Tax Consolidation Regimes: Australia and Japan Compared

Abstract

The Australian and Japanese Governments have both introduced a tax consolidation regime effective fiscal year 2002103. The two regimes have many similarities. In particular, they both mandate 100 per cent ownership as the threshold for consolidation, consolidation is voluntary but if elected all eligible companies must consolidate, and intra-group transactions are largely ignored. The regimes have been held out as reducing both tax liabilities and compliance costs, removing double taxation, enhancing corporate restructuring, and providing greater commercial flexibility and competitiveness. However, the Australian corporate sector remains cautious, primarily because of concerns over the compliance costs associated with the transition to the new regime and the potential loss of existing tax credits and losses. Whilst these transitional issues are less of a concern to Japanese companies, in the absence of existing rules permitting the transfer of tax attributes, a Japanese surtax of 2 per cent over the first two years of consolidation has to be weighed against the apparent benefits of the regime. A comparison of the two regimes also reveals a very different approach to the treatment on consolidation of inherent gains and losses.