HSBC has called for changes to the interest withholding tax arrangements affecting authorised deposit-taking institutions and foreign bank branches, saying the tax is the "key impediment" to the growth of foreign banks in Australia.Under current interest withholding tax arrangements, authorised deposit-taking institutions are required to pay a 10 per cent IWT on the interest they pay for funds borrowed from their parent or affiliated banks offshore. Similarly, foreign bank branches in Australia are required to pay five per cent IWT on the interest they pay to their parent company.In its submission to the Financial System Inquiry, HSBC said: "IWT is a real cost for Australian borrowers; the foreign lender requires compensation for the IWT because they do not receive the full tax credits in their own jurisdiction."It discourages ADIs and foreign bank branches from bringing surplus funds held by their parents in other markets into the Australian economy to fund their loan book."With the global mobility of capital, it has to date been the key impediment to the growth of foreign banks in Australia."In the May 2010 Budget, the government announced that the IWT applicable to such offshore borrowings would be reduced from 7.5 per cent in 2013/14 to five per cent in 2014/15, with the rate eventually dropping to zero. These arrangements were withdrawn in 2013.Both the Johnson Report and the Henry Review recommended the abolition of the tax.