PM Transcripts

FOR PRESS: P . N1617
W] THHOLDING TAX AMENDMENTS TO TAX LAW
Statement by the Prime Minister, kMr. john r ton
The Government has consistently emphasised the importance to Australia of
a strong and continuing inflow of overseas development capital. We have equaly
emphasised the need toietain and increase Australian equity in, aind ownership of, our
expanding resources.
We have now decided to propose to the Parliament, in the early part of next
year, amendments to the taxation law as it affects overseas borrowings, such
amendments to be effective as from 1st July 1971.
We -have recently completed a review of the effect of the interest withholding
tax which must be deducted by Australian borrowers, at the rate of 10%, from interest
payments made to overseas lenders on loans raised overseas.
We believe that this tax, intended to fall on overseas lenders who earn interest
in Australia, frequently falls instead on the Australian borrower. An overseas lender,
knowing that 10% 0 of the interest payments to him will be withheld in Australia, increases
the rate of interest above the level at which it otherwise would have been, or requires
the borrower to meet the tax.
This additional cost falls on Australian Companies for they, of course, do not
have the advantage of access to loan funds from abroad through overseas parent
companies, or associated companies.
kt was, of course, never intended that the interest withholding tax should
make it more difficult for Australian Companies to participate in venture.-in Australia
on equal terms with Companies from overseas. It is therefore intended to amend the
income tax law to exempt from the payment of withholding tax interest payments made
overseas on borrowings overseas by Australian controlled Companies for predominantly
Australian owned ventures, or for financing a substantial Australian equity participation
in a venture. This review of the law regarding taxation of interest on overseas borrowings is
designed to give further effect to the Government's policies of helping to protect
Australian equity and ownership.
At the same time as it proposes the above amendment the Government will
also propose to the Parliament that Sections 126 and 128 of the Income Tax Assessment
Act should be amended so that interest paid overseas on overseas borrowings made
by means of a public issue, or widely offered private placement of bearer bonds, will
no longer incur penalty rates of tax or be subject to withholding tax.
This will apply whether such borrowings are made by Australian controlled
companies or by overseas companies and should confer important benefits on all
Companies operating in Australia.
Our central aim is to create conditions under which overseas investment will
continue to be attracted to Australia yet under which there will be improved opportunities
for Australian participation in development enterprises and industrial expansion
requiring overseas capital.
CANBERRA 13 December 1970