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Thursday, 28 October 1993
Page: 2825


Senator McMULLAN (Minister for the Arts and Administrative Services) (9.50 p.m.) —I move:

  That this bill be now read a second time.

I seek leave to have the second reading speech incorporated in Hansard.

  Leave granted.

  The speech read as follows

  The Financial Corporations (Transfer of Assets and Liabilities) Bill 1993 derives from the Treasurer's Banking Policy Statement of 18 June 1993, and relates to the Government's decision to liberalise foreign bank entry, announced by the Prime Minister in the One Nation Statement.

The Banking Act 1959 has already been amended by the Banking Legislation Amendment Act 1992, which received the Royal Assent on 21 December 1992, to give effect to the Government's decision in One Nation to liberalise foreign bank entry. Those amendments enable foreign banks, whether they have been operating in Australia or not, to apply for a banking authority under section 9 of the Banking Act 1959; and permit foreign banks, which are authorised under the Banking Act, to operate as banks in the form of a branch.

The purpose of the current bill is to facilitate the transfer of certain assets and liabilities from foreign bank subsidiaries in Australia to new branches. These subsidiaries will have been in existence prior to 18 June 1993 and may be either authorised banks under section 9 of the Banking Act 1959, or money market corporations registered under the Financial Corporations Act 1974 (or any subsidiaries of those bodies which are registered under the Financial Corporations Act 1974). In a limited number of cases the transfer may be between a pre-existing subsidiary and a new authorised bank subsidiary.

To be eligible to transfer assets and liabilities under the proposed legislation, foreign banks will have, from the commencement of the legislation, three years within which to apply for a banking authority, and up to six years to effect the transfer. The proposed legislation will minimise administrative procedures, and waive the payment of both Commonwealth and State transfer fees and charges. Without these changes foreign banks would be inhibited from responding to the Government's policy decision to encourage increased effective competition and efficiency in the Australian financial sector.

The Financial Corporations (Transfer of Assets and Liabilities) Bill 1993 will facilitate the establishment of branch operations in Australia by ensuring that foreign banks currently operating an authorised bank subsidiary or money market corporation are not disadvantaged compared to new foreign bank entrants when establishing branch banking operations in Australia.

The bill also makes a number of changes to the income tax law to ensure that the tax consequences that would normally arise on the transfer of business from foreign bank subsidiaries to branches are deferred, and that double taxation and double deductions do not arise.

To do this, the bill places the branch in the same position as the subsidiary would have been had its assets and liabilities not been transferred. This treatment will extend to all assets and liabilities transferred under this legislation, including debts owing to the subsidiary that are transferred to the branch and are subsequently written off as bad. Also, any interest paid on borrowings transferred to the branch, which would have been exempt from interest withholding tax under section 128F of the Income Tax Assessment Act 1936 if paid by the subsidiary, will be exempt under the same provision.

To further assist the smooth transition from subsidiary to branch banking, the subsidiaries of foreign banks will be able to transfer existing tax losses to branches of the banks. In this way, the ability to claim deductions for past tax losses will not be disturbed by the transition to branch banking.

The Government believes that these changes will bring competitive gains and efficiencies to the banking sector; greater flexibility in the provision of finance; and cost advantages to Australian clients. The measures contained in the bill should also further improve the international competitiveness of the Australian financial system.

Mr President, I present the Explanatory Memorandum which contains more detailed explanation of the provisions of the bill.

I commend the Bill to the Senate.

  Debate (on motion by Senator Reid) adjourned.