Tax havens threatened

Australia has decided that its nationals com panies and individuals will not benefit from using tax havens after June 30, 1990. In his recent economic statement to the Federal Parliament, Treasurer Paul Keating indicated that the Austra lian taxation office expected to col lect an additional $B5 million in re venue each year as a result of the

changes.

The move will be particularly felt in the Cook Islands and Vanuatu, both of whose financial centres get considerable business from Austra lia. The Australian government move followed revelations that companies run by Perth entrep reneur and brewer Alan Bond had been set up in the Cook Islands, and these had enabled the Austra lian-domiciled Bond Corporation Ltd to minimise its corporate tax liability at home.

The new tax system will be based on the accrual principle that is,

income passing through foreign

trusts or companies will neverthe less be taxed as if that money had entered Australia.

The accrual tax will apply to companies which have five or fewer Australian persons and entities in control, or where the control is clearly Australian even if the Au stralian-owned interest in the com pany is lower than 50 per cent.

However, companies which are deemed to have legitimate business interests in tax haven countries (Burns Philp in Vanuatu, the Au stralian trading banks in Cook Is lands, would be two typical exam ples) will now be exempt from the accruals tax; there will be an ex emption clause to cover those com

panies which are actively earning

income in a country that is operat-

ing as a tax haven. But that com pany must be able to show that 95 per cent of its income derives from active business activity, which will close the loophole of using small local trading companies as a con duit for tax minimisation.

Foreign trusts will also be taxed.

It is known, for example, that many Australian family trusts are registered in Port Vila. Under the

new rules, the accumulating income of foreign trusts will be subject to accruals tax where residents trans fer value to the trusts. Australian residents can reduce their tax liabil ity if they wind up the trusts before June 30 next year.

Tax experts believe the new Au stralian tax law will almost com pletely eliminate the use by its nationals of foreign tax havens.

Alan Bond - Cook Islands tax haven threatened