Thin capitalisation: eroding asset values and increasing debt ... - PwC

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TaxTalk – Electronic Bulletin of Australian Tax Developments International developments Papua New Guinea Budget The Papua New Guinea (PNG) Minister for Finance and Treasury handed down the PNG 2009 National Budget on 18 November 2008, with a theme to “promote sustained economic growth and to further empower and transform the rural economy”. The Budget acknowledges that PNG is not immune from global economic conditions, and the Government seeks through its Budget to insulate the economy from global uncertainties and threats. Key components of the 2009 Budget include: • It is expected that this Budget will deliver a small budget deficit in 2009 of K10.3m (while the 2008 Budget originally forecasted a surplus equal to 1 per cent of Gross Domestic Product, the revised estimate also indicates a small deficit of K9.5m in 2008). • It is expected that Government revenues and expenditure will both decrease in 2009. • Despite external factors, economic growth is forecast to be 6.2 per cent in 2009 (revised 2008 estimate is 7.2 per cent), while inflation is forecast to decrease in 2009. • There appear to be no new taxes or increases in existing taxes, and only minor changes to tax laws (however, there were new taxes introduced and changes to tax laws as part of the PNG Liquefied Natural Gas project amendments passed in September 2008). For further information, please contact your usual PricewaterhouseCoopers adviser, or: David Caradus, Partner +675 321 1500 david.caradus@pg.pwc.com Tax treaty with Japan enters into force On 10 November 2008 the Australian Government formalised Australia’s adoption of the new double tax treaty (new Convention) with Japan, the details of which were reported in our March 2008 edition of TaxTalk. Under the terms of the notification signed by the Assistant Treasurer, the new Convention enters into force on 3 December 2008. From an Australian tax perspective, this commencement date means that the new Convention will apply from: • 1 January 2009 with respect to Australian withholding tax, and • the start of the year of income commencing on or after 1 July 2009 with respect to income tax. From a Japanese tax perspective, the new Convention will apply as follows: • concerning taxes on incomes withheld at source, for amounts taxable on or after 1 January 2009 • concerning taxes on incomes not withheld at source, for incomes in any taxable year that starts on or after 1 January 2009, and • concerning other taxes, for taxes in any taxable year that starts on or after 1 January 2009. For further information, please contact your usual PricewaterhouseCoopers adviser, or: Adrian Green, Partner (02) 8266 7890 adrian.green@au.pwc.com Australia and the UK to commence tax treaty negotiations On 28 October 2008, the Assistant Treasurer and Minister for Competition Policy and Consumer Affairs issued a media release advising that Australia had commenced negotiations on a revised tax treaty with the United Kingdom (UK). The Assistant Treasurer said that “modernising the existing tax treaty, which was signed in 2003, will ensure that optimal tax conditions operate for those businesses and individuals with dealings in both countries”. Tax information exchange agreement with the British Virgin Islands On 28 October 2008, the Assistant Treasurer and Minister for Competition Policy and Consumer Affairs issued a media release advising that Australia had signed a Tax Information Exchange Agreement (TIEA) with the British Virgin Islands (BVI). In his media release, the Assistant Treasurer stated that the TIEA: • provides for full exchange of information on request in both criminal and civil tax matters • builds upon legislation in both jurisdictions which already provides PricewaterhouseCoopers : 12
TaxTalk – Electronic Bulletin of Australian Tax Developments for mutual legal assistance in criminal matters, and • reflects both Governments’ shared commitment to implement Organisation for Economic Cooperation and Development (OECD) principles of transparency and effective exchange of information, to eliminate harmful tax practices. One of the terms of the TIEA is that Australia will remove any governmental references to the BVI as a ‘tax haven’ and will list the BVI as an ‘information exchange country’ in the Taxation Administration Regulations 1976. The effect of this, as noted in the media release, is that residents of the BVI will obtain access to reduced withholding tax rates on distributions of certain income they may receive from Australian managed investment trusts. The Assistant Treasurer also advised that in addition to the TIEA, Australia and the BVI had signed an agreement for the allocation of taxing rights with respect to certain income of individuals, which will provide benefits to Australian and BVI residents. He also advised that Australia and the BVI had agreed to enter into discussions, when appropriate, to foster further co-operation in areas of mutual interest. United States relaxes rules on taxing loans from a CFC As a response to liquidity problems, the United States (US) Internal Revenue Service (IRS) has expanded the exception that allows a controlled foreign corporation (CFC) to lend money to their US parent corporation without the loan being subject to full US federal income tax. However, the concession is subject to a number of limitations, namely: • it does not apply to debt obligations outstanding for sixty (60) days or more • in the aggregate, such obligations may not be outstanding for one hundred and eighty (180) days or more during the tax year, and • the concession is effective only for the first two tax years of a foreign corporation ending after 3 October 2008 and beginning before 1 January 2010. For further information, please contact your usual PricewaterhouseCoopers adviser, or: David Snowden, Executive Director (02) 8266 7927 david.snowden@au.pwc.com Ireland maintains low corporate tax rate The Irish Budget was announced on 14 October 2008 with strong expectations of significant cost restraints and tax increases given the current economic climate. While the Budget introduced some measures that will increase personal taxes, it has been widely acknowledged as pro-business because it: • retained the existing corporate tax rate of 12.5 per cent • increased the research and development tax credit from 20 to 25 per cent, and • reduced the top rate of stamp duty on non-residential property from 9 to 6 per cent. Given the current economic environment, it was inevitable that some tax rate increases would be announced. In this regard: • capital gains tax (on asset disposals) has increased from 20 to 22 per cent from 14 October 2008 • the standard rate of Value Added Tax has increased from 21 to 21.5 per cent from 1 December 2008, and • deposit interest retention tax (DIRT) has increased from 20 to 23 per cent on regular deposits and to 26 per cent on certain other savings products. From a personal tax perspective, there will be a new income tax levy that will apply at a rate of 1 per cent to gross income up to approximately €100,000 per annum. A rate of 2 per cent will apply to income in excess of that amount. This brings the effective highest marginal rate on income to 48.5 per cent. Other measures introduced include: • an exemption from corporation tax and capital gains tax for new startup companies which commence trading in 2009, to the extent that their tax liability for the year does not exceed €40,000 • an acceleration of the timing of corporation tax payments for companies with a corporation tax liability of more than €200,000 in their previous accounting period • an extension of the asset classes which qualify for accelerated tax depreciation for energy efficient equipment. For further information, please contact your usual PricewaterhouseCoopers adviser, or: Neil Fuller, Partner (02) 8266 2025 neil.fuller@au.pwc.com PricewaterhouseCoopers : 13
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Thin capitalisation: eroding asset values and increasing debt ... - PwC

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