30 November, 2011
The Government announced today that it will defer by one year the proposed phase down of Australian interest withholding tax (“IWT”) payable on certain overseas borrowings by financial institutions. The deferral is a savings measure said to be required due to changed fiscal circumstances.
Click here to see the Assistant Treasurer’s media release no. 157.
Previously announced IWT phase down
The Government announced in the 2010 Budget that it would phase down the IWT payable when interest is paid by Australian subsidiaries and branches of foreign financial institutions on borrowings from their overseas parent, as well as when interest is paid by Australian-owned financial institutions on borrowings from related parties overseas, and any financial institution borrowing under offshore retail deposits which they on-lend in Australia.
The measures do not extend to offshore borrowings by entities that are not financial institutions. Corporate borrowers would still need to rely on existing IWT exemptions, such as for publicly offered debt under section 128F of the Income Tax Assessment Act 1936.
Click here to see our Budget Overview 2010 which provides further information on the 2010 Budget announcement.
New timeline for IWT phase down
The following table summarises the current IWT position and new timeline for the IWT phase down.
|
Type of borrowing |
Current IWT position |
Proposed future IWT position |
|
|
From 2014-15 |
From 2015-16 |
||
|
Financial institution borrows from a foreign financial institution (where not exempt under a tax treaty)
|
10% |
7.5% |
5% |
|
Foreign bank branch borrows from overseas head office
|
5% |
2.5% |
Exempt |
|
Financial institution borrows from offshore retail deposits (proceeds used and traced to Australian operations)
|
10% |
7.5% |
5% |
|
Financial institution borrows in a section 128F compliant manner
|
Exempt |
Exempt |
Exempt |
|
Offshore banking unit (borrows and on-lends offshore)
|
Exempt
|
Exempt |
Exempt |
|
Financial institution borrows from non-resident retail deposits held in Australia
|
10% |
10% |
10% |
The 2010 Budget indicated an “aspirational target” of zero IWT for financial institutions borrowing from foreign financial institutions and from offshore retail deposits, but that was said to be subject to the Government’s medium-term fiscal strategy. Given today’s announcement, that aspirational target appears more distant.
For further information, please contact:
Sara Liu, Mallesons Stephen Jaques
Ken Lord, Mallesons Stephen Jaques