Tax win for Macquarie Group
This month, the Federal Court threw out a bid by Macquarie to stop the Tax Office issuing new tax bills for previous years over its use of offshore banking unit (OBU) deductions.
In a move designed to encourage Australian banks to expand overseas, profits generated by OBUs are taxed at 10 per cent rather than the usual rate of 30 per cent. But in the May budget the government announced restrictions on the use of the deduction to take effect from October 1.
It was concerned OBUs were being used to shelter domestic activities from tax.
Senator Sinodinos announced late on Sunday that the government would not proceed with the October 1 start date. Consultation had indicated the restriction "could affect commercial transactions that should still be eligible for offshore banking unit treatment," he said. He would "take the time necessary to properly consider all the issues".
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The story contains mixed outcomes: the Federal Court threw out Macquarie’s bid to stop the Tax Office issuing new tax bills for past years over offshore banking unit (OBU) deductions, but the government — through Assistant Treasurer Arthur Sinodinos — announced it would not proceed with an October 1 start date for new OBU restriction rules, a delayed move widely described as a rare victory for Macquarie.
An offshore banking unit (OBU) is a tax regime aimed at encouraging Australian banks to expand overseas. Profits generated by OBUs are taxed at a concessional 10% rate rather than the usual company tax rate of about 30%.
The government proposed restrictions because it was concerned OBUs were being used to shelter domestic activities from tax, not just to support legitimate overseas banking operations.
The May budget announced that new restrictions on the use of OBU deductions would take effect from October 1.
Sinodinos said consultations indicated the proposed restriction 'could affect commercial transactions that should still be eligible for offshore banking unit treatment.' He said he would take the time necessary to properly consider all the issues, so the October 1 start date was not proceeded with.
No. The Federal Court threw out Macquarie’s bid to stop the Tax Office from issuing new tax bills for previous years related to OBU deductions.
The government, via Assistant Treasurer Arthur Sinodinos, said the consultation process revealed the risk that the proposed restrictions might unintentionally affect legitimate commercial transactions that should remain eligible for OBU treatment, so further careful consideration is needed.
Based on the article, investors should note two points: a court challenge by Macquarie to block retrospective tax bills was unsuccessful, but the government has delayed implementing the proposed OBU restriction start date, which was described as a rare win for Macquarie. The situation is still under government review, so further policy clarification may follow.
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