The Board of Taxation has begun its review of Australia’s corporate tax residency rules, noting the difficulties associated with the central management and control test.
Corporate tax residency rules undergo review scrutiny
Last month, Treasurer Josh Frydenberg wrote to the Board of Taxation requesting a review of the operation of Australia’s corporate tax residency rules, to ensure that the rules were operating appropriately in light of modern, international and commercial board practices and international tax integrity rules.
The Board of Taxation has since released a consultation paper to initiate the first part of the review, with board member Neville Mitchell leading the review, alongside fellow members Dr Julianne Jaques and Ann-Maree Wolff.
The review comes after a series of events, including the Malayan Shipping and Bywater cases, and the ATO’s most recent response in releasing Taxation Ruling TR 2018/5 and Practical Compliance Guideline PCG 2018/9.
In its consultation paper, the board examines limitations with the central management and control test, including its compatibility with certain features of modern corporate governance.
It also examines the practicality of establishing the requisite degree of central management and control in Australia when it is being exercised in both Australia and another jurisdiction concurrently; the uncertainty associated with the relevant time frame within which central management and control is required to be ascertained; and the degree to which, in the context of an outbound corporate structure, the fiscal outcome remains effectively the same regardless of the outcome of the central management and control test.
The board explores the various corporate tax residency tests in a number of other jurisdictions, and is seeking comment on whether the central management and control test should be replaced with an alternative test that features place of effective management.
A number of roundtable consultations will now be undertaken in Sydney, Melbourne and Perth over the next two months, with the board accepting written submissions until 4 October.
Interested stakeholders can access the consultation paper here.