25/01/2016 12:50:43 AM
Michael Croker -
The House Standing Committee on Economics will soon consider Australia’s company tax rules for deducting interest expenses. The Committee will undertake this inquiry – commissioned by Treasurer Scott Morrison – against the backdrop of seeking to simplify the current company income tax system.
A range of factors have led to this inquiry, including the:
Against this background, it’s no surprise that constituents are expressing concern to their local MPs about the fairness of Australia’s tax system, particularly the way it applies to big businesses with cross-border operations.
But the policy analysis is about much more than just tax.
The business tax deduction for interest is factored into the cost of capital, and in a world where open economies like Australia must compete, tax changes here which are out of kilter with other nations will be detrimental to investment and jobs in the long term.
That’s why the OECD has urged world governments to adopt a united approach which links deductible debt to the level of local economic activity, backed-up by a group ratio test, and reduces tax arbitrage opportunities for those seeking to claim deductions using hybrid instruments in high company tax rate countries like Australia with its 30% rate.
And although much of the media attention has to date been on multinationals investing into Australia, the tax system also needs to encourage Australian companies to strut the world’s stage. What we do tax-wise to inbound companies, other nations may do to our outbounds.
The tax community is now at a stage in the BEPS process where the reactions of governments around the world are being closely monitored to see whether and how they intend to proceed.
It would be unwise for Australia to be a first mover in implementing the OECD recommendations without first understanding the policy response of our major trading partners.
That said, the Committee’s inquiry is timely because it provides a forum for consultation with businesses impacted by the current and OECD recommended rules on interest deductibility.
Michael Croker (Member since: 6/07/2012 3:38:18 AM)
As Tax Australia Leader at Chartered Accountants Australia and New Zealand I am responsible for leading our taxation policy and advocacy work with federal and state governments and regulatory bodies. I previously led the team which designs, develops and delivers the tax, superannuation and financial advisory services training program at the Institute of Chartered Accountants Australia.
Prior to that, I was responsible for the corporate tax law syllabus within PwC Australia. I have also lectured in post-graduate tax subjects at The University of Sydney.
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