A bill introduced into Parliament in August to remove concessional tax treatment for offshore banking units has been held up in the Senate after Labor and independent Senator Rex Patrick proposed amendments related to JobKeeper.
Last year’s JobKeeper program has been tarnished by revelations that companies have held onto their payments despite increasing earnings. The government has refused to disclose the details of the program or pursue companies for repayment.
The OBU bill, Treasury Laws Amendment (2021 Measures No.2) Bill 2021, has nothing to do with JobKeeper and the OBU provisions have bipartisan support. But unrelated amendments have been attached to it to keep the JobKeeper issue on the boil.
The Labor amendment requires the Australian Taxation Office to publish details of JobKeeper payments, the business affairs of recipients and whether any repayments have been made.
This has become a matter of concern for participants in the capital markets. The Australian Securitisation Forum issued a statement yesterday saying that if the bill is not passed it could lead to financial sanctions or restrictions from OECD nations and the European Union.
The OBU regime was introduced in 1987 to help Australian financial services companies compete with rivals in low tax jurisdictions in the Asia Pacific. Initially, the scheme applied a withholding tax exemption to interest paid on offshore borrowings made by OBUs.
It was expanded in 1992, with the introduction of a concessional tax rate of 10 per cent in respect of taxable income derived from eligible activities - where Australian institutions are dealing with non-residents in overseas markets.
Over the years, financial institutions using the OBU regime came to include banks, investment managers, leasing companies, trade finance and securities trading businesses.
In 2018, the OECD Forum for Harmful Tax Practices designated Australia’s OBU regime as “a harmful preferential tax regime.”
The OECD did not like the concessional tax rate of 10 per cent, when compared with the Australian company tax rate of 30 per cent.
Nor did it like the fact that the scheme is “ring-fenced”, which means it is only available for certain types of transactions, excluding domestic transactions.
The current OECD designation says the status of the OBU regime is “abolished, subject to final adoption of legislative amendments.”
The ASF’s concern is that if the bill fails to pass and the OECD changes the status of its designation, European investors will be deterred from investing in the RMBS market and other sectors of the local capital market.