Australian Tax Forum

Articles from the current issue:

• Income equalisation: Is all fair in primary production and tax law?

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  This article examines income equalisation deposit schemes (IEDSs) in the Australian and New Zealand primary industry sectors. The purpose of such schemes is to assist eligible taxpayers with managing inconsistent cash flows, effectively facilitating income smoothing. The authors explore the policy rationale for these schemes, contrasting New Zealand and Australia, using pluralism as a theoretical framework.

• Multinational corporations and profit shifting: Problems and policy options

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  Multinational corporations have opportunities, and face competitive pressures, to shift profits from high corporate tax rate to low corporate tax rate countries. Reasons behind the growth, and likely further growth, of profit shifting to reduce global corporate tax paid are explored. The adverse revenue, efficiency and equity effects of profit shifting provide arguments for reforms to the current system of autonomous country corporate income taxation. Four reform options are described, and their pros and cons are assessed: maintain individual country profit measures and augment regulations and international cooperation as proposed by the OECD; all countries adopt a common corporate income tax rate; form a measure of global profit and apportion the global profit to individual countries; and replace the source base income tax with a destination base cash flow tax. Each has some advantages and disadvantages, and none is a silver bullet or an obvious choice.

• The Australian dividend imputation system and corporate tax avoidance

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  This study investigates whether and how the Australian dividend imputation system alleviates corporate tax avoidance by Australian listed companies. Based on a sample of profitable Australian listed companies across the period from 2009 to 2012, this study finds that companies distributing a higher proportion of their after‑tax profits as franked dividends and companies with less foreign ownership engage in less corporate tax avoidance. No significant statistical association between foreign operations and corporate tax avoidance is found. Furthermore, this study finds that when an Australian listed company with partial foreign ownership pays more franked dividends to meet the demands of its Australian shareholders, it tends to engage in less corporate tax avoidance; and when an Australian company has foreign operations, it may shift foreign profits to Australia to enjoy greater benefits from the imputation system. This study contributes to the literature and political debate with regards to corporate tax avoidance by providing empirical evidence on the tax avoidance‑reducing effect of the dividend imputation system.

• Tax system integrity and directors’ obligations under the Corporations Act – A tale of two systems

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  The article examines the approach of various regulators and the law for corporations to have functional and effective corporate governance systems in operation for tax purposes. This includes an evaluation of the current corporate tax environment; and the approach of the ATO and ASIC to corporate governance processes. It finds the ATO has no direct remedies if such processes are not in place. This leads to a review of the duties of care and diligence and good faith under the Corporations Act to determine if breaches of these duties caused through no or inadequate governance processes that result in serious breaches of the tax laws can give rise to civil remedies under the Corporations Act. The conclusion is affirmative. Part of this review includes a determination as to whether the Commissioner should be given similar remedies as are available to ASIC under the Corporations Act and concludes this is not an optimal result.

• Corporate moral ethics and transfer pricing aggressiveness in Australia

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  This article explores the impact of corporate moral ethics on transfer pricing aggressiveness in Australia. The authors’ results show a significant negative association between corporate moral ethics and transfer pricing aggressiveness. Hence, firms with higher moral ethics are less likely to be aggressive in terms of transfer pricing. The results from the additional analysis indicate that the presence of a corporate social responsibility strategy and the community and political involvement of a firm represent basic elements of corporate moral ethics that have a negative impact on transfer pricing aggressiveness. Overall, this article has important tax policy implications.

• Encouraging innovation? Assessing Subdivision 360-A’s tax incentives

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  Data from tax returns lodged in 2016-17, the first year in which Subdiv 360-A’s tax incentives for investments in early stage innovation companies were available, shows that approximately $300m was invested in some 340 early stage innovation companies by a total of around 3400 ‘angel investors’. The data does not however indicate how much of that was invested because of the tax incentives and how much would, in all probability, have been invested anyway. The incentives, a non-refundable carry-forward tax offset of 20% of the value of the investment (up to a maximum tax offset cap of $200,000) nd a ‘modified CGT treatment’ (which disregards any capital gains realised when the shares are disposed of – provided they have been held for between one and ten years), are, on their face, generous.