Australia

Details

  • Service: Tax, Corporate Tax
  • Industry: Financial Services, Banking
  • Type: Regulatory update
  • Date: 25/08/2014

Tax Insights

KPMG's analysis of tax issues and developments.

John Bardsley

John Bardsley
Partner, Tax

+61 2 9335 7161

jbardsley@kpmg.com.au

OBU reforms – be bold and ambitious 

by John Bardsley, Corporate Tax Specialist

Are you using the offshore banking unit (OBU) concessions to the maximum extent possible?

The 10 percent concessional tax rate for eligible OBU activities is one of the very few favourable permanent differences still available for accounting purposes; and the interest withholding tax exemption for eligible OBU borrowings is also one of very few withholding tax exemptions. However, in the past, the use of OBUs by financial institutions has been somewhat limited due to the complexities of the rules and the administrative requirements.

 

For certain inbound financial institutions, OBU borrowing and lending can also be excluded from the thin capitalisation calculation, which could well be of benefit with the tightening of the thin capitalisation debt ratios.

 

At an industry consultation day in July, it was noted that the Government has instructed Treasury to be 'bold and ambitious' in its approach to adopting the Johnson Report recommendations in relation to the use of OBUs (i.e. to encourage the expansion of the use of OBU’s to bring offshore activities to Australia, as well as providing incentives to keep otherwise threatened activities in Australia).

 

For example, there was a discussion associated with whether eligible OBU activities should be broadened to all TOFA financial arrangements, as well as leasing and other financial advisory services.

 

Thus, financial institutions should consider whether any of their existing transactions could be undertaken in an OBU; as well as monitoring the outcome of the consultation with Treasury to determine if any of their other activities would be eligible to be booked in the OBU in the future.

 

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