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:

  • Uncertainty and possibilities in taxation of Australian investment in China: Profit distributions and payments to group members Add to cart

    01 Dec 2014

    This paper considers the Australian and Chinese taxation of Australian investment into China with a focus on profit distributions and inter-group transactions. In doing this it identifies that there is significant uncertainty in relation to taxation outcomes in the area and that this would be expected to cause major compliance costs. The uncertainty can be understood at two levels. First it is the product of Australian tax complexity brought about by an extensive law that results in unanticipated outcomes when it is not carefully reviewed in relation to multiple taxpayer levels and over time. Second, it is the product of a Chinese law so lacking in detailed rules of application and reliable ancillary information that it is difficult to know how it applies to numerous transactions.

    The combination of these two levels of complexity mean(s) that a failure to engage in very detailed consideration of the law will result in unexpected and highly undesirable taxation outcomes such as double taxation. The expense associated with the necessary consideration and planning would be expected to constitute a major obstacle to investment by many Australian investors into China. At the same time the analysis shows that when significant planning is undertaken, opportunities can arise to minimize tax arguably below that which would be expected by legislators. Finally, the analysis indicates that it is very difficult to ascertain exactly what the ‘correct’ amount of tax is for Australian investment into China. The context necessitates complex planning for a reasonable outcome yet complex planning can result in the payment of minimal taxation. It is difficult to see this as efficient or equitable.

  • Expatriate employees and consultants working in China Add to cart

    01 Dec 2014

    China’s demand for skilled workers, including from Australia, in their emerging economy is continuing. Australians working in China as employees or as consultants are likely to encounter many cultural but also legal differences, including different tax treatment of their remuneration.

    Although the taxation of remuneration in China has some similarities with the Australian tax system, there are at least three differences that are worth noting. These differences relate to treatment of residency (referred to in China as ‘domicile rules’) which allow foreigners to pay Chinese tax only on Chinese-source income if the person is resident for less than 5 full years; the more favourable treatment of allowances and bonuses and the tendency to tax foreign workers more favourably than domestic workers.

    This article considers those differences and notes the pressures that may mean that features of the Chinese personal tax system could change.

  • The development of transfer pricing in China Add to cart

    01 Dec 2014

    As a developing country, China is a relative late-comer in the global transfer pricing arena. While the Chinese tax authority, the State Administration of Taxation (SAT)1 has been adept at leveraging the international tax experience of other countries, from the 1980s onwards China began to establish her own unique transfer pricing system.

    This article will examine key transfer pricing developments in China, looking at tax policy and practice in light of the increasing sophistication of her transfer pricing rules and regulations and enhanced enforcement practices. It will highlight features of the origin and development of China’s transfer pricing system that are specific to China, including its genesis from the local pilot programs and the local administrative regulations of the Shenzhen City government, the fact that most of China’s detailed transfer pricing rules take the form of departmental tax documents which provide the SAT with a large amount of discretion in the implementation of these rules, and the relatively small role that judicial review plays in the regulation of transfer pricing.

  • China’s enterprise income tax system: Policy objectives and key design features Add to cart

    01 Dec 2014

    The increasing importance of China to Australian businesses dictates the need to have a good understanding of the Chinese corporate tax system. Due to the different economic and legal environment, some provisions of the EIT Law may come as a surprise to foreign observers. This is so despite that the Chinese tax system has become more sophisticated and its government in general has strived to align its tax policies with international norms in recent years.

    The aim of this paper is to identify and analyse three key policy objectives of the EIT Law – namely, neutrality, competitiveness and anti-avoidance – which provide the framework for a better understanding of the regime. These policy objectives have shaped to a large extent the EIT Law in China. This paper critically evaluates how these three policy objectives were achieved through the design of key features and provisions of the EIT Law. The analysis also serves to highlight some interesting differences with their Australian counterparts wherever appropriate.

  • Chinese investment in Australian resources: Can the legal debt/equity distinction still create windfalls and impediments? Add to cart

    01 Dec 2014

    Chinese direct investment into Australia is significant due to its scale and to the relatively unique circumstance of a developed country net beneficiary and developing country net provider, of direct investment. The Australian resources sector is the main target of such investment and it is in this context that certain ‘tracking note’ hybrid instruments offer marked Australian tax benefits in relation to the stamp duties or capital gains tax (‘CGT’) that might otherwise apply to acquisitions and disposals of ordinary shares. The issue is that while the tracking notes are, in substance, equity investments and bear many similarities to ordinary shares, they are not legal form shares and the tax benefits arise because various tax provisions still turn on legal form.

    Further, the tax advantages can be preserved by the use of interposed holding companies (for instance, in Hong Kong or Singapore) to route the Chinese investment. However, the use of tracking notes creates non-tax inefficiencies for the issuer and holder, increases compliance costs and uncertainty and impacts on the integrity of the Australian stamp duties and CGT provisions. Ultimately they amply demonstrate the difficulty inherent in applying established international taxation concepts to innovative instruments when different countries’ laws and double tax agreements are involved.