The Australian Board of Taxation has launched a public consultation as part of a review of the operation of Australia’s corporate tax residency rules to ensure that the rules are operating appropriately in light of modern, international and commercial board practices and international tax integrity rules. For this purpose, the Board has prepared a consultation paper in order to initiate the first part of its review. The consultation paper sets out some observations on the current corporate residency rules and poses a number of questions about the ongoing viability of these rules for stakeholder consideration. This includes 6 main questions as follows:
Consultation question 1
The Board seeks stakeholder comment on the difficulties associated with the central management and control test that have been discussed in Chapter 5 so far, and whether there are additional difficulties with the test that the Board’s attention should be drawn to (particularly if such difficulties are attributable to matters other than board practices and if they arise in the context of an inward investing corporate structure).
Consultation question 2
The Board seeks stakeholder comment on the primary theme that has informed the discussion under Part 4 of Chapter 5, being whether certain subsequent additions to the income tax legislation have imported at least some degree of redundancy into the central management and control test. The Board also seeks stakeholder assistance in identifying instances in which any other part of the income tax legislation produces different tax outcomes that are dependent on whether a foreign incorporated subsidiary company is, or is not, an Australian resident under the central management and control test.
Consultation question 3
The Board seeks stakeholder comment on whether the central management and control test should be replaced with an alternative test that features place of effective management. The Board is particularly interested in how place of effective management would increase commercial certainty and align with modern corporate practices, whilst maintaining integrity of the rules as they apply to multinational corporations.
Consultation question 4
The Board seeks stakeholder comment on whether there are criteria other than central management and control or place of effective management that could be used to establish corporate residency. The Board is particularly interested in how alternatives would increase commercial certainty and align with modern corporate practices, whilst maintaining integrity of the rules as they apply to multinational corporations.
Consultation question 5
The Board seeks stakeholder comment on whether an incorporation only test should be used as the sole basis for establishing corporate residency.
Consultation question 6
The Board also seeks stakeholder comment on whether there is a compelling basis for retaining the second limb of the test for corporate residence (under which a company is a resident if it carries on business in Australia and has its voting power controlled by shareholders who are residents of Australia) in the event that the central management and control test is replaced with an alternative test.
Interested parties may contribute to the consultation through written submissions, or by participating in one of the consultation sessions conducted by the Board. For written submissions (by email or post), the deadline is 4 October 2019.