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Thursday, 31 August 1972
Page: 660

Senator COTTON - On 30th May 1972, Senator Murphy addressed a question without notice to the Minister representing the Treasurer in the Senate, suggesting that Australian subsidiaries of overseas companies transfer moneys to their parent companies in the shape of servicing fees, thus reducing their Australian profits and avoiding Australian tax. The Treasurer has provided the following information:

Some information on the estimated amounts of servicing fees paid by overseas companies operating in Australia to their overseas principals was given in the reply to Question No. 1844

It is not possible, nor would it be proper, to take up the honourable senator's reference to the affairs of a particular company. The income tax law does, however, provide against attempts to avoid payment of tax through practices of the kind referred to by the honourable senator.

Servicing fees fall primarily tor consideration under a general provision of the taxation law which authorises the allowance of deductions for outgoings incurred in gaining or producing assessable income or in carrying on a business for that purpose. Deductions are not allowed under this provision, however, for outgoings of 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 Australian 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 Australian 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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