Review of International Taxation Arrangements

Purpose:

To make information on the Review of International Taxation Arrangements (RITA) more easily accessible by acting as a central point from which interested parties may locate information.

Background

On 28 February 2003, the Board of Taxation reported to the Government on the outcome of its consultation processes, and its recommendations (consultation was based on a Treasury paper: Review of International Taxation Arrangements: A consultation paper). On 13 May 2003, the Treasurer released the Board’s report, and the Government’s response.

A copy of the Treasurer’s Press Release No. 32 of 2003, detailing the Government’s response, is available on the Treasurer's website. The press release indicates the relative priorities of the measures by assigning them to particular tranches of legislation.

Recent Developments

Tax Laws Amendment (2007 Measures No. 4) Bill 2007 was introduced into Parliament on 21 June 2007. This Bill implements the Government's 2005-06 Budget announcement to remove foreign loss and foreign tax credit quarantining and rewrite the remaining foreign tax credit rules into the Income Tax Assessment Act 1997. The new 'foreign income tax offset' rules and related transitional rules can be found in Schedule 1 of the Bill.
Tax Laws Amendment (2007 Measures No. 3) Act 2007 received Royal Assent on 21 June 2007. In part, this Act implements rules to:
- Extend by one year the transitional period relating to the application of accounting standards under the thin capitalisation rules;
- Clarify exemptions from interest withholding tax by more closely specifying the types of financial instruments that will be eligible for the exemption; and
- Simplify the tax collection arrangements and introduce a single non-final withholding rate for Australian sourced income (other than dividends, interest and royalty income) distributed to foreign residents by Australian managed funds and Australian custodians.
The Treasurer announced on 10 October in Press Release 109 of 2006 a review into Australia’s foreign source income anti‑tax‑deferral regimes. The Review, which is to be conducted by the Board of Taxation, will examine:
- ways to reduce the complexity and compliance costs associated with the anti‑tax‑deferral regimes including whether the current regimes can be collapsed into a single regime; and
- whether the anti‑tax‑deferral regimes strike an appropriate balance between effectively countering tax deferral and unnecessarily inhibiting Australians from competing in the global economy.
The Board released a discussion paper on 25 May 2007 and is expected to report to Government later this year, following consultation with business. The Board of Taxation website provides more information on the Review.
Tax Laws Amendment (2006 Measures No. 4) Act 2006 received Royal Assent on 12 December 2006. In part, this Act implements the Government's 2005-06 budget announcement and has two main features. First, it narrows the range of assets on which a foreign resident is subject to Australian CGT to real property and the business assets (other than Australian real property) of Australian branches of a foreign resident. Second, the integrity of the narrower CGT tax base is strengthened by including rules covering indirect holdings of Australian real property by foreign residents.
Tax Laws Amendment (2006 Measures No. 1) Act 2006 received Royal Assent on 6 April 2006. In part, this Act amended the Income Tax Assessment Act 1997 to provide an income tax exemption for most foreign source income and certain capital gains, and remove interest withholding tax obligations, for people who are temporary residents.

State of Play of RITA Measures and Outstanding Issues

The State of Play table provides a brief description of RITA measures and outstanding issues, legislative status, Treasury contact details and other relevant information. Measures and issues are ordered by reference to the tranches identified in Attachment A to the Treasurer’s Press Release No. 32 of 2003.

Budget 2006-07

The Government announced further reforms to Australia's international taxation arrangements. In particular, the Government has announced that it will:

change the tax collection arrangements for income (other than dividends, interest or royalties) distributed to non-residents by Australian managed funds and custodians. In order to remove uncertainty and simplify existing tax collection arrangements, all Australian managed funds and custodians will withhold tax at the company tax rate regardless of the identity of the non-resident;
ensure that there is consistent tax treatment of foreign dividends received by Australian companies, whether the dividends are received directly or indirectly through a controlled foreign company; and
remove the time limits on foreign income exemptions for temporary residents and align the treatment of their capital gains with that of non-residents.

Consultation on RITA Legislation

Advisory and Working Groups

The following processes have been established by Treasury to provide advice to the Treasury in relation to the development of the tax laws implementing the RITA proposals set out in the Treasurer's Press Release No. 32 of 2003 .

An Advisory Group has been established to provide broad advice to the Treasury on the overall implementation of the RITA package. The Advisory Group consists of business and tax practitioner representatives and the Australian Taxation Office. The Advisory Group is also providing input to the consideration of proposals respecting the use of interposed entities by non-residents.

Many of the RITA issues relate to specialist technical issues (such as the design of controlled foreign company (CFC) rules) or affect a specific set of taxpayers (for example, the managed funds industry). The Advisory Group may refer these issues to particular working groups of technical experts to assist in the development of the law. The following Working Groups have been established:

Other Consultation

Tax Treaties Advisory Panel

Recommendations 3.5 , 3.7 and 3.8 of the Board deal directly with tax treaty policy and processes. These are being considered separately by the Tax Treaties Advisory Panel — the Treasury's standing arrangement for consulting on tax treaties. The membership of this Panel consists of industry groups and representatives from the accounting and legal professions. Other groups are invited to participate in meetings on an ad hoc basis.

Information on Double Taxation Agreements also can be found on the Treasury website.

Direct consultation

Community consultation will not be limited to the above processes. In particular, Treasury is willing to discuss RITA issues directly with interested parties on a one-on-one basis (that is, outside the formal advisory processes), throughout the implementation of RITA (refer to State of Play).

Glossary of Terms for the RITA

This information was last updated on 6 September 2006.

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