Outward Investment : The Branch v Subsidiary Decision

Abstract

Over the past five years the Australian international investor has seen a simple foreign investment income exemption system replaced by a foreign tax credit system which has in turn been replaced by the foreign tax accruals system. The current foreign source income regime allows an exemption for certain types of foreign income and subjects other income to a modified foreign tax credit system. The international investor must now distinguish between listed (tax comparable) countries and low tax jurisdictions as well as whether passive or active business income is to be dervied to appreciate fully the Australian taxation implications. In addition to an analysis of the investee's counrty's taxation system, the corporate investor further neeeds to consider whether investment should be made via way of branch of subsidiary.