Advanced Australian International Tax

This article discusses the complexities of Australian income tax law for foreign companies and trusts. It covers topics such as double taxation, tax evasion, and the creation of loopholes. The article also provides expert insights on how the tax system can be made simpler and fairer for all players. Course code, course name, and college/university are not mentioned.

Advanced Australian International Tax
By
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Introduction
Accruals taxation is a form of taxation of the Australian residents on the profits that are
derived from a foreign trust or company as they earned by the trust or the company. The taxation
of income which is subject to trust has been one of the few areas in the Australian income law
tax that has been untouched until recently1. First, the identification of trust assume a considerable
importance in the income tax laws. In income tax laws ‘trusts’ are identified as entities in which
the taxation usually apply. Exemption of tax are carefully done for transfers of the trusts property
or items. The Australian income law tax has made foreign companies and trusts to be careful
considering the distribution of gains in capital to the Australian residents as the beneficiaries of
these become an effective option to tax2. This law disadvantages the Australian residents that
normally receive the capital distribution from foreign trusts and companies as they cannot get
access to the discount and incase of capital loses they cannot offset them. With this, the capital
gained is normally taxed as ordinary income3.
The foreign companies and trust, however, are normally exempted from tax on some
gains in capital such as through the sale of shares.
When a foreign company or trust has made capital gains that relates to the assets which
are not taxable Australian property, the amount which relates to these are distributed the
1 Ahmad, E. (2018). Rebalancing, Taxation and Governance: Fiscal Policies for Sustainable
Growth. In Fiscal Underpinnings for Sustainable Development in China (pp. 3-28). Springer,
Singapore.
2 Emery, J. (2016). Decoding the regulatory enigma: how Australian regulators should respond to
the tax challenges presented by bitcoin.
3 Evans, C., Lignier, P., & Tran-Nam, B. (2016). The tax compliance costs of large corporations:
An empirical inquiry and comparative analysis.

Australian residents who are a beneficiary to this4. The capital amount of this does not however
retain their character in the beneficiaries’ hands as the capital gain but rather as the ordinary
income according to the law.
Critical Analysis
Complex Tax System
The law has made it favorable for the companies and trusts as they calculate the net
income for the income of a year normally just like any Australian resident. The income tax law
also disregards the capital gains which do not relate in any way to the taxable Australian
property. This enables the foreign trusts and companies to disregard capital gains and losses that
relates to the Australian taxable property5. This type of tax system has made Australia to have a
very complex federal tax system. With this type of tax system, it has made people interested in
carrying out any business activity in Australia to deeply understand how these taxes interact with
their business and how they affect there transactions and general structures. This has generally
affected the cross-border business that involve Australia due to double taxation agreements and
the international tax systems. Australian income tax law imposes taxation to all the entities
worldwide to the residents and the double taxation agreement to the non-residents. The common
4 Fauziati, P., Minovia, A. F., Muslim, R. Y., & Nasrah, R. (2016). The Impact of Tax
Knowledge on Tax Compliance Case Study in Kota Padang, Indonesia. Journal of Advanced
Research in Business and Management Studies, 2(1), 22-30.
5 Jain, S., & Kamath, A. (2017). Indian and Australian Perspectives on Demonetization and Its
Tax Implications.

law generally determines certain exceptions as the sources of particular income items are
normally dependent on facts which are practical6.
The Australian Income tax law is favorable to non-residents who reside in Australia with
companies and trusts as Australia has limited capacity to tax nonresidents. Problems normally
arise when there is double taxation on foreign companies and trusts which has made Australia to
do some income tax offset and tax exemption at some cases7. This offset and exemption is based
on the amount of amount payable to the Australian income tax on the foreign sourced income.
When the Australian income law was adjusted expert hinted that this was going to send the
economy into recession and would pour fuel on the economy which had already overheated. This
would lift the inflation of the economy and would eventually lead to other causes such as loss of
employment from these foreign companies and trusts. There would also be increased incentives
for businesses to operate in Australia especially those that are being owned by foreign residents.
With these changes in the laws of the Australian income tax, it was noted that there was a once-
off change in many foreign companies and trusts items and services prices. Due to this, the
economy slowed down for several months not only from the income tax laws but also from other
external factors8. The Australian income tax law has become complex such that it has become
necessary for Australia to make treaties with foreign companies and trust home countries to
promote cooperation between all the international authorities dealing with tax and to prevent
6 Lund, D. (2018). Taxation and Investment Decisions in Petroleum. Economics, 24, 455-467.
7 Murphy, C. (2018). Modelling Australian Corporate Tax Reforms: Updated for the Recent US
Corporate Tax Changes.
8 Taylor, J., Kayis-Kumar, A., & Bain, K. (2017). PlayTax: Gamifying International Tax
Teaching. J. Australasian Tax Tchrs. Ass'n, 12, 110.

double taxation9. With this, Australia has been able to make treaties with over forty countries
regarding the taxation policy. This policy states that individuals, companies and trusts that are of
legal residents of the counties the treaties were made with, they are mandatorily subjected to the
conditions of the treaty. Australian law has therefore gone through drastic changes in order to
have bilateral tax treaties and also some international arrangements on tax that relate specifically
to some trusts and companies.
Taxation Mismatch and Confusion
The Australian income tax law has brought about a lot of confusion and mismatch when
it comes to foreign companies and trusts. This has led to the establishment of other rules and
laws such as the branch hybrid mismatch rule which does not allow the payment deductions
which limits the exemption of foreign branch income where there is a confusion or mismatch.
Other rules have also been established to control the integrity of the foreign companies and trusts
when it comes to the Australian income tax deductions10. A lot of arrangements, arrangements,
extensions and recommendations have been made to the Australian income tax law. One of this
is the liable entity which applies to the resident country of a specific company or trust in respect
to its own income and profits11. This states that a resident in Australia relates all the income tax
on income from local and worldwide sources. This makes the branch country not to be able to
9 Yin, K. S., Ward, A., Dargusch, P., & Halog, A. (2018). The cost of abatement options to
reduce carbon emissions from Australian international flights. International Journal of
Sustainable Transportation, 12(3), 165-178.
10 Wall, M., Casswell, S., Callinan, S., Chaiyasong, S., Viet Cuong, P., Gray‐Phillip, G., & Parry,
C. D. (2018). Alcohol taxes’ contribution to prices in high and middle‐income countries: Data
from the International Alcohol Control Study. Drug and alcohol review, 37, S27-S35.
11 Wee, K. (2017). Achieving tax certainty for oil and gas projects. The APPEA Journal, 57(2),
577-580.

subject tax to the same company or treaty. The complexity of the Australian income tax law, has
led to many reports and recommendations that noted increase in chances of errors in self-
reported tax assessment such as those of various companies and trusts whether foreign or local
owned. The Australian tax system by the year 2004 was the third most complex and thus
affecting the general condition of the income tax law.
Double Taxation
Controlled foreign companies and trusts that have access to the Australian income while
within the country or overseas must declare it in the income tax of Australia. This is to provide a
relief from double taxation. This is one of the rules that came into place after the year 2008 to
ease the complexity in the income tax law. This brought a relief to various companies and trust in
Australia which are foreign owned as they could operate normally like others in the country.
However, this can change in some circumstances that are offset to a limit. The uniqueness and
complexity of the Australian income tax has made it necessary for individuals, companies and
trust who want to establish business in Australia to first study the system carefully to avoid
complications later while established and running. This is because of the difference in the
Australian system and other foreign tax system12. The system has so far been good to those
companies and trust that were established without the full knowledge and are normally given
unto four years to apply for amendments in case of errors such as double taxation so as to claim
and receive a refund after assessment of all the taxes paid. This types of offset normally applies
to the Australian resident taxpayers. In some special cases where the foreign income tax of a
12 Woodward, R. (2016). A strange revolution: Mock compliance and the failure of the OECD’s
international tax transparency regime. Global Tax Governance: What is Wrong and How to Fix
It, 103-22.

non-resident company or trust had an error, they may be able to claim an offset13. An offset on
income tax from foreign companies and trust may be available on selected major Australia’s
trading partner such as Argentina, Canada, China, USA and United Kingdom.
The Australian income tax law has majorly centered in the foreign companies and trusts
and has constantly resulted in mismatches in classification and different status of newer
companies and trusts.
Tax Evasion
There are a lot of uncertainties in the Australian tax law and calculating income tax of
foreign companies and trusts has never been a simple task. In the recent times, with a lot of
competition in the trading markets and worldwide inflation there have been more interest in the
behavior of various foreign companies and trusts. They have been noted to be trying in all the
possible ways to minimize their tax or avoid paying them at all. They do this by shifting profits
from Australia back to their original home countries. This gap was identified in the Australian
income tax law where Australian based companies and trusts only pay tax on their Australian
profits and only their passive foreign profits.
As a company or trust based in Australia you must report all your income so as to be
subjected to the income tax. This income tax is subjected to a lot of treatment basing on several
factors. The Australian laws have tried to be favorable to the companies and trusts owned by
Australian so as to enable them compete favorably with other foreign companies. This has been
13 Woellner, R., Barkoczy, S., Murphy, S., Evans, C., & Pinto, D. (2016). Australian Taxation
Law 2016. OUP Catalogue.

done by only taxing profits made within Australia and not those made abroad. Foreign
companies and trusts have often been uncomfortable with this as it gives home companies and
trust an upper hand to expand faster due to the untamable profits. They see the Australian
income tax law a bit unfair and harsh towards them. This has led to some foreign investors not
setting up companies and businesses in Australia but rather investing in local existing companies
and trust in the country. This however, limits their expansion and chances of making much more
profits. Their growth is also limited due to the many laws involved in invested property which
has got different shareholder. In a case where the income tax on foreign companies and trusts
would have been made simpler, many investors would have project a lot of resources into the
Australian Economy and bring a general improvement to the living standards through different
means such as creation of employment by those companies.
Australia has appeared to have been mark timing in the recent year. This can be easily
explained by starting with the commonly referred ‘unfair tax system’. The Australian
government has been reluctant to do any changes to this system, especially the income tax law
which has clear winners and the clear losers. The foreign companies and trusts are deemed to be
the losers. Many have insisted on fair play where both local and foreign trusts and companies
have similar income tax law so as to compete fairly and in the long run no one will be badly off.
Creation of loopholes
There is a kind of tax advantage that exist in the Australian system because the
government does not tax the same way but has different forms of income tax. This has created
loopholes through which taxes can be minimized. The fundamental aim of taxes is to raise

money for the government and by creating loopholes, less money or at some cases no money at
all will make it difficult for the government to make money14. Foreign companies and trusts have
constantly resorted to this loopholes which are quite favorable to them and thus in the long run it
will lead to very little money being collected by the government15. This can be controlled by the
government by making all the income tax similar to all the players. Doing so will seal all the
loopholes and encourage more foreign trust and companies hence continual creation of
government money.
Most experts have always been asked, which one thing will they change about the
Australian tax system and how will they change it16. Many debates on this have been made, such
as the Great debate of 2017 which involved Tax institute and Australian research foundation with
over hundred tax professionals. The debate majored on how the tax system was going to be made
simpler and fair. This is to say that the system being made simple and fair, it will also make the
income tax law simpler and fair to all the players including the foreign trusts and companies.
Experts have always insisted on looking at the history of company and trust income in Australia
including the evolution of international taxes and how it compares to the trends internationally17.
A key policy on how income tax law is being applied on foreign companies and trusts need to be
examined. Countries normally exercise their tax jurisdiction based on territorial or worldwide
14 Meng, S., & Pham, T. (2017). The impact of the Australian carbon tax on the tourism
industry. Tourism Economics, 23(3), 506-522.
15 Tian, G. Y. (2018). Cloud Computing and Cross-Border Transfer Pricing: Implications of
Recent OECD and Australian Transfer Pricing Laws on Cloud Related Multinational Enterprises
and Possible Solutions. Rutgers Computer & Tech. LJ, 44, 33.
16 Pham, T. D., Nghiem, S., & Dwyer, L. (2018). The economic impacts of a changing visa fee
for Chinese tourists to Australia. Tourism Economics, 24(1), 109-126.
17 Pearce, O. (2017). Making Tax Vanish: How the practices of consumer goods MNC RB show
that the international tax system is broken.

view. The worldwide approach enable Australia to exercise its objective as a country to tax
income that is derived from residents, companies and trusts from anywhere in the world18. This
led to the introduction of the foreign tax system in 1987 which was put in place to work
concurrently with the income tax law. Due to complexity of this foreign tax system, it has
become difficult while taxing the foreign companies and trusts19.
Australia, has been known for actively enforcing transfer pricing so as to address issues
and challenges that come about from cross-border transactions done by foreign trusts and
companies. A lot of complication and unnecessary processes would have been avoided if all the
income tax law was similar for both locals and foreigners20. In some cases where a company or a
trust is foreign owned but has its central management based in Australia may be subjected and
exempted from some income taxes just like the local.
High Tax Rates
A problem always arises when a comparison of tax rates is done among different
countries. This also happens when you compare Australia’s tax system with those of other
countries as its rates are higher. This makes it difficult for foreign companies and trusts who
have lower tax rates back in there country to come and operate without feeling the pinch and
18 Stewart, M. (2017). Australia’s Hybrid International Tax System: Limited Focus on Tax and
Development. In Taxation and Development-A Comparative Study (pp. 17-41). Springer, Cham.
19 Swank, D. (2016). Taxing choices: international competition, domestic institutions and the
transformation of corporate tax policy. Journal of European Public Policy, 23(4), 571-603.
20 Shang, C., Lee, H. M., Chaloupka, F. J., Fong, G. T., Thompson, M., & O’Connor, R. J.
(2018). Association between tax structure and cigarette consumption: findings from the
International Tobacco Control Policy Evaluation (ITC) Project. Tobacco Control,
tobaccocontrol-2017.

inevitable adjustment from what they are usually used to. Australia usually uses sliding scale tax
system when it comes to income tax law. This is however not suitable for foreign companies and
trusts who have gone out of their way to try and create as much profits as possible only to be
taxed higher.
A few years ago, Australia celebrated its hundred years of income tax. This led to a
conversation whether everybody was celebrating or just the Australian tax system institution.
The income tax has led to a lot of opportunities majorly to local companies and trusts as
compared to the challenges their fellow foreign competitors are facing. Over the last hundred
years, the taxes have been lower, raised and some abolished. This is to say Australia is still
readying itself for the next phase which leads to a question whether it will favor or burden the
foreign companies and trusts. Some tax experts view that it is unlikely for the tax rates to change
significantly and so the foreign companies and trust need to find a way of being able to go past
the seemingly unfair income tax law.
Tax System Deficiency
There has been a discrepancy when it comes to income tax law on foreigners that has
overshadowed a treaty that was signed between Australia and other countries. This normally
affects the amount of money one has to pay. Constant crosschecking and updating needs to be
done to oversee and address so as to get the correct amount of taxation. Australia has always
been advised to follow the example of USA and Canada on how they carry out their income tax
on foreign companies and treaties. A lot of cases on the inconsistency and inadequacy of the

Australian system have been exposed21. This is being criticized heavily as it is one of the biggest
contradiction of information in this century where transparency and accountability is supposed to
be the main objective. An example of this is the Panama paper that were revealed as having been
hidden a lot of billions of dollars that they should have been paying income tax for. This clearly
shows the fault and loopholes being experienced in the income tax law22. Coming up with this
conclusion on the income tax law on its deficiency has not been an easy task as it has taken over
there hundred journalists going through over millions of papers and information to speak out on
a world of tax avoidance and tax evasion.
An amendment to the tax system was made so as to cater for the multinational tax
evasion. Once another scandal on the income tax comes about another amendment will be put in
place. This can be corrected early by making changes in the income tax law so as to become
compatible to all the players whether foreigners or locals23. As per the current states, rules apply
to only those who move money from one country to another that equals to a billion US dollars or
more. This leaves a gap for those doing multimillion transactions below this amount of money24.
21 Hakelberg, L. (2016). Coercion in international tax cooperation: identifying the prerequisites
for sanction threats by a great power. Review of International Political Economy, 23(3), 511-541.
22 Khoo, S. A., Nickless, J., & Hartanti, W. (2017). International tax developments. Taxation in
Australia, 52(4), 212.
23 Hakelberg, L., & Schaub, M. (2018). The redistributive impact of hypocrisy in international
taxation. Regulation & Governance, 12(3), 353-370.
24 Highfield, R. (2017). Adopting the New International Tax Rules and Standards: How
Developing Countries in Asia and the Pacific Stand to Benefit—If They Engage!.

Conclusion
The fair method to deal with this income tax issues is to have all of them equal among all
the players whether local or foreigners. This will bring about mutual understanding in the
international community. This will also enable large foreign companies that operate from or in
Australia to report their profits and income tax to every country. This might mean a less
dependency on investigations and laws to curb any tax avoidance and tax evasion. A total
overhaul on the Australian income tax law will enable consideration of extremely poor countries
who have come to find a way out of poverty by establishing companies and trusts in Australia.
For equal and fair distribution of resources in the world, preventing tax evasion is mandatory. It
does not only affect Australia but the international community at large.
This money can be recovered and be used to help the poor nations. At the time in recent
year when the tax debate has taken place, the Australians have always been told not only to
consider themselves but also the impact that these income tax laws have on the vulnerable
communities that are abroad. In recent times, the Australian senate has debated on various tax
legislation starting with personal income tax. We hope that this debate will continue unto the
foreign trusts and companies income tax law so as to do away with the ‘unfair’ system and
preserve the progressive growth and development of everybody.

Bibliography
Ahmad, E. (2018). Rebalancing, Taxation and Governance: Fiscal Policies for Sustainable
Growth. In Fiscal Underpinnings for Sustainable Development in China (pp. 3-28).
Springer, Singapore.
Emery, J. (2016). Decoding the regulatory enigma: how Australian regulators should respond to
the tax challenges presented by bitcoin.
Evans, C., Lignier, P., & Tran-Nam, B. (2016). The tax compliance costs of large corporations:
An empirical inquiry and comparative analysis.
Fauziati, P., Minovia, A. F., Muslim, R. Y., & Nasrah, R. (2016). The Impact of Tax Knowledge
on Tax Compliance Case Study in Kota Padang, Indonesia. Journal of Advanced
Research in Business and Management Studies, 2(1), 22-30.
Hakelberg, L., & Schaub, M. (2018). The redistributive impact of hypocrisy in international
taxation. Regulation & Governance, 12(3), 353-370.
Highfield, R. (2017). Adopting the New International Tax Rules and Standards: How
Developing Countries in Asia and the Pacific Stand to Benefit—If They Engage!.
Hakelberg, L. (2016). Coercion in international tax cooperation: identifying the prerequisites for
sanction threats by a great power. Review of International Political Economy, 23(3), 511-
541.
Jain, S., & Kamath, A. (2017). Indian and Australian Perspectives on Demonetization and Its
Tax Implications.
Khoo, S. A., Nickless, J., & Hartanti, W. (2017). International tax developments. Taxation in
Australia, 52(4), 212.
Lund, D. (2018). Taxation and Investment Decisions in Petroleum. Economics, 24, 455-467.

Murphy, C. (2018). Modelling Australian Corporate Tax Reforms: Updated for the Recent US
Corporate Tax Changes.
Meng, S., & Pham, T. (2017). The impact of the Australian carbon tax on the tourism
industry. Tourism Economics, 23(3), 506-522.
Pham, T. D., Nghiem, S., & Dwyer, L. (2018). The economic impacts of a changing visa fee for
Chinese tourists to Australia. Tourism Economics, 24(1), 109-126.
Pearce, O. (2017). Making Tax Vanish: How the practices of consumer goods MNC RB show
that the international tax system is broken.
Stewart, M. (2017). Australia’s Hybrid International Tax System: Limited Focus on Tax and
Development. In Taxation and Development-A Comparative Study (pp. 17-41). Springer,
Cham.
Shang, C., Lee, H. M., Chaloupka, F. J., Fong, G. T., Thompson, M., & O’Connor, R. J. (2018).
Association between tax structure and cigarette consumption: findings from the
International Tobacco Control Policy Evaluation (ITC) Project. Tobacco Control,
tobaccocontrol-2017.
Swank, D. (2016). Taxing choices: international competition, domestic institutions and the
transformation of corporate tax policy. Journal of European Public Policy, 23(4), 571-
603.
Tian, G. Y. (2018). Cloud Computing and Cross-Border Transfer Pricing: Implications of Recent
OECD and Australian Transfer Pricing Laws on Cloud Related Multinational Enterprises
and Possible Solutions. Rutgers Computer & Tech. LJ, 44, 33.
Taylor, J., Kayis-Kumar, A., & Bain, K. (2017). PlayTax: Gamifying International Tax
Teaching. J. Australasian Tax Tchrs. Ass'n, 12, 110.

Woellner, R., Barkoczy, S., Murphy, S., Evans, C., & Pinto, D. (2016). Australian Taxation Law
2016. OUP Catalogue.
Woodward, R. (2016). A strange revolution: Mock compliance and the failure of the OECD’s
international tax transparency regime. Global Tax Governance: What is Wrong and How
to Fix It, 103-22.
Wee, K. (2017). Achieving tax certainty for oil and gas projects. The APPEA Journal, 57(2),
577-580.
Wall, M., Casswell, S., Callinan, S., Chaiyasong, S., Viet Cuong, P., Gray‐Phillip, G., & Parry,
C. D. (2018). Alcohol taxes’ contribution to prices in high and middle‐income countries:
Data from the International Alcohol Control Study. Drug and alcohol review, 37, S27-
S35.
Yin, K. S., Ward, A., Dargusch, P., & Halog, A. (2018). The cost of abatement options to reduce
carbon emissions from Australian international flights. International Journal of
Sustainable Transportation, 12(3), 165-178.