objective of providing discussion on issues in tax policy, law and reform amongst tax professionals.

It is an essential reference source for understanding and contributing to the development of taxation systems worldwide. Australian Tax Forum is aimed at those who want to influence the future development of tax policy. It is an important journal for tax policy makers, academics and libraries.

Articles from the current issue:

  • Dividend reinvestment plans: a tax-based incentive under the Australian imputation tax system Add to cart

    01 Aug 2015

    An innovative feature of the Australian tax code is the provision of “imputation tax credits” that reduce the effective tax paid by Australian investors on dividends received from Australian firms. The feature is generally regarded as providing a tax incentive for corporations or firms subject to Australian corporate tax to distribute available cash to investors rather than seeking to retain the firm’s profits. More recently in Australia, dividend reinvestment plans (DRPs) have been increasingly utilised by firms that allow investors to have their cash dividends automatically reinvested in new shares issued by the firm. Such plans offer firms an alternative source of equity capital to either retention- or stock-financed equity capital.

    This article demonstrates the link between the tax liabilities of investors and the propensity of firms to avail themselves of a DRP innovation. We argue that the increasing use of DRPs in the Australian equity market subsequent to the introduction of the imputation tax system can be explained by tax-saving efficiencies that allow the firm the opportunity to lower its cost of financial capital. From a policy perspective, this will act to stimulate overall investment.

  • Pattern of distributions test for discretionary trusts: Defects reveal questionable policy design and implementation Add to cart

    01 Aug 2015

    The pattern of distributions test (PODT) is a qualifying rule for revenue loss usage by discretionary trusts (non-fixed trusts) that are not a family trust. The PODT has received little attention from tax commentators. This article is related to an earlier article. The earlier article outlined the technical deficiencies in the PODT and concluded that the PODT is largely ineffective, or at least severely compromised, as a loss-access qualifying criterion for discretionary trusts.

    This article focuses on the policy challenges in designing an effective continuity of ownership type test for discretionary trusts, which is what the PODT is. This article concludes that while there are considerable challenges in designing an effective loss-access qualifying criterion for discretionary trusts, the current PODT falls far short of a credible loss-access qualifying rule.

  • Thin capitalisation rules: A second-best solution to the cross-border debt bias? Add to cart

    01 Aug 2015

    One of the most significant trends in the evolution of global tax systems has been the rise from relative obscurity of thin capitalisation rules, which are perceived as anti-avoidance rules which limit tax base erosion from cross-border interest deductions. However, over the same timeframe, innovations to financial instruments have challenged the traditional financial and legal distinctions between debt and equity, which in the cross-border setting has exposed the prevalence of economic inefficiencies in the design of the international tax system.

    This article approaches the issue of thin capitalisation from a novel perspective by conceptualising the cross-border debt bias as the “disease” and thin capitalisation as merely the “symptom”. Despite their prevalence, it is unclear whether thin capitalisation rules: (1) attain tax neutrality (specifically, do these rules mitigate the debt bias); and (2) are effective in both theory and practice.

    This provides the basis to examine whether a cross-border manifestation of a fundamental reform could eliminate the need for existing thin capitalisation rules, which are presently a second-best solution to the tax-induced cross-border debt bias. Accordingly, this article: (1) considers reforms traditionally designed to address the domestic debt bias; specifically, the allowance for corporate equity (ACE), comprehensive business income tax (CBIT), combined ACE-CBIT and allowance for corporate capital; (2) examines the literature and implementation experience of the ACE, the only one of these fundamental reforms which has been experimented with in practice, to consider whether it is effective in both theory and practice; and (3) presents the possibility of extending the combined ACE-CBIT to the cross-border context as an alternative to thin capitalisation rules.

  • Is integration of income taxation possible in the EU? Add to cart

    01 Aug 2015

    In contrast to the VAT regime, income taxation in the European Union (EU) remains almost fully non-harmonised. A number of factors suggest the possibility that harmonisation of direct taxes in the EU may not be as far-fetched as many believe. The first is the compulsion of mounting economic and financial stresses that may limit tax competition inhibiting harmonisation. The second is growing appreciation of the fact that unfettered judicial intervention in tax policy by the Court of Justice of the EU without the benefit of legislative guidance is no longer sustainable. The third is the effect of the abolition in the Lisbon Treaty of an EU direction to Member States to act independently of the EU to address the problem of double taxation.

    The Lisbon Treaty amendments to the European governing treaties may in due course unfold in such a way that the EU has wide powers to act in the income tax field based on its responsibility for protecting the single market. And finally, the adoption in EU law of explicit processes for Member States to adopt harmonised rules in the medium term rather than wait indefinitely to achieve unanimity may open the door to greater EU income tax harmonisation in the long run.

  • Understanding clients’ ties to a tax practitioner: The mediating influence of trust and service satisfaction Add to cart

    01 Aug 2015

    Research increasingly points to the intangible, ambiguous, global and technical nature of tax practitioner services and the importance of the relationship of the tax practitioner with clients. This article examines how a client’s trust of the tax practitioner and satisfaction with their services influences the client’s commitment to this service relationship. To determine how trust and service satisfaction affects the relationship between interaction behaviour factors and client relationship commitment, a total of 211 responses from clients of various accounting and law firms in New Zealand were analysed.

    The data is analysed using the Hayes PROCESS macro for SPSS. The findings suggest a client’s trust of their tax practitioner and satisfaction with their services are instrumental to commitment to the client relationship. In addition, the findings reveal that client relationship commitment significantly reduces when a tax practitioner gives an honest opinion to clients about any ambiguous or grey areas of tax laws involved, and explains implications of tax laws and regulations regarding their tax affairs.

    The study suggests that effective development of the skills of tax practitioners that builds their clients’ confidence about effectiveness of the working papers could improve the overall client relationship and promote a tax compliance culture.

  • Structural tax reform: What should be brought to the table? Add to cart

    01 Aug 2015

    This article canvasses what features of our current tax system should be brought to the table for consideration in the development of policies directed to structural tax reform. It does so against a background of political infection of the tax system over the last five years; the historical and current tax mix; the influence of global competitiveness on the corporate tax system; the confined income tax base for individuals including the current bias in favour of capital gains; and the base limitations of the GST vis-à-vis geographically close comparable jurisdictions. While the author puts forward his own views, he acknowledges the need for comprehensive discussion and understanding with a view to achieving some semblance of consensus.

    The author’s conclusion is that the reform required must implement a broader base upon which our income tax can operate and so facilitate a reduction in marginal rates to provide an equitable foundation to broaden the base of the GST.

  • Does a more transparent international tax environment provide the same outcomes as transfer pricing would but in a less arbitrary way? Add to cart

    01 Aug 2015

    Effective tax planning involving transfer pricing is made possible due to discrepancies between the tax regimes offered by different countries. The mobility of intangible assets and the significant profits yielded by exploitation of intangibles make tax planning using transfer pricing of intangibles the most controversial and thorny issue in international taxation. The double Irish Dutch sandwich structure is used to illustrate how differences between different tax regimes are exploited, allowing multinationals to minimise their tax bills.

    International efforts to tackle revenue losses have been led by the OECD, recently culminating in the base erosion and profit shifting (BEPS) project. However, a historical review of the OECD’s work on tackling harmful tax practices reveals the limitations of any of such attempt. Adoption of a tax regime always falls within a state’s sovereignty and cannot be interfered with by any other country or organisation. Despite their participation in the BEPS project, many OECD countries and European Union (EU) member states are adopting preferential tax regimes and lower corporate income taxes to attract investment in relation to intangible development and exploitation. Examination of the OECD’s campaign against harmful tax practices and the latest developments in the area of information exchange illustrate the difficulty of reaching a consensus on a substantial standard, and the diverse national interests in setting their own tax polices. Nevertheless, improving transparency can be regarded as a compromise to tackle harmful tax practices. Measures to improve transparency have been reinforced by the OECD’s Action plan on base erosion and profit shifting (BEPS Action Plan).

    The existing preferential regimes for research and development and commercialisation of intangibles force multinational enterprises to consider the tax consequences of their global operation. However, these enterprises are facing a more transparent international tax environment and better-equipped tax authorities, which makes arbitrary tax planning of transfer pricing less possible.