\
l!\
QAN'iAS
ForeignSourceIncomeAnti-Tax-Deferral
Review
Boardof TaxationSecretariat
C/-TheTreasury
LangtonCrescent
ParkesACT 2600
Australia
By email:taxboard@treasury.gov.au
6 July2007
DearSir,
Review of the foreign source income anti.tax-deferralregimes
QantasAinraysLimited("Qantas")
is currentlyactivelyimpactedby the operationof the
Australian
Controlled
ForeignCompany('CFC")and ForeignInvestment
Fund("FlF)rules
and, as such,welcomesthe opportunity
to providecommenton the Boardof Taxation
("Board")
Reviewof The ForeignSourceIncomeAnti-Tax-Deferral
Regimes("Review").
Oursubmission
outlinesa briefsummaryof majorpointsand recommendations,
ultimately
supporting
the currentframework
of the variousanti-tax-deferral
regimesbut seeking,inter
alia,the introduction
of a broadbased'purpose
test'toremovethe prospectof enduringan
unnecessary
compliance
burdenwhileensuringthe integrityof the measuresoperateas
intended.
Qantasthanksthe Boardfor consultation
hopesthat our commentswill be
and ultimately
viewedfavourably.
We also welcomethe opportunityto be involvedin furtherindustryconsultation,
as
suggested
in the Reviewprocessoutlinedin the Discussion
Paper.
Shouldyouwishto discussour submission
further,thenpleasedo not hesitateto contact
me on (02)96919442.
YoursSincerely,
flPr^"t'do
RichardRichards,
GroupGeneralManagerReporting
andTax
Limited
QantasAinrvays
Qantas Airu/ays Limited ABN16009661901
QantasCentre203 CowardStreetMascotNSW2020Australia
Telephone
61 (2)96913636
qantas.com
QANTA!5
Review of The Foreign Source Income Anti-Tax-DeferralRegimes
Discussion Paper Submission
1. Overview
TheTreasurerin announcing,
Foreign
on 10 October2006,a furtherReviewof Australia's
SourceIncomeAnti-Tax-Deferral
Regimes,
notedthat:
"..businesshad raiseda number of concernswith the Governmentabout the
anti-tax-deferral
regimes,includingthat they are complexand involve substantial
complianceand administrationcosfs...in some cases, the regimes are poorly
targeted, potentially impacting on offshore investment decr'sionsthat are not
motivatedby tax deferralreasons".
Additionally,
PaperTermsof Reference,
that it has
the Boardhighlights,
in the Discussion
beenaskedto:
"examinewhetherthe regimessfnke an appropriatebalancebetweeneffectively
counteringtax deferraland unnecessarilyinhibitingAustraliansfrom competingin
the globaleconomy."
to reviewand changethe regimesto bettersupportindustry
Qantassupportsthe initiative
and paradigms
whichhas beenaffectedby the rulesnotadaptingto the newperspectives
presentin globaleconomies,
such
strategies
expansion
through
thosethatseek
especially
as tappingnewandemergingmarkets.
2. Recommendation
wouldinclude:
Our recommendation
Do not overhaultheregimesinto a single setof rules
trustrulesandthe deemedpresententitlement
We acknowledge
thatthe transferor
to
ruleshave beendesignedfor a particularpurposethat has limitedapplication
the
with
thoseregimestogether
mainstream
corporateAustralia.To encompass
onlyaddcomplexity.
CFCand FIFregimeswould,presumably,
Maintainthe structuralidentityof the CFCand FIF rules
manner
Whilethe frameworkof two regimesmakeslogicalsensethe prescriptive
in whichtheyare to be followeddoesnot.
resident
to Australian
The notionthataccessto information
willalwaysbe available
perform
could
consideration
is
inaccurate.
As
such,
controllers
to
CFCcalculations
regime
given
possibly
includingvoluntaryelection,of one
be
to their relationship
overthe other,ratherthanprescriptive
adoption.
Qantas Airways Limited
I
Further,the inference
that particular
categories
of income,suchas mobilecapital
(passiveincome)or mobileincome(taintedsalesand services),
wouldalwaysgive
riseto anti-deferral
taxationis withoutmerit.
Holisticsolution
We suggestthe Boardnot recommend
a piecemeal
approachto correctsymptoms
of the regimes(as identifiedby individually
impactedtaxpayers)but suggestan
approachthat providesa holisticsolutioncapableof adaptingto a changing
environment.Any attemptto provideisolatedexemptionsor concessions
will
undoubtedly
createadditionalcomplexityand furtherunintendedconsequences
eitherin thefutureor for otherAustralian
residenttaxpayers.
Purposeor motivationfesf
In aggregate,a subjectivebroadbased'purposetest' shouldprovideAustralian
corporatetaxpayerswith a positionthat could afford compliancerelief where
offshoreactivitieshavenot beenundertaken
with a purposeof tax deferral. Given
the self-assessment
environment
clearguidelines
shouldbe providedto mitigate
uncertainty
and/orRevenuerisks.
A purpose-based
test wouldprovidea systemicholisticsolutionthat shouldalso
addressbothcurrentandfutureimpediments
thatthe currentregimesimpose.
Specificrneasuresfo addressQantasissues
Shoulda genericand holisticsolutionnot be espousedthen we would,as an
alternative,recommendthat an effort is made to addressspecificcompliance
issuesthat the currentCFC regimeimposesand to do so in such a way as to
ensure that any solutiondoes not add additionalcomplexityor unforeseen
outcomes.
As such,we outlinebelowa numberof proposedsolutions
thatwouldalleviate,
to
someextent,the currentQantasCFCcompliance
burden.
Providefor a monitoringand reviewprocess
We would suggestthe Board recommendthe reviewof the regimesevery five
yearsto ensurethe rulesare internationally
competitive
and alignedto the global
givenitsevolvingandcapricious
corporate
nature.
business
environment
3. Inequity of specifically targeted active income
Sincethe inception
of theAustralian
CFCrules,witheffectfrom1 July 1990,Qantashas
feltthe impactsof growingcompliance
costsas a consequence
of logicalforeignbusiness
expansion.Qantascan attestto the Board'sviewthatthe economiccontextin whichthe
regimesoperatehaschangeddramatically
sincethey:
"were conceived in the late 1980s when Australia'sinvestment profile was
dominatedby tradein goodsand relativelylittlein the way of services."
As an airline,accessto emergingmarkets,hasnotonlybecomemorepossiblebut is also
throughthe
seen as imperative
to creatinga competitive
advantage.This is illustrated
freight
currentQantascorporate
objective
to growourAsianbasedpresencein passenger,
in our industryas seen
and tourismmarkets.Qantasanticipates
significant
consolidation
withthe mergerof KLM/AirFranceandscalewillbe criticaltoQantas'ongoingsuccess.
QantasAirwaysLimited
^
z
Paragraph2.52 of the DiscussionPaper acknowledges,underthe Board'ssecondterm of
reference,that:
"even
where a regime attempts to draw a distinction between tegitimate deferral
and attribution, there are questions as fo whether that boundary has been
appropriately drawn""
It is our view that the inappropriateness
of where this boundaryhas been drawn is no
better illustratedthan by the inequityembedded in the operationof the base company
income rules and specifically,as they impact Qantas, in respect of 'tainted services
income'. We acknowledgethe changeto the definitionof taintedservicesincome,due to
recent RITA reforms, but believe the amendmentswere not sufficientto remove the,
seeminglyunnecessary,current complianceburden imposed on the Qantas Group and
thus the definitionshouldbe furthernarrowed.
Further,we highlightadditionalexamplesof inequitythat arise as a consequenceof having
a prescriptivedefinitionof passiveincome. That is, passiveincome may include income
from genuine commercial activitiessimply by virtue of its nature or character. For
illustrativepurposes,we highlightbelow instanceswhere attributioncan arise due to the
definitionsof 'passive'and 'taintedservicesincome'"
Servicesto Australianresidents
Incomefrom foreignactivebusinessoperations,
such as incomefrom providing
airlinetravel,is treatedas 'tainted'where
the recipient
of the travelis an Australian
resident.Thisis considered
furtherbelow.
Leaserentalincome
give riseto
The use of a planein activebusinessoperations
does not,ordinarily,
attribution
butcoulddo so should,dueto excesscapacity,
the aircraftbe leasedfor
genuinecommercial
reasons.
Despitethe assertion,raisedon the introduction
of the CFC rules,that rental
incomefromair servicesis readilyshiftedandsourcedin the countryof choice,this
is, in ourexperience,
notfoundto be accurate.
We highlight
thatdueto leadtimesfor the deliveryof aircraftordersare,moreoften
than not,madeyearsin advanceand oftenbeforea properanalysisof demandis
capableof beingperformed.Our industryis alsosubjectto demandshocks(dueto
eventssuchas September
11, SARS,BaliBombings
or significant
sportingevents
etc) or supplyshocks(suchas the priceof fuel etc). In orderto securesuch
deliveriesit is unfortunately
inevitablethat excesscapacitycan resultin such
or thirdpartiesas a matterof
aircraftbeingleasedto eitherothergroupcompanies
commercialnecessity. As such, irrespective
of whetherit is appropriateto
rentalincomeas beingpassive,it is evidentthat rentalincomecan
characterise
be
arisefromthe activeconductof businessand as suchshouldnot automatically
the subjectof attribution.
Bankaccountinterest
A bankaccountheldto collectrevenuefromthe saleof prepaidticketscouldderive
interestrevenuethatcangiveriseto CFCattribution.Again,the interesthas been
treatedas being passiveincome(due to its perceivedcharacter)despitebeing
genuinecommercialand activebusiness
derivedin the contextof undertaking
activities.
Qantas Airways Limited
a
J
Hotel/resortaccommodation
Incomefrom facilitating
the provisionof accommodation
can give rise to CFC
attribution
as can rentalincomein connection
provision
withthe
of accommodation
on land in a jurisdiction
that is not in the samecountryof residenceas the CFC.
However,the provision
of accommodation
doesnot give riseto attribution
where,
certainconditions
are met,including
wherethe accommodation
is providedon land
situatedin thesamecountryof residence
as the CFC.
4. Tainted services integrity rule (a/soknownas the "POBoxrule")
Priorto the recentRITAreforms,'taintedservicesincome'aroseif certainserviceswere
providedby a CFC:
(whetherresidentor non-resident);
1. to an associate
or
2. to an Australian
resident(whetherrelatedor unrelated);
or
3. in connection
witha businesscarriedon by a non-resident
entityat or throughan
permanent
Australian
establishment
of thatentity.
The measurein the New lnternationalTax Arrangements(ParticipationExemptionand
OtherMeasures)Act 2004modifiedthe taintedservicesincomedefinitionin secflon448 of
the lncome Iax AssessmentAct, 1936("theAct")to exclude,from the definition,certain
incomefromthe provision
of servicesto 'associates'.
Thechangesnowmeanthatthe incomeof CFCsresulting
fromthe provision
of servicesto
associates(as long as they are not residentof Australia)is no longertaintedservices
incomeand will be excludedfromattribution.However,CFC incomearisingfrom certain
servicesprovidedby a CFCto an Australian
residentremainsattributable,
subjectto, interalia, the active incometest given the presentrequirementsof the 'TaintedServices'
definition
undersectionaa8()(a)whichstatesthat:
"income (other than premium income) from the provision of services by the
companyto an entity,if:
(i) the entity was a Part X Australianresidentat the time the incomewas derived;
and
(ii) the serviceswere not providedin connectionwith a busrnesscarriedon by the
entity at that time at or througha permanentestablishmentof the entityin a listed
or unlistedcoLJntry."
perspective,
We highlight,
from an international
that
our understanding
competitiveness
jurisdictions
most other
that have an anti-tax-deferral
regimedo not attributebase
companyincomeandthosethatdo provideadditional
exemptions.
Applicationto the QanfasGroup
As acknowledged,
by the Boardin the Discussion
Paper,passiveincomeis predominantly
incomethat is highly mobilewhereastainted[sales]incomeis predominantly
active
incomethatis derivedfromrelated-party
However,
taintedservicesincome,
transactions.
nowa hybridof thesetwo concepts,is an anti-deferral
designedto
measure,presumably,
preventthe shiftingof profits,associatedwith the provisionof servicesto Australian
recipients,
into a low tax jurisdiction.The Boardhighlights
that furtherpolicyobjectives
Qantas Airways Limited
4
associated
withbasecompanyincomerulesmaylie outsidethe tax systemandthe useof
the cFC rulesto achievetheseonlyaddscomplexity
to it'sdesign.
We note,the QantasGrouphas not takenservices,employment
opportunities
or profits
out of Australiarather,in seekinga competitiveadvaniageanC broadercustomer
proposition,
we haveinvestedin foreignentitiesin orderto benefitthe widereantasGroup
in bothcorenetworkand diversified
operations.Suchgrowth,is hoped,will consequenly
increaseAustralian
basedrevenues
andtax payable.
In orderfor the QantasGroupto expandits international
networkandcustomerbaseit has
been imperative
to establishforeignCFCsfor non-taxreasons,for instance,in orderto
secure bilateralair traffic rights or grow feeder trafficfor Qantasservices" While the
extendednetworkattractsa broadernon-resident
customerprofile,salesto Australian
residents,
by suchCFCs,arealsoevident.Clearexamplesinclude:
- the emergingLow cost Garriersand the ever growingmarketof the 'LowestFares'
offered,predominantly
via the internet,to Australian
residentpassengers
by Qantas
Group CFCs such as PacificAirlinesin Vietnamand JetstarAsiaand Valuairin
Singapore,
et cetera;
- outboundholidaysprovidedto Australian
residentsby QantasGroupCFCssuchas
JetstarHolidays
andthe HTTGroupof CFCs;and
- the provision
of freightservicesto Australian
residentsby QantasGroupCFCssuch
as ThaiAirCargoandthe DPEXTransport
Groupof CFCs.
Whilethe breadthof the CFC regimeencompasses
a wide rangeof arrangements
to,
arguably,deter tax avoidanceschemes,it could equallybe arguedas discouraging
genuinecommercial
growthstrategies
beingimplemented.
At presentthe burdenendured
by Qantasto complywiththe regimeresultsin lessthana milliondollarsof taxableincome
andyet significant
costsof compliance,
for instance,
in capturing
detailsof the tax resident
statusof passengers.
5. Reporting impediments
The Boardhashighlighted,
at Page22, Paragraph
2.64,thattheevidenceandreporting
requirements
associated
withthe regimeswillneedto be considered
as partof its Review
and hasstatedthat:
"Balancingthe informationrequirements
of the ATO, so that the attributionrules
can be properlyadministered,and the costof complianceof thoserules is alsoof
concernto the Board."
Qantashighlights
thatthe recordkeepingrequirements
required
to ascertain
attributable
incomefromCFCsis extremely
onerousanddraconian.
Thesystemicnatureof the rulesandresourcerequirements
needed,in orderto capture
the relevantdata,to be ableto performthe activeincometestand,for reporting
actual
taintedservices,
are bothcostinefficient
andtimeconsuming.
Someexamplesof additional
reporting
requirements
include:
Sa/esto Australianresidents
Qantasis requiredto recorddetailsof thetax residentstatusof customers
obtaining
servicessuchas air,freightand holidays
fromthe relevantCFC.
Qantas Airways Limited
5
Twotax depreciationschedules
Dueto differing
tax depreciation
ratesthe needexiststo separately
maintainrecordsthat
providetax depreciation
purposeg.
for bothforeignandAustralian
SpecrTrc
Australiantax rules
such
Additional
differences
existbetweenthetax lawsof theforeigncountryandAustralia
for instance
thatthe compliance
burdenenduredby the CFCis undulyexacerbated,
managing
andcapitalisation.
differingrulesdealingwithentertainment,
foreignexchange
ln certainjurisdictions,
outweighs
thatthe costof compliance
at present,Qantasestimates
the incometax payableto theAustralian
Revenueas a resultof attribution.
6. Proposed solution
of a
the introduction
As statedabove,Qantasbelievesthatthe Boardshouldrecommend
purposetest. This wouldensurethat prescriptive
bandaidmeasuresare not made to
to address
foundin the currentregimesas identified
addressvariousproblemspresently
testwouldensure
specifictaxpayers.Rather,the introduction
of a purposeor motivation
the regimescontinueto operateas intended. That is, the assuranceof the integrity
- the prevention
predominantly
measures
wouldnot be undermined
of actionsundertaken
to gainthe advantage
of tax deferral.
test
as to how such a subjective
This approachwouldneedto provideclearguidelines
would be applied. For example,the test could objectivelyhave regardto whether
tax benefitsare availableas a resultof the tax treatment(ie rateof tax) in the
significant
corporatestrategy,industrytrendsand market
CFC countryof residence.Furthermore,
profiles(bothpresentand potential)
in setting
couldalsoattestthe purposeand motivation
jurisdiction.
up a CFCin a particular
7. Alternative solutions
thenwe highlightthe following
Alternatively,
shoulda purposetest not be recommended
specificrecommendations
that wouldhelp addressQantas'currentcomplianceburden.
to
complexity
mightadd additional
However,we do highlightthat suchrecommendations
the currentregimeand,as such,may serveto only highlightthe absurdityof the current
definitions
and exemptions.
Thealternatives
could,inter-alia,
include:
Alternative1 - Removetainted rental incomeconcept
arisesin the contextof undertaking
As highlighted
above,taintedrentalincomeinvariably
commercial
activities
thatdo nothavea purposeof tax deferral.As such,we recommend
the removalof thetaintedrentalincomeconceptfromthe CFCrules.
Alternative2 * Removebasecompanyincomeconcept
in the contextof a CFC,as eludedto in
Justas activeincomeis excludedfromattribution,
paragraph2.27 on page 14 of the DiscussionPaper,as such activityis justifiedfor
'tainted
legitimatecommercialreasons,so too should base companyincomethat is
servicesincome'.
QantasAirwaysLimited
6
Page 42 of the DiscussionPaperhighlightsthe appropriateness
of removingthe base
company income conceptfrom the CFC rules. Qantas supportsthis view and
acknowledges
that this would significantly
reduce Qantas'currentCFC compliance
obligation.
The arguments
for the removalof the basecompanyincomerulesinclude,inter-alia,
the
notionthatthe presenttransferpricingregimeandfrankingaccountruleswoulddeterprofit
shiftingoutsideof Australia.As such,whereprofitsare stillbeingderivedoffshoregenuine
commercial
reasonsexist.
Alternative3 - Singleregime
We acknowledge
that in combiningthe variousCFC, FlF, TransferorTrust & Deemed
PresentEntitlement
rules undera singleregime,it may not be appropriate
to include
specificinclusions
suchas the basecompanyincomeconcept.An alternative
mightbe,as
eludedto in the Discussion
Paper,to adopta broadermodelwithmoreexemptions,
much
likethe FIF rules. The FIF rulesrequirelesscompliance
and acknowledge
difficulties
in
informationgathering where foreign entities are not controlled. Although the
consequences
for failingthe activeincometest,underthe FIFrules,resultin all incomeof
the FIF beingattributed,
the activeincometest is lessdraconianby not insertingspecific
basecompanyincomeconcepts
andalsoproviding
additional
exemptions.
Thoughtcouldbe givento allowingtaxpayersto electone regimeover the other,rather
thanenforcing
taxpayers
to followa setof, practically,
incongruent
rules"
Alternative4 - Ghangethe definitionof taintedservicesto be like taintedsales
Taintedservicesshould be changedfrom includingand attributingany incomefrom
Australianresidentsto attributingany incomefrom Australianresidentsthat are also
relatedparties.
By alteringthe definition
of taintedservicesto satisfybothconditions
it couldstillassistto
discourage
tax - deferralschemes,presumably,
designedby Treasuryto be targeted"For
example,if Treasurywas concernedaboutarrangements
involvingAustralianresident
taxpayerssettingup controlled,
and as such, relatedpartyforeignsharedservicesor
foreigntelephone
supportoperations
in lowtaxedjurisdictions.
As mentionedabove,such practicesare discouraged
by the currentfrankingcreditand
transferpricingrulesand have,to someextent,reducedthe needfor attribution
rulesin
thiscontextin anyevent.
Changingthe definitionof taintedservicesin this mannerwould result in a secflon
448(1)(a)re-writeas follows:
"income (other than premium income) from the provision of services by the
companyto an entity,if:
(i) the entity was a Part X Australianresidentat the time the income was derived;
and
(ii) the serviceswere not providedin connectionwith a businesscarriedon by the
entityat that time at or througha permanentestablishment
of the entity in a listed
or unlistedcountry;ang!
(iii) the entitywas a residentassoclafeat the time the incomewasderived""
QantasAirwaysLimited
7
We highlight
thatthe definition
wouldthenbe consistent
withthe definition
of 'taintedsales
income'in secfion447 of the Act.
Alternative5 - change the definition of tainted services to be only where a tax
deductionarises
wherethe incomederivedby the foreign
Changescouldbe madeto includeonlysituations
onlywhere
in Australiaand,moreappropriately,
CFCgivesriseto incometax deductions
such a deductionarisesto the foreigncontrolleror associate.Where,the test requires
resident,thenthis
knowledge
aroseto the Australian
of whetheran incometax deduction
residentscould
Australian
wouldonlyadd a furtherlayerof compliance.Someunrelated
be utilisingthe CFCservicesin a businesscontextwhichwouldthen requirean analysis
of, not only who was travellingbut also, in what capacitythey were travelling. To
type
implementsucha systemwould,shortof requiringairlinesto establishimmigration
wouldonlywork
be practically
impossible.As such,thisalternative
systemson departure,
when, moreappropriately,
combinedwith alternative3 and resultin a re-writeof Secflon
aa8ft)(a):
"income (other than premium income) from the provision of services by the
companyto an entity,if:
(i) the companycauseda deductionto be made availableto a Part X Australian
residententity;enSl
(ii) the entitywas a residentassocrafeat the time the incomewas derived."
Alternative6 - changethe definitionof secfion 388
Alternatively,
in orderfor the CFC base incometax rules not to operateas described
above,changescouldbe madeto secfion388of the Act. Section388of theAcf states:
" ln calculatingthe attributableincome of the eligibleCFC, the lnternationalTax
AgreemenfsAcf 1953is to be disregarded,exceptfor the purposeof referencesin
thisAct to thatAct."
a specificShippingand
Australiahas in the majorityof DoubleTax Treatiesnegotiated
AirlineArticle,usuallyArticle8, whichoperatesto ensurethat profitsfromthe operationof
Statesshallbe taxableonly
shipsor aircraftderivedby a residentof one of the contracting
in that State. As such,Qantas,beinga residentof Australia,paystax in Australiaon
profitsderivedfrom the operationof aircraft. Shouldsecfion388of the Act be modified,
in the contextof applyingthe CFCrules,thenincome
suchthatArticle8 is notdisregarded
jurisdiction.
froma CFCthatsatisfies
Article8 wouldonlybe taxablein the CFCresident
have negotiatedTax
This alternative,
however,has limitations
as not all jurisdictions
TreatieswithAustraliaand not all CFCservicesfall withinthe ambitof Article8, suchas
providing
holidaypackages.
Alternative7 - includespecificexemptionsas describedin the Review
for thistypeof
or carveout couldbe legislated
As anotheralternative,
a specificexemption
basecompanyincomefrombeingtreatedas tainted,suchas:
QantasAirwaysLimited
8
TheAustralianPubliccompanyexemption
The AustralianPubliccompanyexemptionon Page 51 of the DiscussionPaperis an
approachthat may also be appropriate
giventhe demandsof shareholders
for regular
distributions
and the frankingcreditregime. That is, a desireto declareregularfranked
dividendsshouldreducethe likelihood
of widelyheldpubliccompanies
to investoffshore
to gaina taxdeferraladvantage.
Corporategovernancerules and reportingrequirements
for publiccompanies,coupled
togetherwith other such statutoryrequirements,
shouldbe enoughto ensurea more
transparent
operation
and intention
framework.
Alternative8 - includealternativeexemptions
Secfion448 (2) - (6) of the Act outlinesspecificexemptionsthat are not considered
'taintedservicesincome'. Additional,
morespecific,exemptions
or carveouts couldbe
legislated
for thistypeof basecompanyincomefrombeingtreatedas tainted,suchas:
Specificairline industryexemption
This wouldensurethat flights,freightand travelprovidedto Australianresidentsis not
tainted.This shouldbe ableto covera widerberthof industrysegmentsor alternatively
specificindustrysegmentswith materialinterestsinvolved,that havebeencaughtin the
regime even though CFCs set up by such industrysegmentsare for the mere
groMhor othersimilarcorporate
initiatives.
implementation
of strategic
De minimusexemption
in
Thismightincludea newde minimusexemption
suchthatno amountwill be included
taintedservicesincomeunlessit givesriseto an incometax deductionto an Australian
to
residentthat exceedsmorethan $100,000. Thus,improvingthe cost of compliance
onlytaintsignificant
transactions.
Alternative9 - combinationof variousalternatives
A combination
drawingout those
of the variousalternatives
abovecouldbe implemented
salientfeaturesthatare considered
appropriate.
8. Policy objectives
In termsof our suggested
to the taintedservicesrules,we referto the Board's
alternatives
the meritsof any
Paper,in assessing
own policyobjectives,
on Page20 of the Discussion
possiblechangesto the attribution
rules.
regimeonlyaddscomplexity
It is the firm beliefof Qantasthatthe currentanti-tax-deferral
unduetax
to foreigninvestment
decisions.Whilethey may be directedat discouraging
genuinecommercial
that
businessdecisions
deferralbenefitsabroadtheyalsodiscourage
perceived
particular
or
whether
advantage,
are madewithoutany incentive
to derivea
tax
real.
is havingto competewith airlinesthat
Qantasin the presentglobalaviationenvironment
do not pay tax at all,
are receivingheavygovernmental
subsidiesand in someinstances
suchas Etihadand Emirates.Further,Qantas,seesthe expansionintothe Asianregion
includingthe creationof a
as necessary
so as to ensurebettergrowthand sustainability
QantasAirwaysLimited
9
globalnetworkand broadercustomerproposition.The anti-taxdeferralregimeactsas a
hindrancein makingstrategicexpansiondecisionsand at a minimumimposesan extra
burden on both operationaland corporatefinance staff, thereby hamperingthe
achievement
of a competitive
advantage.
In orderto ensurelong-termoperational
efficiencyand effectiveness,
Qantassees the
need to diversifyand expand its currentbusinessportfolioboth within and outside
price. Not only does
Australia.That is, both efficiencyand qualityat a cost-effective
job/
Qantassee the needto buildan evergrowing employment
marketwithinAustraliato
serviceits existingnetwork,it is alsonecessary
for Qantasto expandoperations
through
strategicgroMh initiatives
likemergers,acquisitions
or jointventures.Suchexpansion
to
the Qantasnetworknecessitates
foreigninvestment
as CFCs,givenforeigngovernmental
policiesregarding
percentages
ownership
& bilateral
agreements.
Any decisionfor foreigninvestmentis made as a questionof long term cost benefit
analysisratherthantax deferral.The reporting
requirements
createdby
and compliance
the regimesare extremely
to suchdecisions.
cumbersome
andonlyaddcomplexity
It is worthemphasising
again,as notedby the Board,thatsincethe inception
of the CFC
rules,Australiahas grown largelyfrom an exporterof goodsto now also includethe
provisionof services,has a moreprevalentexemptionratherthan creditsystem,a more
focusedtransferpricingregimeand a frankingcreditsystemthatdrivesfrankeddistribution
decisions.
9. Conclusion
hopesthatour commentswill be
and ultimately
Qantasthanksthe Boardfor consultation
viewedfavourably.We also welcomethe opportunity
to be involvedin furtherindustry
consultation,
as suggested
in the Reviewprocessby the Board.
Qantas Airways Limited
l0