BDO is pushing for a tax reform to make offshore investing more achievable and sustainable for Australian companies.
“One of the important reasons why Australian companies are discouraged from expanding offshore is the huge overall tax cost associated with making foreign profits,” said Lance Cunningham, national tax director at BDO.
“The Australian imputation system is a great way of ensuring there is no double tax for Australians investing in Australian companies, however as the imputation system does not give any franking credit for the tax paid by companies on foreign profits, the imputation system does not stop double taxation of foreign profits.”
Mr Cunningham said that this can result in the overall tax rate on profits from foreign investment being “up to 70 per cent or more”.
“It is little wonder that many Australian companies are opting for Australian takeovers rather than expanding offshore, when they are faced with the alternatives of investing offshore at an overall tax rate of 70 per cent, or investing onshore with an overall tax rate of between 0 and 49 per cent.”
The government must consider a tax reform if it wants to encourage Australian companies to chase growth in new markets, according to Mr Cunningham.
“If the Australian government wants to encourage Australian companies to invest offshore instead of taking over competitors in Australia, one of the things that needs to be looked is this huge tax disincentive for foreign investments by companies,” he said.
“One option could be to allow foreign tax paid by Australian companies or their subsidiaries to be available for franking credits, so the offshore profits can be paid out as franked dividends to Australian shareholders.”
On top of this, tax rates for international countries looking to operate in Australia are also high, discouraging international companies from investing in Australia.
This will be heightened if US President-elect Donald Trump succeeds in slashing America’s corporate tax rate to 15 per cent, making Australia’s 30 per cent tax rate even less competitive.
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