Senate

Replacement Explanatory Memorandum

(Circulated by the authority of the Treasurer, the Hon John Dawkins, M.P)

Chapter 10 Offshore Banking - Clauses involved in the proposed amendments

Clause 14: will amend the secrecy provisions of the Income Tax Assessment Act (ITAA) to enable the Commissioner to transmit to the Treasurer information relevant to a decision whether to withdraw a registration to carry on OB activities (see Chapter 7).

Clause 15: will insert a new Division - Division 9A - in the ITAA that deals with the new tax concessions for OB activities.

Section 121A: will set out the object of proposed Division 9A which is to provide a concessional tax regime for income of an OBU.

Section 121B: will set out, in simple terms, the main concepts of the concessional tax regime and how the provisions fit together.

Section 121C: is an interpretation provision that explains the meaning of terms used in Division 9A.

Section 121D: outlines the kinds of activities qualifying for the concessions as OB activities. These are 'borrowing or lending activity', 'guarantee-type activity', 'trading activity', 'eligible contract activity', 'investment activity', 'advisory activity' and 'hedging activity' (see Chapter 5).

Section 121E: explains the different 'offshore persons' that an OBU may deal with in order to obtain the concession (see Chapter 5).

Section 121EA: limits the concessional tax treatment to OB activities performed within Australia (see Chapter 5).

Section 121EB: deals with the situation where an OBU consists of more than one permanent establishment. If these are in Australia and carry on OB activities, they are to be treated as one person; otherwise, they are to be treated as separate persons (see Chapter 4).

Section 121EC: gives the meaning of 'OBU resident-owner money'. This is money paid by the resident owner of the OBU by way of share capital. (see Chapter 6).

Section 121ED: is a drafting technique to facilitate the meaning of 'trading activities' in section 121D. It defines 'trade with a person' to be acquisition on issue or purchase from or sale to the other person.

Section 121EE: defines the terms 'assessable OB income', 'adjusted assessable OB income' and 'adjusted total assessable income' (see Chapter 4).

Section 121EF: defines a number of different types of deductions. These are 'allowable OB deduction', 'exclusive OB deduction', 'general OB deduction', 'apportionable OB deduction', 'exclusive non-OB deduction' and 'loss deduction' (see Chapter 4).

Section 121EG: provides a method to reduce assessable OB income and allowable OB deductions to effectively tax taxable income from OB activities at 10% (see Chapter 4).

Section 121EH: an anti-avoidance measure which explains the loss of special treatment where there is excessive use of 'non-OB money' (see Chapter 6).

Section 121EI: provides a deduction for foreign tax paid on amounts included in assessable OB income (see Chapter 4).

Section 121EJ: deems the source of income derived from OB activities to be in Australia (see Chapter 4).

Section 121EK: an anti-avoidance measure which deals with the situation where funds have been injected into an OBU subsidiary (see Chapter 6).

Section 121EL: exempts an OBU's offshore investment trust from Australian income tax.

Clause 16: will make certain amendments to the provisions that deal with IWT exemptions for offshore banking transactions of offshore banking units. These amendments will generally align the IWT exemptions with the new income tax provisions. It also provides for the withdrawal of the offshore banking status in specified circumstances (see Chapters 7 and 8).

Clause 17: extends existing section 128NB to all OB activities and not just to offshore loans. The section provides a special tax to be payable where transactions by OBUs disqualify it from an interest withholding tax exemption.

Clause 18: provides for the maintenance of separate accounting records (including separate bank accounts) in relation to money used for offshore banking activities (see Chapter 7).

Clause 19: contains the provisions relating to the application of the amendments (see Chapter 9).

Clause 20: contains transitional provisions for the period 1 July 1992 to the commencement date of Division 9A.