Thin capitalisation reforms: Exposure draft legislation

On 8 May 2014, the Commonwealth Government released exposure draft legislation which proposes to amend the thin capitalisation provisions in the Income Tax Assessment Act 1997 (ITAA 1997), and to reform the exemption for foreign non-portfolio dividends currently contained in section 23AJ of the Income Tax Assessment Act 1936 (ITAA 1936). For further information on these proposed changes, refer to our Federal Budget publication .

FATCA: Signing of Intergovernmental Agreement with the USA

On 28 April 2014, the Federal Treasurer announced that Australia and the United States of America (USA) had signed an intergovernmental agreement (IGA) to reduce the burden on Australian financial institutions in complying with the USA's Foreign Account Tax Compliance Act (FATCA).

FATCA is an information-reporting regime that was enacted by the USA in March 2010 and will commence on 1 July 2014. Broadly, under the IGA, it is proposed that with effect from 1July 2014, that certain Australian financial institutions will comply with FATCA where they collect prescribed information from their customers and report information on certain US persons to the Commissioner of Taxation who will then provide that information to the USA Internal Revenue Service (IRS).

In his media statement, the Treasurer said that the conclusion of the IGA will help Australian financial institutions comply with FATCA, reduce the overall burden on Australian business, minimise costs by simplifying due diligence requirements, and broaden arrangements between the Australian Tax Office and the IRS. The media statement confirmed that the IGA will also improve existing tax information-sharing arrangements between Australia and the USA for the purpose of preventing tax evasion.

On 29 May 2014, the Government introduced a Bill into Parliament which proposes to give effect, from 1July 2014, to the obligations agreed to under the IGA.

It remains to be seen whether the proposed development by the Organisation for Economic Co-operation and Development (OECD) of a single global standard on automatic exchange of information between OECD member countries (and other participating countries) as discussed in the following item will ultimately result in an onerous global reporting regime similar to that operating under FATCA.

For further information contact Gavin Marjoram on +61 (2) 8266 0576, or Jeffrey May on +61 (3) 8603 0729.

OECD: Declaration on Automatic Exchange of Information in tax matters

On 6 May 2014, the OECD announced that a Declaration on Automatic Exchange of Information in Tax matters had been endorsed during the 6 May 2014 OECD annual Ministerial Council Meeting in Paris by all 34 member countries (including Australia), along with Argentina, Brazil, China, Colombia, Costa Rica, India, Indonesia, Latvia, Lithuania, Malaysia, Saudi Arabia, Singapore and South Africa.

The Declaration commits countries to implement the OECD's new single global standard on automatic exchange of information. The standard, which was developed at the OECD and endorsed by G20 Finance Ministers last February, obliges countries and jurisdictions to obtain all financial information from their financial institutions and exchange that information automatically with other jurisdictions on an annual basis. The OECD proposes to deliver a detailed Commentary on the new standard, as well as technical solutions to implement the actual information exchanges, during a meeting of G20 Finance Ministers in September 2014.

New Zealand: Budget for 2014

The 2014 New Zealand Budget was handed down on 15 May 2014. See a detailed analysis on the PwC New Zealand website.

G20 International Tax Symposium 

Sponsored by PwC, the G2o International Tax Symposium was held on 9-10 May 2014 in Tokyo, Japan. The Symposium brought together over 200 delegates from business, government, civil society and academia to discuss developments in international taxation, focusing on the key items of the G20 tax agenda and in particular, the OECD's Base Erosion and Profit Shifting (BEPS) Action Plan and exchange of information projects.

Several issues were canvassed at the Symposium, including the challenges posed by the digital economy, and the pressure the digital economy places on the international tax system.

The findings from the Symposium will be considered by G20 Finance and Central Bank Deputies at their meeting in Melbourne in June 2014 and Finance Ministers and Central Bank Governors in Cairns.