The package of reforms hopes to improve the competitiveness of Australian companies with offshore operations by reducing the costs of complying with the CFC rules. They will also encourage foreign groups to establish regional headquarters in Australia and improve Australia’s attractiveness as a continuing base for our multinational companies. The exposure draft legislation takes into account submissions received in response to consultation papers released last year. Given the scale, complexity and importance of these rules, however, it is desirable that a further round of consultation occur in respect of the development of the enabling legislation before it is introduced into Parliament.
Key aspects of the proposal :
- Focusing the CFC rules on single Australian controllers
- Providing relief for intra-group transactions
- Treating rent in respect of real property as being active income
- Allowing royalty income to be treated as active where it has not originated from Australia
- Removing the base company income rules
- Retaining the existing listed country, active income de minimis, and AFI subsidiary exemptions.
- Rewriting the CFC laws using coherent principles, resulting in more streamlined and simpler legislation.
- The proposed rules reduce the number of pages of CFC law from 181 to around 35 operative pages
- Providing more access to dividend exemptions as well as methods to prevent the double taxation of previously attributed income.
- Improving the integrity of the Australian revenue base by denying eligibility to dividend exemptions where they are paid in respect of debt interests
- Introducing a FAF rule.
The Government has invited submissions from interested parties on the legislative design of the proposed reforms. Interested parties should note that consultation on this exposure draft legislation will be done in the context of the Government’s fiscal strategy, which would require any changes to the policy originally announced be broadly revenue neutral. Copies of the draft legislation are available at the Treasury website. Submissions close on 18 March 2011.
