Foreign Investors Again in the Treasurer’s Sights
Last week, Treasurer Scott Morrison announced the Government is continuing to protect the integrity of Australia’s corporate tax system – ensuring foreign investors don’t have a competitive advantage over Australian investors.
He said “Today we released exposure draft legislation and explanatory material for public consultation on the tax treatment of stapled structures to give effect to the policy announced on 27 March 2018”.
This puts into action targeted integrity rules designed to neutralise the tax benefits of stapled structures.
“An increasing number of foreign investors have sought to convert trading income into more favourably taxed passive income through the use of stapled structures. When combined with existing concessions used by foreign pension funds and sovereign wealth funds, some foreign investors are currently paying tax rates of 15 per cent, or in some cases, far less”.
The proposed amendments in the announced package will ensure that:
• trading income that is converted to passive income will be taxed at the corporate tax rate; • foreign investors will no longer be able to use multiple layers of flow-through entities (i.e. trusts and partnerships) to ‘double gear’ their investments to generate more favorably taxed interest income; • foreign pension fund withholding tax exemption for interest and dividends is limited to portfolio investments only; • a legislative framework is created for the existing tax exemption for foreign governments (including sovereign wealth funds), and limit the exemption to passive income from portfolio investments; and • investment in agricultural land will not be able to access the 15 per cent concessional MIT withholding tax rate.
To minimise the impact of these changes on existing investments, the proposed amendments include transitional arrangements of seven years (for ordinary business staples) and 15 years (for economic infrastructure assets).
New, Government-approved nationally significant infrastructure assets may be eligible to access the 15 per cent concessional withholding