The Australian government will propose to change the corporate residency test used to determine if a company incorporated offshore is liable for income tax in Australia, budget documents released today said. The government also updated the list of countries with which it will exchange tax information.
“The Government will amend the law to provide that a company that is incorporated offshore will be treated as an Australian tax resident if it has a ‘significant economic connection to Australia’. This test will be satisfied where both the company’s core commercial activities are undertaken in Australia and its central management and control is in Australia,” the budget documents confirmed.
The tax residency modifications will reflect the state of the law prior to the High Court’s 2016 decision in Bywater Investments Ltd v Federal Commissioner of Taxation, the government said.
Moreover, while the tax residency provision will have effect after enabling legislation receives Royal Assent, the government will give taxpayers the option of applying the new law from March 15, 2017, the date the Australian Taxation office withdrew prior guidance on the topic in response to the Bywater case.
The government also announced that it will update its list of jurisdictions that it shares tax information with. Residents of these countries can take advantage of a 15 percent withholding tax rate on some distributions, the government said.
The following countries will be added to the list: the Dominican Republic, Ecuador, El Salvador, Hong Kong, Jamaica, Kuwait, Morocco, North Macedonia, and Serbia. Kenya will be removed from the list because an information-sharing agreement had not been signed.
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