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Tuesday, 11 April 1972
Page: 929

Senator Douglas McClelland (NEW SOUTH WALES) asked the Minister representing the Treasurer, upon notice:

(1)   Is it possible to ascertain how much is paid by overseas companies operating in Australia, by way of servicing fees to their overseas principals.

(2)   Are servicing fees allowable as taxation deductions.

Senator Sir KENNETH ANDERSON The Treasurer has provided the following answer to the honourable senator's question:

(1)   The 'servicing fees' paid by overseas companies operating in Australia to their overseas principles would appear to refer to the following payments -

(a)   interest payable by Australian subsidiaries of overseas companies to their overseas principals. This amounted to $48m in 1969- 70 and$55m in 1970-71.

(b)   royalties and copyrights payments. Such payments amounted to $68m in 1969-70 and $64m in 1970-71 for all companies in Australia. It is not possible to split this total into that amount paid by overseas companies operating in Australia and that amount paid by other Australian companies.

(2)   Such payments fall primarily for consideration under a general provision of the taxation law which authorises the allowance of deductions for outgoings incurred in gaining or producing asessable income or in carrying on a business for that purpose. Deductions are not allowed under this provision, however, for outgoings of capital or of a capital nature. The question whether servicing fees paid by an Australian subsidiary to its overseas parent qualify as allowable deductions depends upon the facts of each particular case having regard to the terms of any contracts made and the nature of the services provided.

The various double taxation agreements made between Australia and other countries contain provisions which are intended to ensure that the Ausralian revenue is not prejudiced where an Australian enterprise controlled in the other country engages in transactions with the parent organisation under conditions which differ from those which might be expected to operate between independent enterprises dealing at arms length. In this situation, tax may be imposed on the profits which might have been expected to accrue to the Australian subsidiary if it were an independent enterprise and its dealings with the overseas parent organisation were at arms length. A similar result is achieved under a specific provision of the Ausralian law where an Australian company is controlled by an enterprise in a country with which Australia has not concluded a double taxation agreement.

The amount of servicing fees paid to an overseas organisation would be one of the factors taken into account in determining the profit on which an Australian subsidiary of an overseas organisation is required to pay income tax.

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