CANBERRA: ANZ, one of Australia’s biggest investors in Asia, is gearing up to launch a fresh campaign for an overhaul of the tax treatment of dividends from foreign investments.
The Australian can reveal ANZ is finalising a detailed new paper that will look at tax and investment in offshore businesses as the bank warns the current dividend imputation system hampers its ability to exploit the growth in Asia. It is expected to be released in coming months.
The nation’s most geographically diverse lender will also make a submission to the government’s tax white paper on the issue. While shareholders get a 30 per cent dividend tax credit on company tax paid on profits generated here, they do not get such credits for tax that goes to foreign governments on offshore profits.
“This creates a bias against Australian shareholders’ investment in offshore businesses and limits our opportunity to take advantage of the growth of Asia,” ANZ says in a submission to a Productivity Commission inquiry into barriers to growth in Australian services exports.
“Australian investors will as a result be likely to place a lower value on foreign assets or income streams than foreign investors who generally face a much lower tax rate on such dividends. It creates an incentive for the foreign assets of Australian companies, or businesses that operate predominantly offshore, to pass into the hands of offshore investors.”
The ANZ push comes amid heated debate over the future of the dividend imputation system.
Treasury’s tax discussion paper issued in March has questioned whether the 28-year old dividend imputation system continued to serve Australia well.
Earlier this month, David Gonski, the chairman of ANZ and Coca-Cola Amatil, raised concerns that dividend imputation could not be claimed when companies “genuinely want to take part in technologies outside Australia”, building on comments to a private conference last year that the system was impeding offshore investments by big companies.
But former PM Paul Keating has been reported as saying that Australian multinationals have previously asked for imputed credits on tax paid to foreign treasuries but no budget could afford that. The system was introduced under the Keating government in 1987 so that shareholders in Australian companies were not slugged by double tax.
It allows Australian shareholders to claim a franking credit against their tax liability for the tax paid by the company on domestic profits. But there is no credit for foreign tax.
Under reforms introduced by former treasurer Peter Costello in the early 2000s, superannuation funds, charities and individuals can also claim a cash payout if they don’t have tax liabilities to offset against the franking credits.
The bank’s submission to the commission is significant as it gives a signal as to how Australia’s third-largest bank will approach the tax white paper.
The submission to the commission “argues that the modernisation of the franking system will help increase the competitiveness of Australian companies looking to grow overseas by eliminating the potential for double taxation”, an ANZ spokesman said yesterday.
In the submission, ANZ argues the “bias” against investment in Australian-based companies operating offshore businesses is important.
Because Australia is a comparatively small economy, companies here must invest offshore “to grow and successfully compete against global companies with scale or specialised capabilities”, it says. “Income from offshore investment is an important means of diversifying the economy, reducing fluctuations caused by commodity cycles.”
Australia does not tax companies on the profits of foreign operations as these are already taxed offshore a feature of the tax system that ANZ says it wants retained.
