The allocation of taxing rights of ship and aircraft leasing profits under Australia's tax treaties

The Australian Federal Commissioner of Taxation recently released Draft Taxation Ruling TR 2008/D3 with the stated purpose of clarifying ‘what profits derived from the leasing of ships or aircraft fall within the ship and aircraft articles of each of Australia’s tax treaties’. In particular, TR 2008/D3 explains the taxing rights over different types of leasing profits, such as a full basis lease in respect of any transport by a ship operated in international traffic and bareboat leases which are ancillary to the lessor transport operations of ships in international traffic. This article outlines the Commissioner’s views on the application of the standard ships and aircraft articles in the tax treaties to which it is a party as well as considering the major variations on the standard adoption. In doing so, guidance is provided as to the allocation of taxing rights of ship and aircraft leasing profits under Australia’s tax treaties.

The inherent international tax regime and its constraints on Australia's sovereignty

On 1 November 2011 the Minister for Financial Services and Superannuation, the Honourable Bill Shorten MP, announced that Australia would be undertaking a reform of the ‘transfer pricing rules in the income tax law and Australia’s future tax treaties to bring them into line with international best practice, improving the integrity and efficiency of the tax system.’ Mr Shorten stated that the reason for the reform was that ‘recent court decisions suggest our existing transfer pricing rules may be interpreted in a way that is out-of-kilter with international norms.’ Further, he stated that ‘the Government has asked the Treasury to review how the transfer pricing rules can be improved, including but not limited to how to be more in line with international best practice.’ He urged all interested parties to participate in this consultation process. On 16 March 2012, an Exposure Draft and accompanying Explanatory Memorandum outlining the proposed amendments to implement the first stage of the transfer pricing reforms were released. Within the proposed changes is the explicit embedding of the use of the OECD’s Model Tax Convention on Income and on Capital and Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations to help determine the arm’s length price. Does this mean that Australia engages in an international tax regime?

Australia's adoption of an international tax regime : to engage or not to engage?

On 1 November 2011 the Minister for Financial Services and Superannuation, the Honourable Bill Shorten MP, announced that Australia would be undertaking a reform of the ‘transfer pricing rules in the income tax law and Australia's future tax treaties to bring them into line with international best practice, improving the integrity and efficiency of the tax system.’ Mr Shorten stated that the reason for the reform was that ‘recent court decisions suggest our existing transfer pricing rules may be interpreted in a way that is out-of-kilter with international norms.’ Further, he stated that ‘the Government has asked the Treasury to review how the transfer pricing rules can be improved, including but not limited to how to be more in line with international best practice.’ He urged all interested parties to participate in this consultation process.

The inherent international tax regime and its constraints on Australia's sovereignty

Neither an international tax, nor an international taxing body exists. Rather, there are domestic taxing rules adopted by jurisdictions which, coupled with double tax treaties, apply to cross-border transactions and international taxation issues. International bodies such as the OECD and UN, which provide guidance on tax issues, often steer and supplement these domestic adoptions but have no binding international taxing powers. These pragmatic realities, together with the specific use of the word ‘regime’ within the tax community, lead many to argue that an international tax regime does not exist. However, an international tax regime should be defined no differently to any other area of international law and when we step outside the confines of tax law to consider the definition of a ‘regime’ within international relations it is possible to demonstrate that such a regime is very real. The first part of this article, by defining an international tax regime in a broader and more traditional context, also outlining both the tax policy and principles which frame that regime, reveals its existence. Once it is accepted that an international tax regime exists, it is possible to consider its adoption by jurisdictions and subsequent constraints it places on them. Using the proposed changes to transfer pricing laws as the impetus for assessing Australia’s adoption of the international tax regime, the constraints on sovereignty are assessed through a taxonomy of the level adoption. This reveals the subsequent constraints which flow from the broad acceptance of an international tax regime through to the specific adoption of technical detail. By undertaking this analysis, the second part of this article demonstrates that Australia has inherently adopted an international tax regime, with a move towards explicit adoption and a clear embedding of its principles within the domestic tax legislation.

The taxation of international maritime leasing profits : has the commissioners ship come in?

In light of McDermott Industries (AUST) Pty Ltd v Commissioner of Taxation, and Draft Taxation Ruling TR 2006/D8, this article considers the current Australian taxation position of profits arising from the cross-border leasing of vessels in the maritime industry. It focuses on the tax treaties to which Australia is a party, in particular the application of the business profits provisions of those treaties, and the deemed existence of a permanent establishment where substantial equipment, owned by a fiscal non-resident, is used within Australian waters.

Measuring the managerial benefits of tax compliance : a fresh approach

Managerial benefits of tax compliance have been identified by many authors in the tax compliance costs literature; they have however often been ignored when measuring the net effect of tax compliance on business taxpayers because it was believed that the measurement of such benefits was impossible or difficult. This paper first discusses the theoretical issues surrounding the valuation of managerial benefits, including the related tax/ accounting costs overlap problem; it then proposes a fresh approach for measuring managerial benefits. The proposed measurement model incorporates a subjective evaluation of useful accounting information by owner‑managers and objective measurements of accounting costs. Two main components of managerial benefits are identified: the incremental value of managerial accounting information and the savings on reporting costs. A study of small businesses conducted in late 2006, compared accounting practices between tax complying entities (TCEs) and tax compliance free entities (TFEs) and investigated how accounting information was valued by owner-managers in TCEs. The research adopted a mixed methodological design including a major quantitative phase followed by a minor qualitative phase. The results show that while a vast majority of TFEs maintained basic accounting functions, record keeping requirements imposed by tax compliance led to the implementation of more sophisticated accounting systems in TCEs. It was also found that TCE owner-managers assigned a relatively significant value to the managerial accounting information that is generated as a result of record keeping imposed by tax compliance, suggesting that substantial managerial benefits might be derived.

The managerial benefits of tax compliance: perception by small business taxpayers

Research undertaken in 2006 – 2007 investigated the perception of managerial benefits of tax compliance by small business taxpayers. Survey data from a sample of 300 small business taxpayers and responses to semi-structured interviews of owner managers were examined. The study found that a majority of small business taxpayers recognised that tax compliance activities led to better record keeping and to an improved knowledge of their financial affairs. However, there seemed to be a general reluctance by respondents to accept the idea that benefits could be derived as a result of complying with tax. The findings of this study are important as it is the first research that systematically investigated managerial benefits and their perception by small business taxpayers in Australia.