This final element of the IMR is a very welcome development and is expected to enable Australian managers/intermediaries to carry out a broad range of activities on behalf of foreign managed funds without exposing those foreign funds to adverse Australian tax consequences (e.g. Australian source or permanent establishment risks).
Concerns in relation to such Australian tax risks have been a significant impediment to date for foreign managed funds. By removing such uncertainties for foreign funds, the announced measures should help to promote the Australian investment management industry.
This is the third element of the IMR. The first two elements related to the “FIN 48 exemption” and the “interim IMR” (previously announced in December 2010 and January 2011, respectively). Further details in relation to those previously announced measures can be accessed here. The legislation in relation to these first two elements is currently being finalised and is expected to be introduced into Parliament in the first half of 2012.
Importantly, this third and final element of the IMR relates to the “full” IMR which was a key recommendation of the Johnson Report and is expected to significantly enhance Australia as a financial services centre, particularly in the Asia Pacific region.
The “full” IMR is expected to be the long term solution for the tax issues relating to foreign managed funds and should replace the announced FIN 48 measures going forward.
The key points in relation to the announced “full” IMR are as follows:
The IMR is expected to cover a broad range of portfolio interests or financial arrangements, and the Government will consider whether it is appropriate to adopt a prescribed list of eligible investments for IMR purposes.
This third element of the IMR has been the subject of a Board of Taxation review. The Board's report - Review of an Investment Manager Regime as it relates to Foreign Managed Funds - can be found on the Board's website here.
The Government's response to the Board's recommendations can be found in the attachment to the accompanying Press Release here. Some of the key recommendations which are supported by the Government include the following:
The Government has announced that it will consult extensively with industry and tax professionals on the development of the legislation to implement the final element of the IMR.
The full Press Release outlining the final element of the IMR can be accessed here.
Who does this affect?
Foreign funds that invest in Australia and particularly those which are considering appointing local managers or intermediaries, as well as Australian based investment managers seeking investment mandates from foreign funds.
What do you need to do?
Consider the proposed exemption and whether it can assist in the management of the investments made by a particular foreign fund.