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Changes expected to Offshore Banking Unit

Changes expected to Offshore Banking Unit

John Fulton and Natalie Raju discuss implications for change which may be forthcoming to the Offshore Banking Unit.

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Natalie Raju

Partner, Superannuation and Funds

KPMG Australia

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Major changes to Australia’s Offshore Banking Unit (OBU) regime are expected to be announced by Treasury shortly, and we understand that the regime may even be repealed.

Currently, the OBU regime provides a concessional tax rate of 10 percent and an interest withholding tax (WHT) exemption for 'offshore banking' activities, which generally involve offshore persons, eg non-residents, foreign branches or other OBUs.

In October 2018, the Organisation for Economic Cooperation and Development’s (OECD) Forum on Harmful Tax Practices (FHTP) raised concerns regarding the OBU regime’s concessional tax rate and its “ring-fenced” nature (i.e. essentially, its limited access to domestic markets). We understand that Treasury has been in ongoing dialogue with the FHTP and a recommendation is with the Treasurer for approval. The likely outcome at this stage is that the OBU regime will be repealed, potentially as early as the end of 2020 (after consultation). In the meantime, we understand that the Australian Taxation Office (ATO) has been reluctant to process new OBU registrations.

We understand that Treasury at one point contemplated addressing the FHTP’s concerns by increasing the OBU tax rate, but no rate materially below 30 percent was acceptable. Politically, opening the OBU concession to domestic business would not seem to be an option.

To read more of this article, including what the implications may be for change to the regime, please log on to KPMG Tax Now.

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