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2013 Financial Services Tax Conference

Published on 13 Feb 2013 | Took place at Hyatt Regency Sanctuary Cove, Gold Coast, QLD

    In this “post-GFC” world, ‘increased regulation and governance standards will change our working environments for many years to come’. Significantly, the scope, timing and potential impact of the still-evolving global and national regulatory reform are the key challenges cited by the vast majority of financial services organisations and are driving the re-shaping of the financial services industry in Australia.These challenges are further complicated by market, macro-economic and political volatility, and a constrained debate about taxation reform and an existing platform under siege.
    This conference aimed to provide delegates with a colourful mix of plenary and breakout sessions that were focused on the critical taxation topics for the financial services industry.
    Papers presented included:
  • Topical tax treaty issues for the financial sector
  • Attributing profits to permanent establishments (banking)
  • Policy responses to the investment manager regime (funds management)
  • Transfer pricing aspects of banking operations
  • Transfer pricing (funds management)
  • Emerging regional issues (funds management)
  • Is Australia becoming a sovereign tax risk?
  • The shifting Part IVA landscape
  • Australian Tax Office audits, risk identification, dispute
  • GST and RITCs on trustee services
  • Losses
  • Capital managment of financial institutions and the related tax issues
  • Transfer pricing law changes and the international dealing schedule
  • The Rubik's Cube of tax - An update on trusts
  • R&D tax concessions
  • Promoter penalties / products
  • Asset financing /thin capitalisation/ infrastructure update
  • MRRT and carbon tax: Issues for financiers and funds

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Individual sessions

Topical tax treaty issues for the financial sector

Author(s):  Richard J VANN

This presentation covers current tax treaty issues of interest to the finance sector focusing mainly on recent OECD work.

Issues covered include:

  • the international status of the OECD attribution work, including its rejection by the UN
  • OECD work on the definition of permanent establishment
  • OECD work on beneficial ownership
  • treaty treatment of trusts and partnerships
  • relationship of treaties and domestic law.
Materials from this session:

The attribution of income, losses and outgoings to foreign permanent establishments of Australian banks

Author(s):  Ian FULLERTON

This paper covers:

Australian outbound perspectives:

  • the domestic law framework: s 23AH, FITO rules and withholding tax rules
  • relevance of tax treaties and OECD guidelines to the attribution of profits to a foreign branch
  • the effect of intra-entity dealings (Max Factor decision, ATO rulings, treatment of intra-entity risk transfers)
  • Australian implications of capital attribution rules in foreign jurisdictions
  • what difference would adopting a functionally separate entity approach make?

Australian inbound perspectives:

  • the tax classification of the Australian branch
  • the recognition of intra-entity dealings
  • interaction between domestic rules and treaties
  • potential interaction with other rules, especially thin capitalisation and withholding tax
  • potential alternatives and approaches adopted in other jurisdictions.
Materials from this session:

Transfer pricing and funds management

Author(s):  Damian PRESHAW

This paper covers the application of transfer pricing principles to the funds management value chain:

  • marketing/distribution
  • investment management
  • sub-advisory and research
  • impact of market volatility on traditional transfer pricing models.
Materials from this session:

Emerging regional issues (funds management)

Author(s):  Daryl CHOO,  Brian CHAMBERS

This presentation provides an update on recent developments impacting asset managers investing into Asia and issues covered include:

  • India – GAAR and indirect transfer rules
  • China – Circular 698
  • application of tax treaties to fund vehicles (e.g. South Korea, Taiwan, Japan).
Materials from this session:

The shifting Part IVA landscape

Author(s):  Larry MAGID,  James PETTIGREW

A series of ATO losses in Part IVA cases prompted the recent changes to Part IVA. What are the significant features of the changes and what new issues arise? The changes are intended to improve the “effectiveness” of Part IVA – but to what extent do the changes achieve that goal? How would the cases that the ATO lost be decided under the new rules?

Materials from this session:

Australian Taxation Office audits, risk identification, dispute

Author(s):  Ashley KING,  Andrew MCLOUGHLIN

This presentation covers the risk differentiation framework, reportable tax positions, cooperative compliance agreements, dispute resolution and Australian Taxation Office policies for settling disputes.

Materials from this session:

GST and RITCs on trustee services

Author(s):  Amelia O'Rourke,  Bill PACKWOOD

This paper analyses the recent amendments to the GST reduced input tax credit (RITC) regulations that now apply to most Australian trusts.

This paper covers:

  • identifying the mischief
  • determining an appropriate benchmark
  • lessons for future reforms.
Materials from this session:

Losses

Author(s):  Julian HUMPHREY

A technical paper examining the tricks and traps of the integrity rules for realised losses, unrealised losses and bad debts, including:

  • continuity of ownership and same business test developments
  • writing off bad debts and the Commissioner’s discretion
  • tax consolidation interactions and modifications
  • recent ATO activity
  • new developments, including loss carryback rules and the low value asset threshold announcement.
Materials from this session:

Capital management of financial institutions and the related tax issues

Author(s):  Tricia HO-HUDSON

These presentations cover:

Basel III changes:

  • overview and background – concept of regulatory capital; interaction with ratings capital; Basel III changes; how much additional capital banks globally will have to raise; and what banks around the world are doing
  • Basel III changes - focus on Basel III changes; capital adequacy under new APS 111; what the different categories of capital comprise of; key features to qualify as Additional Tier 1 Capital and Tier 2 Capital; deductions from capital; transitional arrangements

Topical tax issues facing banks and insurance companies about capital management:

  • Tier 1 capital issues in Australia – tax implications for the issuer and security holders including the implications for the issuer arising from Basel III non-viability clauses and the application of various anti-avoidance rules
  • Tier 1 capital issues undertaken by foreign branches of Australian banks – issues for the bank including the application of s 215-10
  • Tier 2 capital issues in Australia – tax implications for the issuer and security holders including application of the debt/equity rules.
Materials from this session:

The Rubik's Cube of tax - An update on trusts

Author(s):  Andrew MILLS,  Matt HARTSHORN

This paper provides an update on various developments, including:

  • recent rulings and case law
  • the new investment manager regime legislation – opportunities, taken and missed
  • Division 6 and MITs – are we there yet? The discussion papers and what the new law may look like
  • CIVs – a panacea for the future or more of the same?
Materials from this session:

New R&D regime in financial services

Author(s):  Jamie MUNDY

This presentation provides timely, technical content and insightful commentary on the following topics:

  • the new research and development regime in financial services.
Materials from this session:

The promoter penalty regime - How the ATO ia applying it in practice

Author(s):  Bruce COLLINS,  Nathan FIRTH

This paper provides an examination of how promoter penalties and products are being used by the ATO much more broadly than originally anticipated.

Materials from this session:

TOFA - A new world of economic substance?

Author(s):  Phillip COLE

At its essence, TOFA attempts to systematically align the tax treatment of financial arrangements towards their economic substance rather than their legal form.

This paper examines:

  • how do the economic substance provisions work in practice?
  • when does the economic substance approach not apply in practice, i.e. what might be the limits of this economic substance approach?

Issues considered include:

  • economic substance under accounting principles
  • interactions with other parts of the Act that impose non-economic substance-based approaches
  • impact of tax character on substance-based analyses
  • deliberate design features in Div 230 that move away from economic substance
  • consideration of the synthetic disposal and non-disposal rules.
Materials from this session:

Income tax case update

Author(s):  Cameron RIDER

This paper reviewas important income tax cases which have been determined in the Federal and High Courts since 2011, in particular: 

  • income tax cases of interest to the financial services sector during 2012
  • PERLS V
  • analysis of win/loss percentages in income tax cases.
Materials from this session:

Asset financing/thin capitalisation/infrastructure update

Author(s):  Steve FORD,  Arash AZIMI

There are radically divergent views emerging in relation to the interpretation of control and significant influence particularly in the context of minority shareholdings and shareholder arrangements. The flow-on impact upon provisions including Div 6C, debt/equity rules, interest deductibility, thin capitalisation and Div 250 is a contentious issue. This paper examines those issues and some other related recent developments in the context of project financing and consortium investment structures, in particular:

  • control, negative control, sufficient influence and connected entities in the context of Div 6C, Div 974-80 and thin capitalisation
  • thin capitalisation issues including related party debt rules and the ATO view of 820-39
  • changes to the definition of “limited recourse debt”.
Materials from this session:

MRRT and Carbon Tax: Issues for financiers and funds

Author(s):  Teresa DYSON

The MRRT will have a significant impact on pricing of projects and security positions. Financiers and funds will need to be aware of:

  • core mining project interest identification provisions, particularly in the case of joint venture arrangements, passive JV investors, farm-in arrangements and offtake arrangements
  • concessions that certain miners may claim that have the impact of eliminating allstarting base value and MRRT deductions, impacting on value for funding and security enforcement
  • transfer of MRRT loss provisions and impact on project valuation
  • treatment of expenses, in particular, financing expenses, lease expenditure, hire purchase fees, hedging expenses and security deposits
  • ensuring tax sharing agreements are appropriately updated to remove the risk of joint and several liability for tax liability across entities within a MRRT consolidated group
  • issues for financing M&A activity.

Financiers and funds will also need to consider the impact of carbon pricing on projects and investment, particularly:

  • identifying entities that will be required to surrender emissions units in respect of emitting activity, including through operator and control provisions
  • understanding liability criteria and impacts of failure to comply
  • understanding carbon price path
  • anticipating development of derivatives following the fixed price period.
Materials from this session: