Australia targets offshore banking units

Under pressure from international organisations, the Australian government has flagged that it is getting ready to reform the concessionally-taxed offshore banking unit (OBU) regime, a move that will hit big banks and hedge funds.

The Organisation for Economic Co-operation and Development’s (OECD) forum on harmful tax practices has raised concerns about Australia’s OBU laws, including the 10% concessional tax rate.

The Offshore Banking Unit Regime, established in 1992, provides a more attractive tax rate for offshore banking activity conducted by Australian registered banks.

The big four banks, Macquarie Group and hedge funds have traditionally been the major users of OBU for offshore activities including financial market trading, investment management and lending.

The cost of the OBU tax break to the government has risen to A$325m a year, up from A$200m in 2013-14 and A$160m in 2006-07, according to Treasury figures.

In response to OECD pressure, the Australian authorities have pledged to amend the regime.

“The government will work closely with industry and other stakeholders as we consider options to reform the regime.

The coalition government is a world leader when it comes to implementing our OECD and G20 commitments on international tax.

Our government has implemented more than a dozen measures in the past two years to the issue of multinational tax avoidance, and since 1 July 2016 the ATO has raised over A$7bn in tax liabilities from large companies,” Treasurer Josh Frydenberg (pictured) said in a statement.

The financial industry has argued the low-tax vehicles are an important mechanism to help banks attract business in offshore financial hubs and compete in Asia.

Pedro Gonçalves
Pedro Gonçalves is Financial Correspondent at International Investment.

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