Explanatory Memorandum
(Circulated by the authority of the Treasurer the Hon Ralph Willis, M.P.)CHAPTER 18 - SALES TAX - INCENTIVES FOR REGIONAL HEADQUARTERS
Overview
18.1 Approved companies which are establishing regional headquarters in Australia will be entitled to the benefit of either sales tax exemption or refunds in respect of certain imported computer equipment and related equipment. The same companies will also be eligible for income tax concessions which are described in Chapter 3.
Summary of the amendments
18.2 The purpose of these amendments is two-fold:
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- to exempt from sales tax certain imported, second-hand computer equipment and related equipment for use in newly-established regional headquarters in Australia by approved companies; and
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- to provide credits or refunds in respect of tax borne on such goods after 15 December 1993 and before the exemption comes into effect.
[Clause 152]
18.3 The exemption amendment will apply from the date that the Bill receives Royal Assent. [Subclause 2(1) and clause 154]
Background to the legislation
18.4 There are no concessions in the existing sales tax legislation particularly aimed at companies setting up regional headquarters in Australia. These amendments are part of a package which reflects the desire to encourage multi-national companies to relocate their regional headquarters operations to Australia.
Explanation of the amendments
18.5 Schedule 1 to the Sales Tax (Exemptions and Classifications) Act 1992 (E & C Act) identifies goods which are exempt from sales tax. A new Item 38A , will be inserted into Schedule 1 of the E & C Act to exempt from sales tax imported computer related equipment for use by an RHQ company mainly in providing regional headquarters support where particular conditions are satisfied. [Clause 153]
18.6 "Computer related equipment" will be:
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- computer equipment;
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- equipment mainly used for producing, supplying, monitoring or regulating power for the computer equipment; and
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- equipment mainly used for controlling the temperature in areas where computer equipment is housed.
18.7 "Computer equipment" includes equipment which goes to make up an integrated computer system, such as central processing units and disk drives, as well as:
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- equipment for networking between computers;
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- equipment mainly used for communicating between computers (including, for instance, modems but not including ordinary telephone handsets); and
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- monitors.
"Computer equipment" does not extend to consumables such as floppy discs, tapes or paper, and does not refer to equipment for use with computers such as office furniture.
18.8 The imported computer related equipment which will qualify for exemption will be:
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- in existence for 9 months. This is to avoid the possibility that the goods only had to fulfil the conditions of the exemption for the time they were in existence, even if this was less than 9 months before local entry;
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- owned or leased, for a period of 9 months before local entry, by:
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- the RHQ company; or
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- a company which is a group company in relation to the RHQ company at the time of local entry; or
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- a company which was a group company in relation to an RHQ group company at any time during the 9 months before local entry. This will cover the situation where the equipment has been owned or leased during the 9 months by a group company which subsequently ceased to exist;
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- not leased or sub-leased to an unrelated company during that time; and
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- locally entered within 2 years from the date of the first local entry of equipment for use by the RHQ company which is exempt under this exemption Item. A later expansion of regional headquarters support activities, more than 2 years after the first RHQ goods were locally entered, would not qualify for exemption.
The exemption, however, is not confined to local entry. Any assessable dealing with goods covered by the exemption Item, such as movements of the goods between companies in the group, will be exempt.
18.9 "Group company" is defined in section 3A of the E & C Act. Basically, one company will be a group company of another if it is either a subsidiary of the first company, or both companies are subsidiaries of the same company, and in either case, there is 100% common ownership. Generally speaking, local entry usually occurs when goods are entered through Customs for home consumption in Australia.
18.10 An RHQ company will be a company which:
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- the Treasurer has determined under new section 82CE of the Income Tax Assessment Act 1936 to be an RHQ company. The determination will take the form of a disallowable instrument, which will be made in accordance with written guidelines (see paragraphs 3.15-17 for further information); or
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- is a transitional RHQ company (see paragraphs 16-18 in this chapter).
18.11 The provision of regional headquarters support will be defined in new subsection 82CB(2) of the Income Tax Assessment Act 1936 and is discussed in more detail at paragraphs 3.22-28.
18.12 Briefly, however, it will involve a company providing certain services to either an associated company located overseas or another part of the same company located overseas. The relevant services are:
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- management related services, including finance and treasury services, business planning services, marketing services, accounting services and research and development services;
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- data services involving substantial input, transmission or manipulation of data, or the production of information from that data; and
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- software support services provided by companies to purchasers of their software.
18.13 This exemption will apply to dealings which take place from the date that the Bill receives Royal Assent. [Subclause 2(1) and clause 154]
18.14 Prior to 15 December 1993, some companies had already been granted approval for sales tax exemptions for goods imported as part of the process of relocating regional headquarters to Australia. To cover those companies who import goods under these circumstances but before the exemption comes into effect, the Bill will contain a transitional credit ground.
18.15 This will provide credits for tax paid or borne on dealings to be known as "transitional RHQ company dealings". Because of its transitional nature, the credit ground will not actually be incorporated into the Assessment Act, but that Act will apply in relation to the relevant dealings as though the credit ground was included. [Subclause 155(1)]
18.16 The Treasurer may determine that a company is a "transitional RHQ company" if the company is a "pre-approved company" or a group company of a "pre-approved company". The determination will take the form of a disallowable instrument which will specify the day on which a company commences to be a transitional RHQ company and any other matter which the Treasurer considers appropriate. [Subclauses 155(4), (5) and (7)]
18.17 A "pre-approved company" is one of the companies granted approval by the Treasurer or another Minister for either sales tax exemption or compensation for the cost of sales tax on imported computer equipment for regional headquarters prior to 15 December 1993. Approval was given in respect of imported equipment owned by the company for at least 9 months prior to importation. [Subclause 155(6)]
18.18 A transitional RHQ company will be an RHQ company for sales tax purposes. However, a transitional RHQ company which wishes to take advantage of the income tax concessions will have to make application under new subsection 82CD(1) of the Income Tax Assessment Act 1936 (see paragraph 3.15).
Transitional RHQ company dealings
18.19 A transitional RHQ company dealing will be a dealing with imported goods which would have satisfied all the conditions for exemption under the new exemption Item for computer related equipment for RHQ companies, but for two points:
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- the dealing occurs before the exemption will have come into effect. The credit ground only covers dealings which take place on or after 15 December 1993 and before the exemption comes into effect;
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- the goods are for use by a "transitional RHQ company". [Subclause 155(3)]
2 year limit with regard to transitional RHQ companies
18.20 In the process of setting up a particular regional headquarters in Australia, goods may be locally entered after 14 December 1993, but before the new exemption takes effect. Thus for some companies, the sales tax concession will be in the form of credits for dealings with relevant goods before the new exemption takes effect, while dealings with the goods after that time will be exempt.
18.21 If this is the case, the requirement for exemption that goods were locally entered within 2 years after the first local entry of goods covered by the exemption item for use by a particular RHQ company, will be read as a requirement that the goods were locally entered within 2 years after the goods the subject of a transitional RHQ company dealing were first locally entered. [Subclause 155(2)]
18.22 Claimants will only be able to claim credits under these provisions after the date that the Bill receives Royal Assent. The amount of the credit will be the amount of tax borne on a transitional RHQ company dealing to the extent that it has not been passed on to, or recouped from, the purchaser or lessee of the goods. [Subclauses 2(1) and 155(1)]