28 May 10 Preamble - Friday, 28 May 2010
The Federal Government must legislate to dispel ongoing confusion from two unfinalised Tax Office determinations on private equity or risk a snowballing negative impact on inbound foreign investment. The Taxation Institute issued a media release on Wednesday 26 May entitled ‘Government must act to prevent investment haemorrhage’ in relation to the two draft determinations that were due to be finalised on that day. They focus on businesses using entities based in low tax jurisdictions that have tax treaties with Australia to invest in Australia (treaty shopping) and the tax treatment of the sale of Australian assets held by foreign investors in private equity firms.
According to media reports, the Tax Office has advised that the finalisation of both determinations has been delayed until the “Government’s current review of policy in this general area has been completed”. However, the Assistant Treasurer’s spokesman has said that there is no formal review being undertaken. This is an unacceptable situation that is causing more uncertainty and is not conducive to attracting foreign capital to Australia. The approach in the draft determinations is contrary to the Government’s policy position in relation to foreign investment, especially the relaxing of capital gains tax rules in 2006 for non-residents which were meant to encourage investment.
We will continue to pursue this issue along with a number of other important issues due for release by the ATO in the coming weeks. There is also significant work being undertaken on various submissions in this post-Budget period and details of these and other activities are described below.
Robert Jeremenko FTIA