Media Release
Taxation Institute of Australia
Wednesday, 26 May 2010
GOVERNMENT MUST ACT TO PREVENT INVESTMENT HAEMORRHAGE
The Federal Government must legislate to dispel ongoing confusion from two un-finalised Tax Office
determinations or risk a snowballing negative impact on inbound foreign investment, the Taxation Institute of
Australia says.
Two draft determinations were due to be finalised today. They focus on businesses using entities based in low tax
jurisdictions that have tax treaties with Australia to invest in Australia (known as “treaty shopping”) and the tax
treatment of the sale of Australian assets held by foreign investors in private equity firms (ie whether the gain on
sale is “capital” or “revenue” in nature.)
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 situation is causing more uncertainty and is not conducive to attracting foreign capital, Institute Senior Tax
Counsel Robert Jeremenko said.
“The Taxation Institute believes that there should be some distinction between capital and revenue for tax
purposes,” Mr Jeremenko said. “The Government now has to step in and legislate to make that distinction clear.
Without clarification of the capital / revenue distinction, the effect of the draft determinations will be to discourage
overseas investment.
Federal Court judge Justice Richard Edmonds used the Tax Institute’s annual convention in March to call for
legislative change to the treatment of capital and revenue for overseas investors.
“That just underlines the level of disquiet that the ongoing uncertainty around this issue is creating,” Mr
Jeremenko said.
The Tax Institute believes that 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.
“Long-standing practice prior to the issuing of the draft determinations was for gains from many private equity
funds to be treated on capital account and thus be subject to concessional capital gains tax treatment,” Mr
Jeremenko said.
“While the basing of entities in ‘tax havens’ for tax avoidance reasons cannot be supported and must be legislated
against, some companies have been structured that way for genuine commercial or regulatory reasons imposed
by other tax jurisdictions.”
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About the Taxation Institute of Australia: The Taxation Institute is Australia’s leading professional association
in tax. Working together with the tax profession they aim to improve the tax system and the delivery of tax
services through education, sharing of information and consultation.
For more information: Robert Jeremenko, Senior Tax Counsel, Taxation Institute of Australia, T: 02 8223
0011, M 0468 987 300
Craig Regan, Lighthouse Communications, 02 9692 8811, 0408 448 527; John Hanrahan, 02 9692 8811,
0411 212 965
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